For some technical reason yesterday’s report suggesting the good news was fully priced and the rally over, was delayed til early this morning. So in a more up to date comment, and as we have previously said, it still gets much worse before it gets better, and the opportunities are getting bigger.

In one paragraph, here are the key aspects of what I believe you need to be constantly aware of and the first is the most powerful, Big Brother, be it the US or European governments CANNOT fix this! What has to happen is for markets to run their course and they should be allowed to do so as quickly as possible. Painful as it may be it will not be as bad as this to some degree Hank Paulson encouragement of there being a solve all package that got everyone the world over, too focused on one event. The point is, markets can work through and resolve current issues if allowed to. I suggest that if short selling had not been curtailed, those who were short would have been taking profits before now, and supporting the market. Instead those already established shorts became extremely valuable and have been held. Next point, this is clearly a panic with further to go. When truly stunned people grasp for the simplest idea and hang on for all they can. That idea which dominates business, investment circles, and personal financial decisions at the moment is, CASH, and preferably US cash for the reason that the US is considered the least likely country to ever default. The problem with that idea is, the US is the epicentre of the crisis.

So what might be a shrewd investment strategy? First thing is, Yes we still have to use stops, even if they are getting whipped, they will keep us in the game when others struggle to. Second, don’t stand in front of the freight train, which at the moment is the grabbing of any US dollars or paper that can be found. At the same time you don’t have to climb aboard that train which will abruptly crash at any time, and probably within weeks rather than months. For now though one must respect everything else being sold against the US dollar. So one stop long US dollar journeys may still be appropriate, but cautiously. Interestingly Gold is as previously favoured holding up better than most. Once Gold starts to rally this time, it will be in line with the top in the US dollar, and I still expect a 15% to 20% crash in the value of the US dollar by year end, perhaps going well into January / February. At that time it will be very difficult to buy Australian dollars which will represent a fabulous geographical safe haven buffered from the global slow down by a moderated but still firm China economy, and importantly a savage pricing in of a global depression has already occurred with respect to the AUD. So when people notice the US dollar might be topping, the whole world will want some AUD in their portfolio, as one of the few arguable diversifications in cash holdings.

As for equity and property markets, I cannot say strongly enough, there is no hurry to establish a long-term holding portfolio. As we have seen the bounces can be significant, and we should always be looking for value stocks outside of financials, especially Gold stocks on occasion that in any broad market rally will perform well. The key is, when those rallies occur, the name of the game is taking profits, and not trying to hold.

In summary, this quick note is to highlight that the US economy is in more trouble than anyone else, the US dollar rally will in fact eliminate recent US export gains, and with the whole world getting long of US cash and paper, when the top comes in the big dollar, then the fall will be more spectacular than even the stock market correction. That equity markets, one has to accept, may be trading at these sorts of levels for several years to come, and one should not expect the price action of previous equity corrections to automatically follow this crisis.

The equity market game has fundamentally changed, and while the non-US economies should be rebounding by the end of 2009, the US economy and equity markets in general may remain “trading” markets rather than the old “investment” markets for quite a long time.

As for property markets, there is more pain to come and it could be quite sharp in early 2009, but also should recover globally toward the end of 2009, but again do not expect a magical return to the overly high values of recent years.

This is not a bleak outlook, it is a realistic one, but seeing the opportunity for the rest of the world to recover before the US, may contain some real and significant opportunities.

During the day I will forward some market specific reports, but for now there is no rush to stand in front of the freight train, except to keep an eye on Gold and the AUD for their eventual significant rallies.