InvestWELL Financial Inc. - Markets This Week

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September 6, 2008 Dear Reader, In August, the market suffered heavy losses. There is never a dull moment in capital markets. Recently, we have moved from sup-prime problems, to the bursting of the oil bubble and, finally, the US government taking over mortgage giants Freddie Mac and Fannie Mae. Our next InvestWELL Report will be released on October 4th, 2008. (following the Labor Report which is generally recognized as a "market mover"). Derek Polcyn, President In This Issue: Investment Idea Quiz Our Results Market Highlights Behavioral Finance Indicators Answer to the Quiz

Investment Idea Question: What is a financial bailout? Answer: A condition where a failing business is offered funds to prevent the consequences arising from its downfall. Bailouts can take the form of loans, bonds, stocks or cash.


Quiz What is the main reason for the US government bailout of the two mortgage giants? A) To prevent panic and restore confidence in the markets B) To protect American taxpayers C) To allow foreign competition D) To show that the government is capable of managing large financial institutions. Answer to the Quiz at the bottom of the newsletter


Our Results (Cumulative %) Investment Strategy InvestWELL Picks has managed to keep its gains vis-à-vis the general market (as defined by S&P 500 index.) which continues the slide into negative territory. Chart 1.


Market Highlights During the last month, the US equity managed to stay at the same level initially, but then declined drastically during the recent week (Chart 2 & 3). Investors should keep in mind that historically September has produced a number of negative surprises. Charts 2 & 3. S&P 500: 3 Years and Last Month Charts courtesy of StockCharts.com During the last month, the Canadian market suffered heavy losses as a result of overexposure to the energy sector (Charts 4 & 5). Please keep in mind that TSX is a capitalization-based index which gives greater weight to sectors that have performed well in the recent past. Charts 4 & 5. TSX Canada: 3 Years and Last Month Charts courtesy of StockCharts.com Last month, the US economy lost 84K jobs while the unemployment rate moved up to 6.1%. The picture is bleak but still not recessionary. In Canada, 15K new jobs were created in August. The unemployment rate stays at 6.1%, which exactly matches the US unemployment rate. This is an unusual situation, as Canada has a higher natural unemployment rate than the US. In the US, sales of new single-family homes are 33% lower than a year ago. It is interesting to note that new home prices have fallen below those of existing homes in many areas this year. Historically, new homes cost about 5% more than pre-owned homes, but aggressive discounting and incentives by builders during the housing downturn has closed that gap in many markets. In an unconventional move, the U.S. government has seized control of mortgage finance companies Fannie Mae and Freddie Mac to help the distressed U.S. housing market and economy. The decision to take control of the companies (which have $1.6-trillion in outstanding debt) and place them into a conservatorship under their regulator could amount to the largest financial bailout in U.S. history. At the time of the announcement, the financial markets were closed but the stock market futures have jumped into positive territory. Google recently celebrated its 10th birthday. The company has redefined the computer world. At present, it is hard to imagine the existence of the world wide web without Google. Investors welcomed news this week that U.S. economic growth in the second quarter was much stronger than previously believed. The U.S. economy grew at a 3.3% real annual pace in the April-through-June quarter, the fastest since the third quarter of last year.


Behavioral Finance Indicators (see explanation) Charts 6 - 8: Advancing/Declining Line, VIX and Equity Put/Call Ratio Charts courtesy of StockCharts.com and DecisionPoint.com

Answer to the Quiz A is correct. The US government needs to ensure that the markets are functioning efficiently.

Thank you for reading InvestWELL Report. Invest WELL Financial.com


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