Released on: September 24, 2008, 1:46 am

Press Release Author: Mike Wright

Industry: Financial

Press Release Summary: Traders, investors, and financial journalists must have been
glad to reach the end of a week that will surely go down in the history of financial
markets.

Press Release Body: Traders, investors, and financial journalists must have been
glad to reach the end of a week that will surely go down in the history of financial
markets. The FTSE closed the week just 66 points down which the S&P 500 actually
managed a small profit. Homeowner, the closing figures do not even begin to tell the
whole story with the FTSE trading in a 521 point range and posting its best one day
rally in history on Friday.

The turmoil began last week with the bail out of Fannie Mae and Freddie Mac. This
raised hopes of a similar bail out of the Lehman Brothers. To say that investor’s
were shocked when Lehman’s was not only denied a bailout, but filed for insolvency
would be an understatement. Lehman’s collapse sent shockwaves throughout equity
markets sparking a domino effect that knocked over Merrill Lynch, AIG and HBOS.

Even the most seasoned investors had a hard time steadying themselves last week as
the newswires continue pump out dark news, and once in a generation headlines. Fear
was understandably widespread with the Russian stock market suspended indefinitely
after dropping 10% in an hour, and a large money market fund 'breaking the buck',
meaning they lost their unit holders money. When the supposed safe havens of money
market funds start to break down, investors see little choice but to fly to quality.
There is a flood of assets transferring to safety of short term US Government
Treasuries, forcing the yield on three month Treasury Bonds down to their lowest
level since the great depression. Gold endured a remarkable week trading in a $140
range before closing the week up around $90.

On the economic data front, US CPI was in line with expectations, and oil prices
have continued to stay below $100. Both of these factors indicate that the inflation
monster may be coming back under control. However, the FOMC voted to keep rates on
hold last week, initially markets had a mixed reaction. Many believe the Fed has now
left itself some ammunition to deal with a weakening economy further down the line.
It also sent out the signal that it would not be influenced by market makers into
cutting rates as they did back in July.

It was the two emergency announcements on Wednesday and Thursday that had the
greatest impact last week. After central banks dropped a coordinated liquidity bomb
overnight on Wednesday, global equity and credit markets initially seemed to show a
very cautious reaction. The greatest reaction seemed to come from the Fed’s plan to
create a giant ‘bad bank’ that would absorb many of the toxic subprime assets held
by banks. This measure accompanied with a crack down on short sellers, seemed to
have hit the nail on the head for the financial institutions, with the root cause of
the credit crunch (sub prime assets) being attacked.

Next week’s headlines will be dominated by Ben Bernanke's testimony before congress
starting on Wednesday. We also have US existing home sales on Wednesday and new home
sales on Thursday. However, the planned economic announcements could be secondary to
any surprise headlines or further emergency measures. When stock markets move
percentage points in the matter of minutes, anything can happen.

Although equity markets bounced last week, the panic at one stage reached such an
extreme that the yield on 3 month US Treasuries reached 0.02% on Thursday, returning
just $2 on a $10,000 investment. Investors weren't just running to safety, they were
blindly staggering to anywhere with no exposure to the credit markets. When
investors press the panic button as they undoubtedly have done, there is potential
for a counter rally to set in the short term as we saw on Friday. However, looking
at large crashes from 1987, 1997, 1998, 2000 and 2001, the follow on reaction is
typically a range bound market. A barrier range trade returns a profit if neither of
two predetermined levels are hit within a specified time. A barrier range trade at
BetOnMarkets predicting the Dow Jones not to touch 12200 or 10500 over the next 16
days could return 39%.

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