Geoff Cutmore - Morning Thoughts

Still Banking on Two Rate Cuts

David Bloom, head of currency strategy at HSBC, is a pessimistic man, at  least when it comes to the strength of the U.S. economy. Our guest host spent two hours explaining why the housing market has still not stabilized in the U.S. and why this will ultimately lead the Federal Reserve to slash interest rates (well, cut them at least twice before the year end).

Housing will be just one part of the overall story of slowing across the economy, but it will be an important one. The dollar is only going down from here says Mr. Bloom.

The good news, at least for global investors, will be the ability of the rest of the world to continue growing even as the U.S. slows down. No synchronized downturn for David, this will be the time for Europe and Asia to demonstrate their ability to de-couple from the U.S. consumer.

Fingers crossed, eh?

There was much prognosticating over the last 10 days. Was it China, the sub-prime debt market, U.S. mortgages, sun spot activity, etc. Needless to say there has been a lot of chest beating about the market falls. Were equities the victim of a liquidity trade? Funds that couldn't escape derivative positions or illiquid contracts sold out of what could be sold. Beware of the I-told-you-so brigade. Calling the markets overbought for the last 6 months isn't the same as picking the week or even month for a pull-back! So keep a skeptical ear open as analysts claim the market is doing just what they predicted.

How far does this go? There are still too many people saying its time to buy for my liking. They argue this is purely a market event and not prompted by a change in the economic fundamentals. Perhaps they are right, but I think this is going to take a little bit longer to work its way through.

Feedback welcome - here.