MARKET ACTION IN AUGUST

It's very difficult to find one word that sums up the past month, so we shall just use the word "volatile". We realize that the word alone understates the wild swings we've witnessed for exchanges globally, but we’re not sure if there is a word out there that captures what we've seen over the past month and now into September.

August showed volatility unlike we’ve seen since 2008. Early in August the massive sell-off was triggered by the US credit downgrade by Standard and Poor's, but broader economic concerns fed the selling frenzy. As the month progressed, attention turned to Europe and France in particular as rumours swirled about French financial institutions being in trouble. That has reignited concerns that the European Union’s worst days are yet to come.

The Federal Reserve also added to the volatility by announcing that interest rates were unlikely to move over the next two years. There was also a rumour in August (that still remains) that France could lose its AAA credit rating, a rumour that has been dispelled by all three major rating agencies. Other news items contributed to the volatility including a mixed bag of economic data out of the United States, some reasonable economic data out of China and a lot of speculation around U.S. financials thanks to some legal action by AIG.

You may have noticed that I've used the words rumour and speculation above which means the market was reacting a lot to the unknown or the unconfirmed. Naturally, such reactions only added to the volatility. Commodity prices could not escape the volatility that gripped the markets. Oil especially was all over the map falling to the US$75.00 per barrel range at one point, but managed to regain lost ground by settling out the month of August in the high $80's.

Considering the direction of stocks and the unattractiveness of various currencies, gold surged to a new record high. The currency markets also had a hard time trying to figure out where to go these days thanks to central bank interventions and debt concerns. Unfortunately for Canadians, the retreat by commodity prices and the growing concern about the U.S. economy took the wind out of the Loonie's sails as it flirted with par at one point. Remarkable considering it touched US$1.06 only a few weeks ago. Our stress was muted by the fact we held cash in your portfolio and sat on the sidelines as panic & fear (two of the emotions that cause poor investment decisions) took control of investors!

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