In my recent Australian tour, one fact was brought home. The current recession will go far beyond the trading world. Many of my friends had their retirement funds frozen as a result of the Rudd’s government inability to think things through.

In HK, some of my friends have lost their jobs and in Singapore many a person has lost his life saving by purchasing DBS High-5 bonds. The government did the right thing in applying pressure on the bank to refund to the unsophisticated investors.

There is probably worse to come in 2009.

We will need all our investment skills to get through the next 6 years or so – if my best case scenario plays out. The first step in this scenario will be a Xmas rally. The extent of the rally will provide information on whether we can expect a breach of the 768 low in the S&P (basis cash) and the 7197 low in the DJIA basis cash of the 12-m swing i.e. yearly trend.

In turn , if and when those lows are breached, we’ll have information on whether the markets will accept below the maximum extension in the S&P (611 basis cash) and DJIA (6795 ). As regular readers of this blog know – acceptance below the maximum extension will be evidence of a confirmed bear market in the 12-m.

This would suggest we are retracing the 1931 low to 2000 high in the DJIA. This is not a comfortable thought.

The best case scenario accepts the possibility of a breach below the 2002 lows but then calls for a rally to the 2007 highs as the sideways market is confirmed.

But as I said in yesterday’s blog, ultimately, we depend on the FED to do the right thing if we are to prevent another depression. Unfortunately, their performance to date does not fill me with confidence.