A GDP figure of -0.3% for the third quarter in the US was a little better than expectations of -0.5% and this helped the Dow to a 189 point gain on the day. This is an encouraging sign and with lots of bad news now being taken a little better by the markets does suggest that we are at least seeing a change in sentiment and perhaps the fear factor is becoming more subdued.

I have taken out a small short in Next today. Whilst the declining interest rate may well help the retail sector as we approach Christmas I do not believe that it will be enough to save the day and I am expecting nerves to set in towards the end of November, beginning of December, and I hope that I will have the opportunity to make money.

The Fed rate was cut another 50bp tonight bringing the rate down to 1%. It is encouraging to see another serious cut and I suspect there is further to go yet although I am not entirely sure it will make a huge amount of difference now to the final outcome. However, it was encouraging to see that the Dow did at least keep the serious gains made yesterday and with the MPC and ECB very likely to cut by 50bp each over the coming weeks we will at least see equities looking increasingly undervalued when viewed on a yield basis. For example, Aviva as of yesterday was on a prospective yield of 15% which is likely to be the true figure if the market doesn't lose another 20% or so. Whilst no one knows if this will happen, even a 50% cut would leave a generous payout and this is clearly one of the reasons for the serious buying in the stock today which climbed back over the £3 level. I think further rate cuts should start to make investors focus more on the available yields out there which are going to look increasingly attractive even in an environment where there will be risk of cuts to payouts.

I mentioned a while back about the bottoming out process for a market and whilst it is far too early to suggest that the UK is finding a base, there are some encouraging signs given that it has bounced around the 3,700 to 4,200 level. The next couple of trading days will be very interesting.

I sold the Vodafone today for a nice profit at £1.168 and will be looking to see where the market is going before making the next move on my CFD account. I think if we do see the market making further progress I may look to open a short in Next where I think there are still some very difficult days to come as we approach the key Christmas selling period.

I am not sure that a 10% point gain in the Dow today is sustainable and it does concern me that we are seeing daily market moves that you would expect of a share price rather than a major market. A 10% gain achieved over a week or more would be more welcome as the extreme volatility we are seeing is more than likely to result in a major reversal yet again. Nevertheless I welcome any move in a market that is upwards whether it be bargain hunting or expectation that the Fed will cut interest rates this week which it will surely do.

My Vodafone has gone even better today and is now nicely in profit and with the FTSE100 expected to gain around 5% in the morning I should be able to check out with a nice and welcome profit first thing.

After opening around 170 points down the market did make a good recovery to end the day only 30 points off. New home sales in the US showed a modest improvement during September which has helped sentiment a little bit although given that the credit crunch reached a new level of crisis during October means this figure is somewhat academic. Nevertheless I'll take anything at the moment that prevents some of the massive down days we are having.

This week the Fed meets and we can expect another cut probably to the tune of 0.5% which will also help sentiment.

On the trading front I was pleased to see Tesco recover some ground today although I did cut one of my Tesco holdings as it had breached a stop loss and the market really wasn't looking pleasant. I may well buy back if the market is starting to calm down, but I suspect that will not happen for a while. I was also pleased to see my Vodafone purchase move into profit late this afternoon and I may sell those if they move above 1.10.

With the market down by another 8% today it begs the question how much longer these huge daily moves are going to be happening. Clearly the sell off in Asia and the news today that the UK economy contracted by 0.5% during the third quarter which was at the worst end of expectations has really drummed home the view that recession is here and isn't going to go away for some time. I mentioned yesterday that it may be many months before the market starts to price in recovery, but I wonder when the market will actually find a floor which it will trade around prior to recovery. If the falls continue at the current rate we may get there sooner than anticipated and the real key to guessing the bottom is to see how the market reacts to bad news as we have had day. In some respects today is important in that we now have negative growth and the next quarter's announcement of the same isn't likely to have so much impact. What I am getting at is that eventually the market will take the bad news that we have had today in its stride and at that point we may well have reached a point at which a bottoming process has been found. It usually entails the market falling back to that level and staying close to it despite the bad economic and corporate news flow. I suspect it may be around 3,300 to 3,500. What we need to see now are 2009 estimates coming down and once that is priced in we may find a floor from which a recovery can be built. A further decline of 10-20% still seems very likely as we are some way from a recovery, but at that stage whether it is a CFD portfolio or physical equity, for those that still have some cash left it will be a time to start building holdings. The yield on many stocks look very attractive even when discounting dividend cuts and at some point common sense will takeover from the fear we are currently experiencing.

I have today picked up some Vodafone at £1.038, with a prospective yield of over 7% it is hard to ignore them.

The headlines seemed to have replaced 'banking crisis' with 'recession'. I don't think this headline is going to go away for quite some time. A lot of my clients ask when I think the downturn is going to end which is impossible to answer. I don't think any economist can stand up and say they have correctly predicted either the beginning or end of a recession. We have only historical data to provide some guidance, but even using this there isn't much guidance as the cause and ongoing driver of the global slowdown is very different to the cause of previous major dips. I think what we can say now is that the likes of the US and UK are gripped firmly in recession and we are still quite close to the start. Most post war recessions have lasted on average around 10-12 months, but previous to that the data is more sketchy and suggests that a recession can last considerably longer, perhaps 18 months to a 2 years. My own view for what it is worth is that we are in for a good 12-18 months of declining GDP both here and the US and any turnaround is going to take the best part of 18 months. I think that equity markets are really going to be under pressure as the bad economic data continues to flow and inevitably earnings forecast continue to fall. When do we reach a bottom for the equity market is another matter. I would expect the market to start pricing in a recover around 4-6 months before the event which probably means we face a good 6 months of very difficult equity market conditions and a real prospect of new lows. However, I do think that this will throw up so amazing valuations and for those that have a physical equity portfolio this will be the time to buy quality stocks at bargain basement prices - 3 years of holding should yield some fantastic returns although the person that guesses correctly when we have reached rock bottom will deserve a medal!

Look out today for UK retail sales which aren't likely to be good and then tomorrow we have 3rd quarter GDP data which almost certainly will give us a negative figure and lots of great recession headlines over the weekend.

On the trading front I am holding fire on any more trades until we get some kind of reasonable move either side of the 4,000 level. At the moment it is impossible to even guess which way the market is going as the situation seems to radically change by the minute.

The Prudential produced a good set of new business figures today and confirmed its interest in the Asian interests of AIG although it is by no means certain anything will happen on this front. They reported a capital surplus of £1.2bn and a relatively strong liquidity position. Even if the market fell by another 40% it would only reduce the surplus by £250m. The dividend at present looks safe and sustainable. The company is taking market share in Asia no doubt boosted by the uncertainty over AIG's Asian operations. The company has made provisions for losses on its bond portfolio, but none are likely to be excessive. The company is certainly not in bad shape and if anything for those that believe a market recovery will happen sooner rather than later the shares offer excellent recovery potential. In the event that the market does fall another 10-20% we can expect the life sector to be under serious pressure, but I do believe that stocks in this sector already discount a severe recession scenario and do look quite interesting for those wanting to trade short term. I do have some Pru for the longer term and I may trade some more depending upon market conditions.

A good start to the week with the FTSE100 up 160 points as I write. Now that markets have had time to digest the fact that recession is going to happen and the banking bail out is not going to prevent it means that we could see at least some stability and hopefully the market hanging around the 4,000 level and perhaps even making up some of the lost ground. A lot will depend on how quickly the economic data continues to deteriorate over the coming weeks and any more financial shocks will quickly lead to big falls once again. I am still inclined to believe that the market will reach new lows and possibly significant new lows, but on the other hand the fact that the financial system has been saved does give some cause for hope. With inflation likely to fall dramatically over the coming months there should be ample room for big cuts in interest rates to help alleviate the problem. In addition it now looks likely that the government will start trying to spend its way out of a recession which is not a bad course of action although the budget deficit will inevitably suffer.

An interesting article in the Wall Street journal detailing an interview with Anna Schwartz a Wall Street veteran and someone who at the age of ninety two experienced the great depression first hand. She co-authored, with Milton Friedman, "A Monetary History of the United States " in which they demonstrated that monetary policy during the 1929 Wall Street crash was inappropriate and brought about the Great Depression. She is not particularly enamoured with the world wide intervention in the banking sector suggesting that banks which have made the wrong decisions should have been allowed to go under. The interesting point she makes is that despite the huge injections of cash into the system banks are still not lending and the reason they are not lending now is not a shortage of liquidity but the simple fact that the banks do not know if the person they are lending to is going to be able to pay it back. Common sense really, but how many people are focused of the lack of lending between the banks and those that want to borrow and not the reason why. You have to then wonder if indeed the situation is going to change until there are real signs of an improvement in the wider economy which is going to take some time and more importantly is dependent on the banks making credit available.

The talk of Pru lining up a potential investor or two to buy the Asian interests of AIG does sound very interesting and certainly if they do achieve this it will transform the company for the better. Still lots of concerns doing the rounds about the solvency of the life companies. I don't think this is an issue at this stage although another 1,000 points off the FTSE would be a real cause for concern. If the market does somehow recover back up to the 5,000 level this is one sector that will really fly.

All of the economic data coming out of the US and the UK this week has been dire and points to a very bad time ahead for the world economy. It is difficult to anticipate any improved economic picture for many months to come and I have to say that generally being one of an optimistic bias I find it difficult to get excited about equity valuations even at current levels. World markets appear to be gripped by fear and the size of the daily moves we are seeing are disturbing and not reflective of an orderly market. The reality is that no one knows what is going to happen and we are moving from optimism to pessimism in the space of minutes. At the moment my inclination is decidely bearish and I now believe that the market will fall a good deal more from here, perhaps another 20 to 30%, maybe more, but I hope not and I hope I am merely an example of the fear that is taking hold. I think the real risk lies with the amount of derivatives that remain outstanding which is truly huge and as these continue to unwind across all categories we will see investors from all sections running for cover. Redemptions are growing by the day and large programme sales are taking the market by storm. Valuations for the time being are out of the window and markets are going to behave very irrationally for some time to come.

My CFD portfolio has taken further hits this week especially with my life stocks. The main story at the moment seems to be Prudential where the fear is that their £20bn AAA bond portfolio is at risk of some serious defaults which could have a massive impact on shareholder capital resulting in a rights issue. I am not so sure, but any rumour at the moment is enough to impact on the whole sector and we have seen a serious sell off. One to watch and I will probably reduce a lot of my life exposure over the coming week if the rumour shows any sign of becoming reality.

Apart from that I am happy to continue holding my other stocks. My latest purchase of Tesco at £3.55 was too soon and I am now sitting on a loss, but they have not yet breached my stop loss so I will hold and hope for the market to rally next week.

Grim times indeed with world equity markets now having reversed the relief rally we experienced on Monday/Tuesday. It is now quite concerning as there is very little out there in the way of good news that can now bring stability to markets. The fear factor of the unknown scale of the recession we face has taken over and bearing in mind that we are going to see a steady stream of bad economic news means that equity markets could easily go a lot lower from here. Valuations at present may not look too bad and indeed the yield on the market looks quite reasonable, but when you strip out the fact that the banks in crisis are unlikely to start paying out dividends until 2010 and when you look at the potential for earnings downgrades, which will come, it is easy to see the market falling further from here. It is now a question of just how aggressive world central banks will be in cutting their base rates. At the moment the interbank lending rate has come down, but only marginally and this has to be a real concern.

The market rally yesterday and today has provided some much needed relief and hopefully we will see markets at least stabilise for the time being. The focus of attention will over the coming weeks now shift back to the economic indicators as investors look to judge just how much damage the credit crisis has done and what kind of recession to expect. In the US most now seem to be expecting a severe recession similar to that of the early 70s which at present does seem to be the right analysis. Bearing in mind that the Fed doesn't have that much more in the way of rate cuts at its disposal and assuming the financial sector does not see any more significant disasters we are likely to see a significant slowdown and recessionary conditions as the economy adjusts to falling property prices and increased unemployment.

In the UK a similar situation will undoubtedly play out, but the BofE does have more fire power available when it comes to reducing the interest rate and a base rate of 2.5% in 12 months time is certainly conceivable and may just help to bring stability to the housing market later next year although I still think a peak to trough fall of around 30% is on the cards.

As to where this leaves equity markets is difficult to tell. The rebound over the last two days may continue yet, but as poor economic data continues to flow through I think a reality check will occur and traders will realise that the financial bail out is not going to prevent some serious earnings declines over the coming months. It is hard to see the market staging a real recovery until mid 2009 and the possibility of new lows remains although undoubtedly equities are now pricing in some fairly difficult times.

The end of the banks as we know it seems likely tomorrow if the Government does end up taking significant stakes in the four quoted by the BBC. The dilution to existing shareholders will be significant and it will be a long haul over many years before we see the banks return to anything like what we have known. Where this leaves the market tomorrow is frankly anyones guess. Yes the injection of cash and part nationalisation must bring about increased confidence and ultimately a thaw of the liquidity freeze, but we must also look at the impact on valuations and it will be difficult for the market to digest this so another volatile start to the week seems inevitable. The Sunday Times stated that there is a real possibility of the banks shares being suspended, which could well happen although I feel only if the official news about their refinancing is not announced prior to the market open.

The 20% decline in the market last week was close to disastrous, but another 20% as suggested by the IMF would be catastrophic for many financial institutions and I for one hope that this does not play out. Given that the real economy is only starting out under the shadow of recession we have a long period of further earnings downgrades and dividend cuts to come which could leave the market looking fairly valued at best on current valuations and for that reason I think the IMF could easily be right, but I sincerely hope not.

With the decline in the market last week my CFD portfolio and equity portfolio took a sizeable hit although not catastrophic and I still have plenty of amo for when the market looks like turning. I am sure that when the market does turn it will be very difficult to catch and the first part of any equity recovery will be swift, but I can't see it happening yet. The recession or depression will be relatively long and it may not be until this time next year that we start to see signs of recovery and in the meantime I would expect to see new lows reached.

Valuations for some stocks will soon be moving into strong buying country even if it means accepting short term losses until some sense of normality returns. These stocks will be for my equity portfolio where I can sit on them for the medium term recovery which will come at some point despite the incredible doom out there.

Emergency rate cuts around the globe including the UK seemed to provide some initial relief following another collapse in the market during early trading when the market was down by close to 400 points. A midday rally brought us back into positive territory and as I speak we are again heading south with the market down by 270 points. What this shows is just how serious the market now takes the current economic downturn and even some fairly hefty rate cuts are not going to shift sentiment as they did earlier in the year in the US. The IMF has today issued a grim report detailing conditions that are as bad as the 30s and frankly I think we have to prepare for a period when equity markets remain incredibly volatile with some serious downside risk even from current very depressed levels.

The UK bank bail out is comprehensive and will provide some much needed relief to the banking sector and on the face of it the structure should provide scope for banks to grow earnings again when normality eventually returns. Earnings estimates will however fall as the banks take up funds and it really depends on how much tax payers money the banks eventually end up using, but it does seem that eventually there will be value to be had among banking shares and when the upturn does come there will be scope for a considerable recovery. Some of the banks now look to be standing on very cheap multiples and once there is clarity on dividends I think some confidence will start to return.

I need to see some stability before committing to my next trade and I am particularly interested in buying some Tesco if the price is right.

Turmoil seems to be here to stay at least in the short term. The decline in the FTSE100 and world markets yesterday may well continue for some time and looking at the economic data I think it will be many more months before equity markets hit bottom. There has been so much talk during recent months of the severity of the credit crunch and I think you can safely say that we are now in worst case scenario territory. News this morning that RBS has some big payments to make during 2009 and the fact that it has approached the government for a rumoured £15bn suggests that by the end the government will almost certainly end up owning large stakes in most of our major banks. There have also been rumours that Barclays and Loyds have approached the government for money. In Iceland the second largest bank has been nationalised today.

Where we go from here is anyones guess, but undoubtedly the economic situation is going to get far worse and I feel now that we and the world are heading for a prolonged and deep recession. Lots of talk this morning over the possibility for cuts in base rates around the world. The Australians cut their interest rate by 1% last night and there is an expectation that the Fed will cut soon and the Bank of England is widely expected to cut this week. The question is whether it will make any difference and I fear at the moment that it will not. A lot of people are calling for a 0.5% cut in the base rate this week, but I still think that the BofE will as always adopt a cautious stance and only cut by 0.25% although a larger cut does remain a possibility. A decision to leave rates on hold would be absolutely crazy at this time.

I am now underwater on my Pru holding and close to the stop loss, but I will see what happens this afternoon before taking action. My Aviva is also losing, but I am still happy to keep those although their capital buffer must be falling fast and another 10-15% off the market will hit them hard and I think possibly lead to talk of a rights issue.

All eyes are on the bail out vote and the disastrous non farm payrolls seem to have been ignored despite the fact that it was down by a huge 159,000 although the unemployment rate remained firm. I suspect that after the bail out has gone through which it surely must do we will see a temporary lift in the market to be followed by a dose of reality when investors realise that no matter what bail out is used it is already too late to prevent a significant and potentially long and damaging recession in the US.

Worries over the banking sector are not going to go away with a US bail out and I can see October easily turning out to be another bad month for equity markets. The only saviour is likely to be rate cuts which now seem likely in the UK, Europe and US within the next few weeks. Several rate cuts will be needed to make a difference though.

Today I bought some Prudential which were nicely in profit at the close and I did this trade in anticipation of a short term bounce on the back of a yes vote today. I hope to close out for a short term profit on Monday.

The fixation with the US bail out seems to be taking attention away from some very grim economic indicators. Yesterday the ISM Manufacturing Index in the US collapsed for the month of September dropped from 49.9 to 43.5 which is quite a catastrophic decline and goes to show just how fast the economic situation in the US and abroad is deteriorating. The real risk now is of a huge drop in the Non Farm Payrolls tomorrow with a 100,000 decline more likely than not. The prices paid index fell to 53.5 from 77.o which also demonstrates how much the inflationary impact is now moving toward deflation. I think that the Fed will soon find good reason to cut the Fed rate again.

There are an increasing number of people now expecting a rate cut in the UK next week and I am inclined to believe this will happen. I did mention on the blog some months ago that a cut would come about now with the real possibility of 2 rate cuts before the year end. Yet more bad news today on the property front with the Nationwide reporting a 1.75% decline during September and no sign yet of any moderation in the rate of decline. Most commentators expect another 20-30% off property prices over the next two years and it is hard to argue against that. I suspect only a very low base rate would have any chance of arresting the decline in property earlier than anticipated and I don't see that happening just yet.

Hope appears to have triumphed over depression during the last day or so and it will now be down to the US to vote through some form of bail out no matter how watered down to maintain confidence otherwise the Dow rally yesterday will quickly be erased.

The recent market decline may have been exacerbated by funds raising liquidity to meet redemption's at the end of the 3rd quarter and quite a few technical people and analysts believe that we are due a short term bounce. Certainly if the US votes yes we may well see a rally over the coming days, but whether that is sustainable is another matter.

The shorters appear to have fixed their sites on ICAP and Man which so far have not been placed on the ban list, although I am not entirely sure that I would be doing so.

I did buy Tesco early yesterday on the back of reasonable results and they were sold this morning at a profit. I also day traded the IShares FTSE100 yesterday when the market was down 100 points first thing and those made me a nice profit with the bounce later in the day.

I still have the Aviva which are under water, but I am confident they will come back especially if the market does rally later in the week.

Expect a lot of nerves tomorrow as the 'will they won't they' headlines drive uncertainty. It would be amazing to see a second failure, but if so Tin hats or something stronger may be required.