This is Silly!

November 20th, 2008  by Lou Muddaris

Closing Data

	current	change	%
Dow Jones	7997.28	-427.47	-5.1%
NASDAQ	1386.42	-96.85	-6.5%
S P 500	806.58	-52.54	-6.1%
FTSE 100	4005.68	-202.87	-4.8%
Nikkei 225	8273.22	-55.19	-0.7%
SPI Futures	3381	-163	-4.6%
All Ords	3,483.00	-29.9	-0.9%
Oil	53.64	-0.78	-1.4%
Gold	736	3.3	0.5%
Silver	9.31	-0.24	-2.5%
Aluminium	1835.5	15	0.8%
Copper	3511	-69.5	-1.9%
Lead	1245	-13	-1.0%
Nickel	10350	-100	-1.0%
Tin	12900	-1000	-7.2%
Zinc	1148.5	28	2.5%

All market commentaries and commentators are becoming more depressing by the day. I refuse to take the easy masochistic option as people love feeling sorry for themselves. They seem to enjoy telling each other how bad it's going to get. Its classic human psychology; ‘nurse, curse, rehearse' which can only lead to negativity. For the economists it's called the “Paradox of Thrift”; people panic, stop spending, demand falls and that causes their own job losses! No, I realise denial isn't just a river in Egypt so here are the real facts.

For the sake of a factual report here is a recap of last night.

1. The Fed' minutes for October said the economy will contract by 0.2%. They will slash rates to zero if needed from the present 1%;
2. CPI fell 1% making it the biggest drop since February 1947! Housing starts fell 4.5%;
3. The CEO of General Motors is demanding $25 billion from the Government otherwise they will go under by Christmas which would be a “catastrophe for the U.S.” and would lead to 1 in 10 losing their jobs;
4. The Dow Jones closed under the old low of 8,000.
5. RBA governor Glen Stevens warned that the government may need to take the budget into deficit believing we have to spend our way out of this.  He also said, “...given the underlying strengths of the economy, about the biggest mistake we could make would be to talk ourselves into unnecessary economic weakness. Yes, the situation is serious. But, as I suspect CEDA [Committee of Economic Development of Australia] members know well, the long-run prospects for the Australian economy have not deteriorated to the extent that might be suggested by the extent of some of the gloomy talk that is around.”

The Bull's Side

1. For the first time since 1958 the S&P 500 Index dividend yield is now higher than the U.S. 10 year bond at 3.56%. Such relative valuations show shares are cheap!
2. Yesterday the All Ords hit 3403.5 at noon, exactly 50% lower than its intraday peak of 6,873.2 on 1 November 2007 and thereafter rallied. Sure we will smash through that today but I KNOW many technical traders would say that was the buy signal. The likes of Fibonacci, Elliot Wave and Gann followers will step up to the plate. I firmly believe this is a major factor.
3. We are simply too cheap on valuations – I could write pages as to why. Just be selective in your investments.  As the RBA Governor said Australia is in a much better position than the U.S. or Europe yet our market has fallen more.  Therefore, at some stage, we will decouple from the U.S. market as investors come to the realisation that Australian stocks are very cheap.

Over the past 4 months we have consistently, almost boringly been advising clients to sell short dated warrants that expire in November/December. That has worked, so accordingly if you hold warrants that expire in the next 4 months then cut them out otherwise they could become worthless.  

Stay calm, don't liquidate and talk to your Adviser on a regular basis.

Quote of the day: “Success is not forever and failure is not fatal”- Don Shula.

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

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