October 31 Edition

Good Morning All,

It has been quite sometime since markets have enjoyed three consecutive updays so maybe we should get set for a little pullback today, at least in the morning. Japan lost 5% overnight and in years past this may have appeared to be important but considering that this decline is coming off a multi session rise of 26% we will accept it for something less so. The question now before us lies in dealing with how real the recent stabilization may be and how far the markets can progress from here.

The odds have it that the economy will likely see its worst performance in the final quarter of this year and the first of 2009. The market however is a discounting mechanism and has already begun to buy a second quarter flattening and a final half of next year recovery. It is our view that a rally through mid January will take the major indexes in Canada and the U.S. above 11,000 before giving in to fourth quarter earning news and guidance during that period. Between now and then we may also expect a slowing of the recent extreme volatility, so VIX watchers may wish to advantage themselves of this levelling out.

When it appeared that John Kerry was leading in the days running up to the 2004 election, stem cell stocks made fabulous gains until crashing with the Ohio voting machine outcome. Although this research has not been an issue in this election, I suspect that similar moves will take place this year as memories kick in. Traders and other assorted punters may wish to play the game; STEM, ASTM and GERN are three of many that soared back in the day.

Barack Obama's lead in both the overall polls and in key electoral states is large and growing, so instead of fretting all weekend over a Karl Rovian inspired result I am going to relax and accept the facts on the ground as I reassert my faith in the American people to overwhelmingly do the right thing. We will know very early just how big a sweep this can be as the results in Virginia and even little New Hampshire will presage the night's message. McCain must win both to have the barest chance of victory.

It has been quite a month and I don't know about you but I'm beat.