Relief at Last

October 14th, 2008  by Cale McCulloch

Closing Data

	current	change	%
Dow Jones	9387.61	936.42	11.1%
NASDAQ	1844.25	194.74	11.8%
S P 500	1003.35	104.13	11.6%
FTSE 100	4256.9	324.8	8.3%
Nikkei 225	8276.43	-881.06	-9.6%
SPI Futures	4500	306	7.3%
All Ords	4,142.00	202.4	5.1%
Oil	77.44	-9.06	-10.5%
Gold	842.5	-16.5	-1.9%
Silver	10.79	0.19	1.8%
Copper	231.25	16.8	7.8%
Aluminum	2194	32	1.5%
Lead	5031	31	0.6%
Nickel	1518	34	2.3%
Tin	12400	450	3.8%
Zinc	14300	500	3.6%
	1442	106	7.9%

Relief at Last

It has been a long awaited relief rally.What started in Asia yesterday with a 220 point climb in Australia, continued through the evening in Europe and during the night in the US. The Dow posted its biggest percentage gain in almost 70 years, climbing over 900 points and giving the Asian markets a strong lead for this morning, with the Australian market looking set to climb about 300 points on the open.
 
Financials soared.  In the US, Morgan Stanley rose 89%, after Japan's biggest bank agreed to take a 9 billion stake in the company. The European Central Banks have committed 1.3 trillion Pounds to securing banks which last night included the virtual nationalisation of RBS and HBOS. Adding to this the US Fed has allowed the European Central Bank, Bank of England, and Swiss National Bank to lend unlimited dollars against collateral, a process that was previously capped at USD 380 billion in an effort to make capital available to a broadened spectrum of borrowers and unfreeze the credit markets.
 
The actions over the last three days seemed to be the trigger in the minds of global investors, bringing some positive sentiment back into the market at last. US investors took heart in the fact that the US Fed would be looking at Direct Equity injections into "Healthy Banks", finally accepting that the Government was committed to doing whatever it takes to stem the losses from the global financial crisis, and provide a back stop to the situation. Will it work? Time will tell.
 
An important distinction to be made is that only banks that are in reasonable shape will receive the assistance of the Fed in the form of direct equity, as for the rest, well we all know where they are going (bankrupt). This highlights the fact that although we are receiving a huge shot in the arm and nice breather from the mess that was last week, the bumpy ride is far from over. We will continue to see bad news flowing from institutions around the globe as they come clean on damage that has been done, and deal with the global slowdown, that may not be as bad as it could have without such decisive intervention from the leaders of the world.
 
As for the stocks in your portfolio, BHP and RIO should continue to climb on the back of a strong performance over night, while the Australian banking sector will also benefit from the events overnight, not to mention those companies with exposure to the US like Westfield, Brambles, and NAB to name a few. Take advantage of the strength to sell some call options and generate income, this will give you a buffer for the turbulence to follow. If you have been holding onto dogs or short dated warrants waiting for a bounce, this is it! Although there may be further to run on the relief rally, use the strength to your advantage and get back to the basics of your investment strategy!

Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.

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