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Tuesday, November 11, 2008

BetOnMarkets Afternoon Report

Yesterday it took stock markets just half a day to figure out that the
Chinese economic stimulus package isn't anywhere near as good as first
hoped. Once traders got down to the small print of the planned economic
injection, there was the general feeling that much of the announcement
was simply a repackaging of existing commitments. This quickly deflated
the mornings euphoria and the selling has rolled over to today's session
with a wave of dire headlines on the economic front. Energy stocks have
been particularly hit hard today as yesterday's rally in crude prices
reversed hard alongside general sentiment about the Chinese stimulus
package. With crude trading at just under $60 a barrel, oil has now
reversed 60% since its peak in June 2008. Oil producing countries such
as Russia have been hit harder than most with the ruble slumping 1%
against other currencies and the stock market plunge in the stock market.

Financials across the world are under pressure once more. In the US, the
insurance giant AIG had its earnings estimates cut as did Wells Fargo.
Much worse are the rumours that Fannie may have to tap into US
government cash to avoid liquidation. Financials in the UK are fairing
little better with HSBC down hard after yesterdays poor results and
speculation that it too may need to follow Santander's lead in raising
money through a rights issue. Until very recently HSBC and Santander
were seen as being at arms length to the current crisis due to their
relatively low exposure to the US housing market. However, with news of
the UK property crash worsening and Asian markets faltering, HSBC is
coming under increasing pressure.

To top it all, the real economy is showing further cracks with economic
bellwether, Starbucks posting poor earnings figures. When things are
tight, it seems that expensive coffee is a luxury consumers can do without.

Although the dire news flow is starting to get priced in to current
index levels, there is the feeling that investors, like home buyers are
taking a 'wait and see approach'. Just as in the housing market, there
may be some bargains around, but no-one is willing to stick their neck
out in case there are even better bargains tomorrow. That is classic
bear market behaviour, which will only right itself once a rally holds
and momentum investors step in on the belief that someone else will buy
at a higher price than they have. This is otherwise known as the greater
fool principle and right now it appears, no-one is willing to take the
risk that the joke is on them.