Resource-intensive Canadian indexes posted their worst month in 10 years in October, the Standard & Poor’s/TSX Composite Index shedding 17 percent, the biggest monthly decline since August 1998.

The Reuters/Jefferies CRB Index of 19 raw materials fell 31 percent, its worst month since at least 1956, on concern a slump in global growth will sap commodity demand. Crude oil fell 33 percent. Energy shares slid 18 percent in October. Valuations reached the lowest levels on record Oct. 27.

With those stats in mind, it’s easy to see how the Loonie had its worst month in almost 60 years.

But the S&P/TSX, which derives three-quarters of its value from resource and finance shares, rallied 15 percent Oct. 28 through Oct. 30. And raw materials stocks posted a 29 percent gain Oct. 28-30. It was a fitting reversal for a month punctuated by triple-digit swings–day-to-day, intraday, hour-to-hour. Volatility drove fear, and fear drove volatility.

Central banks and governments around the world have taken unprecedented steps to ease credit and bolster financial institutions, coordinating interest rate cuts as well as policies to rescue ailing banks.

Efforts to loosen lending appear to be working. The London Interbank Offered Rate, or LIBOR, is coming down, and the TED spread is narrowing. The three-month LIBOR fell 17 basis points (bps) to 3.03 percent, while the one-month rate fell 22 bps to 2.36 percent. LIBOR numbers have been coming down for three weeks–the three-month rate was 4.33 percent a month ago.

There remains a great deal of work left to be done. It’s no longer realistic to talk about averting a recession. What we’re dealing with here is limiting the depth, breadth and length of a downturn. As Northern Trust’s Asha Bangalore said last week:

The National Bureau of Economic Research will eventually announce the onset of a recession. Based on the NBER’s methodology, the recession appears to have commenced in the fourth quarter of 2007/first quarter of 2008.

The question now is about the depth and duration of the recession. In the post-war period, the median duration of a recession has been 10 months and median drop in real GDP from the peak to trough is a 1.9% annualized decline.

How will the current recession compare with prior history? In our estimation, the depth and duration will err on the side of being slightly higher than the historical median given the nature of the credit crisis that is under way. Congress is supposedly working on a second stimulus package that could moderate the weakness in economic activity.

Central banks will continue to bring benchmark rates down. The Montreal Exchange’s futures market is pricing in a 100 percent probability that the Bank of Canada will trim its interest rates by 25 bps Dec. 9; the odds for a 50 bps cut are 62 percent. US futures markets suggest it’s 100 percent certain that the Fed will cut rates by 25 bps Dec. 16, with a 42 percent chance of 50 bps.

The US Congress, for its part, is expected to write a stimulus package in a lame duck session beginning Nov. 17. A temporary extension of unemployment insurance and a temporary increase in food stamps would most likely to be used for immediate consumption, and there are mechanisms in place to get the money in peoples’ hands efficiently. A package should also include aid to local and state governments, which tend to cut spending during recessions. Infrastructure spending will also be included in a stimulus. Doing so will help boost employment while contributing to the long-term upgrade of US highways and bridges, the electrical grid and telecom backbone, and railways and ports.

The bottoming out process occurs over time. Don’t get too low when you’re tested on the downside, and don’t read too much into short-term rallies. For long-term investors focused on solid, sustainable businesses, this is a buying opportunity, but it’s important to understand that that time horizon includes rough patches. The best way to smooth the ride is to stick with cash-generating, well-capitalized businesses.

October stripped investors bare this year, but markets fall and markets rise. You go on.

Investors have been able to trade on US presidential election days only since 1984, so the data set is thin. There have been just seven election days, including today, on which investors could buy and sell stocks, but today will go down as the best.

In 1984, the Dow Jones Industrial Average rose 1.2 percent. When Bill Clinton was elected in 1992, the Dow fell 0.3 percent. In all, there have been three up days and three down days. Today, the Dow surged more than 3 percent.

That may be a function of removing one variable from a skittish market pricked by many. A study by JP Morgan of how stocks reacted to the 27 US presidential elections since 1900 suggests things will calm down over the next couple weeks.

The average one-week and two-week gain for stocks was 1 percent and 1 percent, respectively, with stocks rising half the time.

“In other words, historical analysis shows that past elections have not been big swing events, but have resulted in modest gains for the Dow Jones industrial average,” concluded Morgan’s analysts. We’ll be watching Wednesday’s reaction to whatever the winning candidate has to say about easing lending, helping consumers or otherwise kick starting the economy.

Fall is the perfect time to enjoy Washington, DC’s outdoor treasures and catch a glimpse of nature’s splendor. And this year you can enjoy the immediate aftermath of the Presidential election in the seat of the federal government.

Join me and my colleagues Neil George and Elliott Gue for the DC Money Show, Nov. 6-8, 2008, at The Wardman Park Marriott.

Go to www.moneyshow.com or call 800-970-4355 and refer to priority code 011362 to register as our guest.

We also have a special invitation for our readers. KCI Communications, Inc., is organizing an exciting 11-day investment cruise Dec. 1-12 through the Caribbean and Panama Canal. Participants will have the opportunity to meet and chat with me and my colleagues Gregg Early, Neil George and Elliott Gue.

This will be a unique opportunity to step away from your daily routines, relax in one of the most beautiful parts of the world and share analysts’ knowledge and passion for the markets. During the sail, you’ll not only explore the cerulean splendor of the Caribbean, but you’ll also delve deep into current markets in search of the most profitable opportunities for your portfolios. You’ll also have the rare chance to sail through one of the world’s engineering marvels, the Panama Canal.

It’s always a special treat to meet and talk with subscribers in person, and we couldn’t have picked a better setting than aboard the six-star Crystal Serenity. This is sure to be an especially memorable experience. We hope you’ll join us.

For more information, please click here or call 877-238-1270.

The Rebound: Investors are now desperately scouring the headlines and the Internet daily for any sign of a bounce. We can save you the trouble. My fellow KCI Communications editors and I will present a breaking news conference Nov. 6, 2008 at 1 pm ET. Join us for “Election Results, Recession Fears and What Investors Should Do Next” by registering here or calling 800-832-2330.

In the meantime, please check out our latest insights into the markets on our blog, At These Levels.

ARC Energy Trust (TSX: AET.UN, OTC: AETUF) posted a 5.3 percent increase in daily output of barrels of oil equivalent (BOE), relatively steady operating costs of CAD10.19 per barrel of oil equivalent (BOE) and a payout ratio of 68 percent. Realized selling prices for oil and natural gas came in at USD114 per barrel and USD8.68, respectively. The payout ratio came down to 61 percent and 58 percent year-to-date, when one-time factors are excluded from distributable cash flow calculations.

The only real negative was the anticipated roll back of the first “top-up” distribution, taking the payout back to the original CAD0.20 per month rate. That level will allow better funding of capital expenditures for the trust, and it’s a rate ARC has been able to maintain at lower energy prices than today’s. ARC announced that its budget for 2009 will be CAD585 million, a 10 percent year-over-year increase driven by the potential of the Montney natural gas play in northeastern British Columbia.

ARC plans to spend more than half of its budget in the Montney, which is forecast to push a 13 percent increase in production in 2010. ARC is aggressively using its cash flow for long-term ends, and those efforts could lead to a higher payout ratio and increased interest costs. Montney’s cash flow potential more than offsets those short-term concerns. ARC Energy Trust is a buy up to USD30.

Pembina Pipeline Income Fund (TSX: PIF.UN, OTC: PMBIF) reported strong growth at its oil sands business, where the completion of the Horizon Pipeline increased its shipping capacity by 47.6 percent. The trust’s midstream business also recorded double-digit growth in operating income, offsetting flat results at the conventional pipelines due to a needed repair.

Importantly, Pembina also announced it plans to continue to pay distributions at least at the current rate through 2013 as a high-yielding corporation. The payout ratio net of capital spending came in at 95.1 percent, and the trust expects that to come down to 90 percent for the full year. Pembina has drawn well below 80 percent of its existing credit facilities, which extend to July 24, 2012.

Pembina expects to refinance CAD75 million in notes that mature in June 2009 by either extending with existing lenders or refinancing with an increased bank facility. The current uncertainty in financial markets means financing costs may increase, but Pembina stable cash flow and conservative use of debt limit its liquidity risk. Pembina Pipeline Income Fund is a buy up to USD18.

Information Technology

Bell Aliant Regional Communications Income Fund (TSX: BA.UN, OTC: BLIAF) reported year-on-year increases in third quarter revenue and earnings of 0.8 percent and 0.3 percent, to CAD815.3 million and CAD371 million respectively. Internet revenue grew by 13.6 percent to CAD11.7 million, with high-speed subscriber growth of 12.4 percent. Local and long-distance revenue declined by 1.4 percent to CAD4.9 million and 6.2 percent to CAD7.7 million, respectively.

Management also affirmed the current dividend level through 2012, which was covered by operating cash flow by nearly a 2-to-1 margin. Interest charges for the third quarter came down 0.8 percent; debt levels are virtually unchanged year-over-year. Bell Aliant draws most of its liquidity from recurring cash from operating activities, and anticipates funding capital investments and distributions without tapping credit markets. The fund has been hampered by the freeze-up in commercial paper markets, but has sufficient backup in the form of credit facilities, which remain in place through July 2011. Bell Aliant Regional Communications Income Fund is a buy up to USD30.

TransForce’s (TSX: TFI, OTC: TFIFF) third quarter results prove the trust has been as good as its word in a very tough environment for North American transportation. Revenue rose 23 percent, cash flow surged 27 percent and pre-tax earnings pushed up 31 percent, as expansion, economies of scale and cost controls paid off. As a corporation, TransForce’s payout ratio is best calculated using earnings per share. The 32.3 percent rate leaves a lot of cash available for further growth, as well as to cover the still generous distribution.

TransForce will continue to pursue acquisitions in an environment where smaller operators are squeezed by tightening lending practices. It did, however, back away from an Ontario-based less-than-truckload target because one its key customers faced substantial short-term funding problems. TransForce forecast free cash flow in excess of CAD100 million in 2009, funds that will be used to further pay down debt. In the third quarter, TransForce paid down CAD33.7 million of long term debt, bringing the total down to CAD790 million as of Sept. 30. TransForce is a buy up to USD8.