What a roller coaster ride we experienced last week and although it may not feel like it the Dow had its best week since 2003! Common consensus is that the world is now in a recession that could drag economic activity down until 2010. But all commodity prices are down, including oil, which means inflationary pressures have been relieved, making it easier for the Fed to lower or at the very least keep interest rates at their current low levels. Consumers who have jobs (the unemployment rate at 6.1% is still at historical lows), will have more to spend on discretionary items rather than gasoline. The dollar is regaining its strength which is not good for US exporters, but helps local US businesses as imports become more expensive, and we sure do import a lot more than we export. Even the low levels of home building and construction has a silver lining as it gives the market an opportunity to digest existing inventories allowing a bottom in house prices to solidify. All in all the facts are not all bad if the fear would just subside with banks starting to lend to each other (a clear sign would be if the 3-month LIBOR rate would drop to below 3% again), consumers start spending and investors start investing.

Panic is a wild, irresistible fear that spreads through crowds like an epidemic -- and it may be upon us now, with day after day of multi-hundred-point swings in the Dow. The word itself seems almost primeval; it derives from Pan, the goat-headed god of shepherds and flocks in Greek mythology, who was believed to startle people with outbursts of mysterious music in frightening places such as steep mountainsides or dark caves. Fear is a defense mechanism. It bursts forth in our brains the instant we sense that we, or others near us, are threatened. When fear leaps from one person to another, it turns into panic. You can catch other people's emotions as easily as you can catch a cold. In an experiment by neuroscientist Elizabeth Phelps at New York University, people either watched someone else get a mildly painful electric shock or suffered the shock themselves. Their brain responses and their dread before the shock were highly similar in both cases, suggesting that seeing another person's fear is all it takes to make us afraid. Even encountering the circumstances under which the other person was shocked is enough to trigger your own fear. Viewed this way, today's financial markets -- in which tens of millions of investors watch each other's fears unfolding in real time on television and online -- constitute one giant panic-transmission machine. Fear also changes the way you think, reducing your ability to solve problems creatively, making you reluctant to consider a wider set of choices and causing you to distrust others. That means you are now unusually prone to acting on a gut feeling, instead of thinking. You cannot brush panic away with willpower alone, but you can quarantine yourself from contagious settings: Break the circle. Instead of socializing with other investors nursing their losses, hang out with folks who do not obsess over the market. You are less likely to be spooked by dilated pupils, grim faces and quavering voices. Turn off the tube. The sight and sound of screaming traders with fear in their eyes are enough to fill you with fright, whether you are conscious of it or not. If hitting the mute button won't suffice to calm you down, turn off the TV. Think positive. When Warren Buffett feels his blood pressure rising or his nerves on edge, he calms himself down by gazing at snapshots of his family or playing a game of bridge with his friends. Stick to it. Set yourself the simple, stark goal of investing more money in something you don't want to own. You may need help fighting your fears, so visit www.stickk.com and make a public commitment to your future action. Buying a stock fund next week is mentally easier than buying it today -- especially if you recruit some friends to cheer you on.

For the entire article from THE WALL STREET JOURNAL click here:

THE global banking system has leapt from the fire into the frying-pan. After yet another burst of dramatic interventions, governments are now furiously tackling the twin problems afflicting banks—solvency and liquidity. Their actions briefly pepped up stockmarkets, and, more importantly, stabilised credit markets. But on October 15th and 16th stockmarkets tumbled headlong once again amid concerns that the banks had been rescued too late to stop a slump in the world economy. The money markets took a measured view of all this action, but there were signs of improvement. The London Interbank Offered Rate (LIBOR) for three-month dollar loans fell for the third consecutive day on October 15th. Borrowing costs remain very high by historic standards, but the risk that banks will be unable to roll over their short-term funding has receded now that governments are, in effect, acting as counterparties. Credit-default swap (CDS) spreads on banks, a measure of their risk of bankruptcy, have tumbled. Saving the banks from collapse is not the same as stopping a credit crunch, however. There is much to resolve before credit is flowing normally through the system. First, funding costs are likely to remain high. Investors’ nerves are shot. The “Ted spread”, the gap between three-month dollar LIBOR and the Treasury-bill rate, and a good indicator of risk aversion, stood at 4.2% on October 15th; it hovered at just 20 basis points (a fifth of a percentage point) in early 2007. Concern about banks’ creditworthiness may yet morph into worry about sovereign risk as the full cost of the various bail-outs becomes clearer, especially if governments decide they also need to boost their economies with a fiscal stimulus. The approach of the calendar year-end, when banks need extra cash to help balance their books, will add to funding strains over the coming weeks.

For the entire article from THE ECONOMIST click here:

Government data released Friday showed that construction of new homes declined more than expected in September as builders cut production to the slowest pace since early 1991. The Commerce Department reported that construction of new homes and apartments dropped 6.3 percent last month, a much bigger decline than the 1.6 percent decrease that had been expected. The drop pushed total production to a seasonally adjusted annual rate of 817,000 units. That is the slowest pace since January 1991, when the country was in a recession and going through a similar painful housing correction. Applications for building permits, considered a good sign for future activity, also fell sharply in September, dropping 8.3 percent to an annual rate of 786,000 units, the weakest level since November 1981.

For the entire article from THE NEW YORK TIMES click here:

U.S. stocks ended a roller-coaster week with the Dow Jones Industrial Average climbing 4.8 percent after the government's plans to buy stakes in banks spurred the biggest one-day rally since the Great Depression. The weekly gains, the best for the Dow since 2003, came despite the steepest one-day drop since the October 1987 crash. The 30-stock average surged more than 900 points on Oct. 13 and tumbled more than 700 points two days later on worsening retail sales data. The VIX, the benchmark index for U.S. stock options, closed yesterday at a record 70.33. The Standard & Poor's 500 Index lost 0.6 percent yesterday, dragged down by a record drop in consumer confidence and a 26- year low in housing starts, after swinging between gains and losses at least 28 times. The S&P 500, which moved more than 1 percent in 10 of the 13 trading sessions in October, is on track for its most volatile month since 1929, according to S&P analyst Howard Silverblatt. The VIX, as the Chicago Board Options Exchange Volatility Index is known, has tripled since the beginning of September.

For the entire article from BLOOMBERG NEWS click here:

Commodities prices fell during a volatile week, with the Reuters-Jefferies CRB index, a global benchmark for raw materials prices, dropping 3.6 per cent amid concerns that the global economy was heading into recession. The abrupt falls in commodities – the RJ-CRB index hit its lowest level in four years – engulfed gold, which ended on Friday at a one-month low of $775 a troy ounce, down 8.5 per cent on the week. Its retreat came as the US dollar strengthened and investors sold gold futures as they liquidated commodities indices and baskets. Crude oil prices fell below $70 a barrel for the first time in more than a year, prompting Opec, the oil exporting countries’ cartel, to bring forward to next Friday an emergency meeting to discuss a production cut.

For the entire article from THE FINANCIAL TIMES click here:

Amid a global scramble for U.S. dollars, South Korean banks and government officials are making a patriotic appeal to citizens: Search your homes for leftover bucks and deposit them in banks where they can be loaned to small companies. Banks also want to attract euros. They are offering interest rates well above those for the South Korean won on time-restricted savings accounts and three-month and six-month certificates of deposit in both currencies. The goal is to rake in currency that can be used for loans to businesses that deal with suppliers and customers in other currencies. Those loans are needed particularly by South Korea's small and midsize manufacturers, which are vulnerable to the tightening of credit because they don't bank overseas or raise funds in equity markets, as the country's big companies do. Like other banks around the world, South Korean institutions are having more and more trouble obtaining currencies, especially dollars, from the global marketplace. South Korea's government this month has provided $8.5 billion to banks to help small and midsize businesses with dollar liquidity.

For the entire article from THE WALL STREET JOURNAL click here:

"A simple rule dictates my buying: Be fearful when others are greedy and be greedy when others are fearful," Warren Buffett, 78, said in an opinion piece published Friday in The New York Times. "Most certainly, fear is now widespread."

 

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