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.

Life has been busy in the office during the last week hence my limited number of posts. The arguing over the financial bail out appears to have ended although the market is now very nervous as to whether it will work. Given the fact that interbank lending appears to have stopped bank failures even with a US rescue are a certainty. Today Bradford and Bingley has disappeared and with a question mark over Fortis and real issues with so many others I can see the market going into a serious decline unless the news flow starts to improve very quickly.

I have been trading quite actively with a good profit on my Next short which has now been closed and I did open at the end of last week a long position in Aviva in anticipation of a bounce this morning which hasn't happened. My stop loss is at £4.74. Tesco will be reporting tomorrow and I may well pick some of those up on the day depending upon what they report.

We seem to be having a week of anticipation. Will they or won't they push through the banks bail out. I don't think there is any chance of the bill failing, but it may be subject to some changes to please all. The real issue is timing, it needs to be soon to prevent the market going into serious decline on fear of it not going through. Bernanke has been speaking today of the serious consequences of not getting the rescue underway and he is undoubtedly right so lets hope we see some action soon.

Despite the ban on short selling it has been interesting to see the level of volatility in financial stocks remaining the same. Perhaps short sellers are not as much to blame for the decline in financial stocks as some had thought and maybe a distinct lack of buyers is as much to blame.

I did buy some Aviva again on Monday at £5.24 with a stop loss at £4.74. With financials dropping fast again there is significant potential for another big one day rally when eventually the US bail out is agreed. However, I need the shares to remain reasonably close to this level which is not looking too promising at present.

Lots of comment doing the rounds concerning the US rescue package and of course the implications for the banks. What is clear is that this is no quick fix and if anything the combination of a shorting ban and this announcement has created a situation where UK bank valuations have shot way past fair value. The US package has probably saved the financial system from something far worse, but bearing in mind that a lot of write downs are still needed there are still plenty of losses to report and frankly all of the major UK banks look to be short of capital. I do not expect a sudden collapse in share prices from current levels, but once the short covering is complete (I suspect the shorters are taking their losses in anticipation of the ban being extended in January in the UK) I can see banking valuations not only drifting back to where they were at the close on Thursday, but in fact things could get far worse. I do not wish to doom monger, but buying bank stocks at the moment for anything but a very quick gain if your timing is right is likely to result in further losses.

In terms of the broader economy as I said last week the situation remains dire especially in the UK. Even if credit does start to flow it isn't going to be significant and I think the slowdown has a long way to go. I am going to be focusing on shorting retail stocks (hopefully with no ban likely!) especially given the recent spurt which has taken valuations back to levels at which shorts have a far greater probability of success. I did close my Sainsbury short today although if the shares tick back up to £3.70 I will certainly have another go. I shorted Next too early on Friday, but with the shares down 54p so far today I am not far from being in the money.

I did sell out of all my Aviva last week CFDs and physical holdings and I am hopeful they will move back to around £5.20 where I intend to start buying again. The demise of AIG should provide opportunity for Aviva and in the absence of shorters the downside risk looks considerably less at the moment.

Another incredible day and not one you would enjoy if you are short of financials. For those that were long bumper profits were available and I don't think you are likely to see a repeat of a 9% market move in one day. Whilst I think there is a strong argument that shorters of financial stocks were damaging the system in the sense that depositors were taking fright at collapsing share prices and withdrawing their funds (me being one of them) I do also believe that it is wrong to move the goal posts as the FSA have done as we do not now have an efficient market and the strength we have seen today is more down to shorters covering positions than a sudden desire by investors to own bank stocks. Undoubtedly some people are buying because of the prospect of better times ahead, but it is too soon to be suddenly saying everything is now alright with the world. The US bail out will provide much needed relief, but I am unsure of the long term implications of this action and it certainly is not going to prevent the economic slowdown, but it may help to alleviate some of the pressures causing it which is no bad thing.

For me the jury is out on the banks and whilst liquidity will improve you cannot ignore the impact of loan impairment and bad debts which will continue to increase.

Today I have been lucky with my physical equity portfolio as I had bought holdings of Aviva, Pru, RBS and LLoyds earlier in the week. Sadly I sold the LLoyds after taking a small turn on Wednesday, but the rest remained so I had a bonanza this morning. I have decided to open modest shorts on my CFD portfolio in Next and Sainsbury today on the back of a strong market rally which may well run out of steam. The consumer slowdown in the UK is not going to go away and with Tesco hitting hard on prices I think Sainsbury will suffer and I also believe (famous last words) that a bid is unlikely in the current environment. I think the retailers will suffer from a very bad Christmas and Next is not going to have an easy time of it.

Despite the horrendous markets we are facing there is undoubtedly money to be made at the moment for the brave. The volatility we are experiencing is throwing up massive market movements in individual stocks especially among the financials. Given the widely publicised takeover of HBOS there has been much opportunity for those willing to take positions in both companies. I for one have avoided HBOS, but I have traded LLoyds successfully and for those that were buying HBOS at the bottom yesterday there have been some stunning gains to be made. Hindsight is always a great thing and clearly HBOS could not have been allowed to fail although I do find the fact that LLoyds has been willing to take it on a little worrying for LLoyds shareholders. Given the size of HBOS' exposure to debt and property there is a huge amount that can still go wrong for the combined entity although there is no doubt that significant savings will result from a merger of the two and when we emerge from the other side and the world is a calmer place the Lloyds/HBOS merger should yield significant benefits and a growth story may yet emerge.

For those wondering what comes next with the market I can offer little comfort. I don't doubt that at current levels there is good value to be had and with the prospect of sharp rate cuts worldwide during 2009 I believe that markets have the potential to perform well probably during the second half of 2009. As to the question of whether we are close to the bottom I have no idea. It seems likely there will be further financial failures, but not of the size we have seen this week and my best guess is that next week a degree of calm will return and the market will probably stick close to the 5,000 level until a better picture emerges of how well the financial system is going to hold up.

In the meantime I am sticking to high yielding bombed out stocks. I have closed out my Unilever short this morning and my long Tesco holding both at a profit and I have taken a small long position in Vodafone.

What a day! Fear of the unknown rather than fact has dictated the market movements we have experienced today and I think the next couple of days have the potential for a further nasty downward movement or possibly a sharp relief rally. Relief would come in the form of a bail out for the US insurer AIG. The fate of AIG is going to be far more significant than Lehman and at this stage I cannot see a situation of it being allowed to go the same way as Lehman. The reason is systemic risk, I suspect that most of the major European banks have exposure and in some cases significant exposure via the purchase of CDS from AIG. The downgrade that AIG has suffered today will already have impacted on the value of the CDS protection the banks have purchased. This will lead to further capital pressures for the banks even if AIG doesn't fail. If it is allowed to fail the impact across the world could be catastrophic which is why I think a government bail out is a necessity.

What this means for the market are a worrying few days and extreme volatility. I felt brave this afternoon and traded Aviva at £4.51 selling at £4.70 whilst I also sold my recent Lloyds purchase which was actually up on the day when I sold at £2.8875. The volatility we are experiencing will provide further opportunities, but any profits should be quickly taken given how rapidly market conditions are changing.

It doesn't get much worse in terms of news flow and I think we have another difficult day of trading ahead before nerves start to calm and hopefully there will be an opportunity to regain some of the losses the market incurred today. We are yet to know exactly who has significant exposure to Lehmans bonds and loans and so far I have seen comment and large figures relating to the Japanese banks, and I have also seen figures for Lloyds and Standard Chartered which are relatively low in the grand scheme of things. The rest as I understand it have around 3 days to declare any significant exposure which will make for a nervous time.

The implications of the loss of Lehmans will be felt for some time and I think it will bring the prospect of interest rate cuts closer. I think there is a real chance of two cuts in the UK before the end of the year and I would not be surprised to see the US react to another bad in the market with a 0.25% cut. Liquidity is being pumped into the market on a grand scale, but a base rate cut would take some of the heat.

I did decide to take another position in LLoyds today and whilst I am expecting another bad day tomorrow I think the UK banks will regain some of the lost ground before the end of the week.

A real rollercoaster of a week. The ongoing worries over the fate of Lehman has really impacted on the market and until a resolution is found it will continue to be a headline grabber. The real fear is whether we are going to see yet more of these situations. Clearly outside investors flush with cash are no longer willing to bail out the big names and if more of these situations arise at some point there is a fear that in the absence of a white knight there is a real possibility of a financial institution being allowed to collapse. However, systemic risk will always be a significant factor preventing the loss of any institution that is an integral part of the financial system.

The wild gyrations in the market have provided some good opportunties this week and today I have sold the LLoyds which were purchased yesterday and I bought some Tesco which are sitting nicely in profit at the moment.

I hope next week to have more time for the blog.

A very busy week this week and the blog has suffered as a result. I closed out another successful short in Aviva today and I went long on Lloyds TSB just before the close of business. With a Dow rally I am hopeful that this position may make me a quick profit tomorrow.

I am afraid the last 2 days has left me with no blog time and with the markets all over the place it is difficult to know what to say. The Federal bail out of the government backed mortgage provides raises more questions than answers and whilst some short term relief may be due to the banks I think it will all be short lived. The US has just doubled its national debt with this deal and whilst US mortgage backed securities held by banks will now have a US guarantee this does not include sub prime and I can't see any real benefit apart from the fact that mortgage finance is likely to flow a little more freely in the US at a slightly lower rate. This will not stabilise the US housing market which is critical.

My trading activities have been quite profitable more recently. I sold out the Tesco I bought last week on Monday along with the Vodafone and I closed the latest BT trade at a nil gain, nil loss. I was lucky and did manage to trade early on and in the last half an hour of the disastrous LSE closure on Monday. On Tuesday I opened a short in Aviva which so far is playing into my hands with the market weakness late yesterday and today.

I will report at length tomorrow.

A bad week for equity markets with poor data and fears that the credit crunch is showing no signs of relenting. The US unemployment data yesterday was very bad and I think is only going to get worse. The housing market in the US is key and HBOS have reported today that they do not expect US house prices to start recovering until 2010, which I think is very likely and probably the same situation for the UK. The Bank of England chose to leave interest rates unchanged this week which is only going to prolong the misery. I think the catalyst for some recovery in world equity markets will be the next round of interest rate cuts. I am sure the UK will cut once and maybe even twice before the year end whilst I think with the US now facing a possible second half decline in GDP, the next rate cut there is probably due in early 2009. Media has reported today that the government is going to take full control of the two main mortgage providers which will be a very costly move, but probably unavoidable. The recovery in the Dow last night to end in positive territory will at least give us a positive start on Monday.

Yesterday I bought some more Tesco at £3.68 and also a few Vodafone at £1.32. The latter suffered due to soft sales at Nokia and I don't think Vodafone will be immune. Analysts were saying earlier in the year that Telecoms were defensive, it is clear they are not and consumers consider their purchases as discretionary spend. There is a real risk that Vodafone will suffer which is why I have only taken a small position. I also bought a few Aviva at £5.03.

The US Non Farm Payrolls are key today. Expectations are for around -75,000, and anything over 100,000 will cause the market a huge problem I think given the last 2 trading days. Data due at 1:30pm

A poor set of employment data in the US together with gathering concerns that the US is about to enter an even more difficult period of the credit crunch has resulted in a sharp drop in the Dow and FTSE100 today. The European Central Bank didn't help matters with an announcement of a change to its collateral requirements which will take effect from the 1st February. Basically the ECB will be adding a 5% haircut to asset backed securities as part of their wholesale funding arrangements. This will make it even more difficult for banks to borrow against these assets and I can only imagine that the ECB is expecting a recovery in the funding market by that time. This news has not helped the financial sector.

The Bank of England kept the base rate unchanged today no doubt due to the expectation of a further inflationary push that is expected over the next couple of months. With the property market in a state of collapse and the economy really on the brink I think the MPC is leaving it too long and is reacting to the data rather than looking a little further out. The decline the UK is facing is getting worse and without some easing in the base rate soon 2009 may prove to be a lot worse than 2008.

Unilever announced today that Paul Polman will take over as CEO when Patrick Cescau retires in early 2009. The news was taken very favourably by the market after the poor performance of Unilever during its second quarter. The economic headwinds especially in emerging markets may prove very difficult for Unilever during 2009 and if its engine of growth does suffer the shares will be under pressure. I am not sure the 6% increase in the shares is justified on this announcement and I think Unilever shares look fair value at best which is why I have decided to short the shares today.

I also bought back my Tesco holding although a little too early in the day to avoid the market fall this afternoon. I am not too concerned and I think Tesco is one of the best placed of the supermarkets.