The worst one-day decline in modern history for the S&P/TSX composite index occurred in 1987, when the index plunged 11.3%. In mid-morning trading on Monday, the index was close to that record, down 10.8%. As of noon, it was trading down 5.8%, which ironically presents a huge relief for investors.

Recent weeks have shown the market to be extremely volatile. One day it is down significantly, the next day it breaks an upside record. This sort of activity will most likely continue until positive signs of relief for the credit crisis are clearly manifested.

This is evidently not the first time the market has experienced such a cycle. Below is a chart that shows how particular drastic events influenced the market, and how the market eventually recovered from such events.

For now, there is uncertainty as to what impact the $700B U.S bailout will have on the financial markets in the near term. U.S. banks are also hoarding cash and freezing lending, thereby exasperating the situation.

A few positive steps can help turn things around:
- The U.S. Feds may have an emergency meeting to cut rates any moment now.
- The bank of Canada may inject more cash into the overnight money market (they injected $800 million on Monday). This is to help banks cover their financing needs and convince them that money is available to borrow if they need it.
- Troubled assets (including real estate and private firms) are beginning to look attractive to large private investors. They can buy what the government can’t, and can afford to wait for the turbulence to pass.
- The financial sector is being “cleansed” from perceived bad lending practices and greed.

Basically, history shows that this crisis will come to pass, and the markets will once again stabilize and resume growth. If anything, this could prove to be a very good buying opportunity.

If you are in a leveraged position remember that there are no margin calls with segregated funds. Any losses are on paper, and you will not be harassed to come up with any differences. So it is a period to wait it out.

If you also have an RRSP or LIRA, you may want to diversify your portfolio in non-equity holdings, including real estate. Contact me directly for details on how to do this.