Good afternoon,
There must be something in the stars for October. A thorough search of my archives shows very little fun activity in October of any year - Capone went to prison, The Cuban Missile Crisis started, and The Hollywood Ten were investigated. This year, it’s certainly living up to its rocky history for the stock market. The only lighthearted bit of good was the founding of Disney Company yesterday in 1923. I guess Walt saw what was coming and wanted to give America an escape and in the nick of time created Mickey Mouse in 1928. Markets are being recreated before our eyes.
A few highlights as we continue to work our way through this drawn out process of correction. The time when people just give up and are exhausted seems to be leaving us behind. Caution is the word to the wise. The dust hasn’t settled yet and there are no clear sector indicators. I believe the time ahead of us will mimic the 1968-1982 period. If you’re a good stock picker these will be your times! Look for companies that can grow despite a slow economy. There are some good values even in today’s market in the technology, energy and healthcare sectors. Think outside the box.
We did get off a bit lucky today since about 25% of the 337 million existing options expired today. Next week keep your eyes open – the Lehman Credit Default Swaps may settle – this could be a big event.
This week’s wild swings can be a little hard on the blood pressure. As the credit markets strive to clear their current logjam, so the market will follow like a sideshow. The TED spread needs to ease some more before we’re out of the woods. To some degree the market is beginning to behave the way we would like it to. A “capitulation” is still a possibility but much less of a probability in light of yesterday’s sustained rally. Mainly, I don’t think Americans woke up Wednesday and said “Wow, we’re in a recession,” and drove the market down. Some of the swings may be noise not real activity. I believe the Elliot Wave Theory can be a good indicator in times like these. Stay calm and reasonable.
Sources: Bedlam Asset Management, Merrill Lynch Research – proprietary PIA Research. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of October 17, 2008, and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Merrill Lynch to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.
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