MrBill, thanks for the great effort in providing us all with your analysis.

I really enjoy reading it.

The turmoil of late has rendered me partially text mute, but I am working through it.

Energy Weekly

Prices expected to remain under pressure near term

Recent weakness likely to continue near term

Over the past week, macroeconomic data confirmed the severity of recent economic weakness, reinforcing the concerns flagged by extremely weak physical commodities markets. We believe that poor credit conditions and their negative implications for economic activity will continue to pressure WTI crude oil prices lower towards our near-term downside scenario of $50/bbl. However, the duration of this very low price environment and the timing and extent of a potential recovery is still uncertain, with risks of prolonged weakness and of sustained recovery in 2H09 still largely balanced.

As a result, although we are moving to our $50/bbl downside near-term price scenario, we are keeping our 2009 year-end price forecast unchanged. This results in a marginal downward revision to our average 2009 price forecast to $80/bbl from $86/bbl which simply reflects the weaker near-term environment.

Duration of price weakness depends largely on non-OECD demand

Although the worst of the commodity demand weakness in OECD economies is likely already behind us, the outlook for non-OECD demand is more uncertain, in our view. Data releases in the next two months will be key in assessing whether the marked weakness in October's non-OECD demand is 1) the beginning of a prolonged economic weakening, 2) the consequence of the credit freeze that can revert as soon as credit conditions ease, or 3) even more temporarily, largely the result of consumer hesitancy to purchase ahead of an anticipated reduction in regulated prices in China that are now far above market prices.

Magnitude of price rebound depends on supply constraints

The magnitude of the potential price rebound depends critically on the extent to which supply-side constraints are exacerbated by the demand-driven price weakness and the current credit conditions.

As another frantic selloff sent stocks to new depths yesterday, one question burned the minds, phone lines and trading desks of investors big and small: Where does it end?

The frustrating answer, even with stock valuations cheaper than we've seen in decades, is that no one has a clue.

(continued)

The relentless declines of the past three months have reduced stock values, by many measures, to levels that many traders have never seen. The price-to-earnings ratio for the S&P/TSX index is below eight times, based on 2008 earnings estimates, while the annual dividend yield alone for the index is 4.8 per cent, almost 1.5 percentage points above the Canadian 10-year bond.

But the market is running on fear, not fundamentals.

“It's almost like people are giving up in terms of wanting to own stocks. Valuations are compelling but nobody cares any more,” said Todd Johnson, money manager with BCV Asset Management in Winnipeg.

“Valuation only provides support [to markets] when investors believe they have a reasonably clear idea of at least one of the variables in there. But right now, no one's willing to bet on what earnings will be or what valuations might be. So you have absolutely no support for any market level,” said George Vasic, chief economist and strategist at UBS Securities Canada Inc.

“The idea that there are floors underneath the market has rapidly evaporated. “There really is only one true floor – and we don't want to discuss that.”

Traders said they're seeing selling at any price, as investors of all sizes rapidly liquidate holdings to reduce their risk exposure, especially on any holdings financed by debt.

“There's a buyers' strike out there,” said Som Seif, president of fund manager Claymore Investments Inc. “No one wants to have risk on their books.”

(continued)

“It feels like this is the final nail in the coffin as far as investor sentiment in Canada is concerned,” said Elvis Picardo, investment strategist at Global Securities in Vancouver.

“The downside has been so dramatic and so swift, you don't know where it's going to stop.”

Big-picture types warn that it's nearly impossible to pick a point to re-enter stocks, and not worth trying.

"At a certain level, we're a buyer," said Mr. Richardson, one of 11 fifth-generation family members who own the business. "These are long-life projects that are going to be around for 40 years."

The irony is that the slowdown may ultimately help the oil sands by reducing labour costs, allowing some projects on the backburner to be pulled back into serious consideration, he said.

This contrarian approach, he said, is the benefit of being a private family business that is not subject to the short-term scrutiny of analysts and public shareholders. "The benefits to being private are never more so than they are in a market like this," he said.

He said family members have always seen the best opportunities to make transformational changes in the business when it can go against the flow.

He cited the example of his grandfather, James Richardson, who founded a securities firm in 1926, only to suffer the shock of the stock market crash three years later and then the Great Depression. The family worked through it, and the business did well for 60 years before being sold to Royal Bank.

"That is my compass," he said.

Similarly, the company invested in energy when the oil price was depressed in the late 1990s, and in agribusiness and grain-handling when commodity markets were soft.

But the family, whose commercial roots lie in the grain-handling business, was not comfortable with the meteoric rise in commodity prices that propelled stock valuations to record highs over the past year.

The insanity struck him when someone suggested it was "amazing" that Potash Corp. of Saskatchewan was worth more in market capitalization than the Royal Bank of Canada.

He agreed it was amazing, because it did not reflect reality. "Commodities do not defy gravity, and they do not continue to go up forever," Mr. Richardson said.

Because of the over-leveraging of the North American economy, the family's private equity arm has been sitting on $650-million in uninvested funds for the past 18 months.

"We couldn't get our minds around the risk-reward profile," he said. "Basically people were not pricing risk into anything they were doing. "

He said the family, whose companies are well capitalized, feels almost more comfortable as the giddiness seeps out of the market. "Things like integrity and relationships and trust are coming back to the front of people's minds," he said.

But he, too, has been surprised by the speed and depth of decline: "This correction is far more severe than anybody could have imagined. This time, when the other shoe fell, it was the whole shoe store."

The Richardsons are not in a hurry to buy assets because the U.S. de-leveraging will take time and stimulus packages have yet to take effect, he said.

"Dr. Doom" Marc Faber says the market should go up, way up, for the next three months based on all the new liquidity. If not, if that fails, we will see a great depression unlike any other.

CNBC

"I think the intervention by the government in the past and at the present time has created more volatility, not less, and so right now we have deflation, we have colossal deflation in asset prices," he said, noting that equities alone have lost $30 trillion globally.

Had a much better day trading than many in the past while.

I bought CIBC for 57 in July and watched it go down, down, down. So I bought some more, and my average price is 48 dollars. CIBC then rallied late in the day and closed at 41.75. It is paying a very healthy dividend, one of which I just received.

Gold had quite a reversal today and now my Barrick is up marginally above the 34 I paid. I had previously sold at 39 and rebought at 34. Too bad I didn't wait a week.

Anyways YTD I am down around 5% which makes me pretty happy.

(Happy, relative to the losses my coworkers and others; I no longer talk about the markets except to one friend, no one wants to hear of my relative good fortune)

Drew

It's not preferable, but all major U.S. financial companies will eventually be under government control because the alternative is so much worse, Hugh Hendry, chief investment officer at hedge fund Eclectica Asset Management, said Friday.

"All financials will be owned by the U.S. government in a year," Hendry said. "I bet you."

Nationalizations take dramatic losses from the private sector and places them on the larger balance sheet of the public sector, he said.

"It's not good," but society is vulnerable and society is going to have to intervene, Hendry said.

Because the taxpayers are forced to foot the bill for bailout out the banks, shareholders shouldn't be compensated, Hendry added.

"Actually the shareholders of Citigroup have looked the other way for more than a decade" while management took excessive risk, he said.

Shareholders should take nothing away if it is nationalized, because the taxpayer will be "paying this for a long, long time," he added.

CIBC is held up as the bank most likely to fail, if any Canadian banks fail. Look at the numbers.

http://network.nationalpost.com/np/blog ... edown.aspx