InvestWELL Financial Inc. - Markets This Week

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October 4, 2008 Dear Reader, In September, the market experienced the most unheard of volatility since the Great Depression era. The Dow Jones daily volatility was as high as 800 down and 400 up. At present, it is hard to tell if the recently approved $700B bailout will help to stabilize the market. Our next InvestWELL Report will be released on November 8, 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 Enhanced Indexing? Answer: An investment strategy that attempts to augment the returns of an underlying portfolio or a fund. This type of investing is considered a hybrid between active and passive management aimed at outperforming a specific benchmark.


Quiz What is the main reason for using enhanced indexing? A) To increase exposure to foreign markets B) To increase volatility of a portfolio C) To reduce risks of passive trading D) To outperform an investment benchmark/index Answer to the Quiz at the bottom of the newsletter


Our Results (Cumulative %) Investment Strategy InvestWELL Picks has declined recently but still managed to maintain its outperformance over the general market (as defined by S&P 500 index.) Chart 1.


Market Highlights During the last month, the US equity market suffered heavy losses while the volatility increased sharply (Chart 2 & 3). Many technical indicators are showing that the market is very oversold. Charts 2 & 3. S&P 500: 3 Years and Last Month Charts courtesy of StockCharts.com During the last month, the Canadian market declined steeply as markets around the world went only one direction – down (Charts 4 & 5). Charts 4 & 5. TSX Canada: 3 Years and Last Month Charts courtesy of StockCharts.com Last month, the US economy lost 159K jobs while the unemployment rate stayed at 6.1%. The US economy has been losing jobs every month in 2008. In Canada, the employment numbers will be released next week (in many instances, Canadian data is released later than the US data, however it also has a tendency to be more accurate and revised less often). We expect that the Canadian employment picture to be largely unchanged. The U.S. House of Representatives voted to approve a revised $700 billion bailout plan for the financial markets, just four days after rejecting the original version. The historic package gives the Treasury secretary extraordinary power to buy bad assets from financial companies, boosts federal bank insurance and requires the government to modify some mortgages. Mutual fund investors, facing large losses due to the market downturn, may also be hit this year with a high tax bill as redemptions create capital gains for their funds. As spooked investors pull their cash from stock funds, managers are forced to sell assets to pay them out. Often, the quickest way to raise cash is by selling high-valued stock, which creates capital gains liabilities for the fund that investors must pay taxes on at year-end. Marketwatch.com's Irwin Kellner compared the current crisis to the Great Depression and noted the following similarities and differences: In the crash of 1929 the Dow Jones industrials plunged 40% in two months; this time around it has taken a year to fall 22%. The jobless rate jumped to 25% by 1933; it is little more than 6% today. The gross domestic product shrank by 25% during the early 1930s; it is up over 3% during the past year. Consumer prices fell by about 30% from 1929 to 1933 while they have been rising over the last several years. Home prices dropped more than 30% during the Depression vs. about 16% today. Some 40% of all mortgages were delinquent by 1934 compared with 4% today. In the 1930s more than 9,000 banks failed, compared with fewer than 20 over the past couple of years.


Opportunities and Risks 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 D is correct. The enhanced indexing is used to outperform an investment benchmark/index. The S&P 500 is the most commonly used index for comparison with enhanced indexing.

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


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