Geoff Cutmore - Morning Thoughts

Credit Crunch Part Two

Geoff Cutmore

The subprime fall-out continues to claim more victims. Merrill's came as a blow - and in what is now becoming predictable for financial companies trying to get ahead of the news agenda - UBS rushed out 24hrs early the bad news on exposure and trading outlook.

Do the markets care? Are the markets behaving rationally might be a better question. Oil new highs, gold new highs, selected equity markets new highs. The money is still sloshing around the markets, but don't seem interested in the negative newsflow.

Robin Griffths of Rathbone Brothers made the observation that the problem is contained in the financials - the rest of the world is growing happily and other parts of the economy are doing nicely - so why worry. Importantly, the fed also appears to be signaling a willingness to underwrite some of the markets risk. If it doesn't deliver at least a 25 basis points cut this week, there will be blood on the stock boards - the cut is already in the price.

Sean Corrigan, our guest host today, was less comfortable. The false dawn has already faded - that was one of his lines this morning. As the credit bubble deflates, says Sean, the western consumer must retrench. Don't imagine the Asian economies and markets can decouple - Asian consumers and producers don't have the same spending patterns or disposable income. Timing, timing Sean? - Couldn't elicit more than 'it'll happen over the next 2 years'.

So why not enjoy the momentum that is driving markets at the moment? That is speculating, not investing, says Sean, and a dangerous business in these markets.

Apologies for the gap since the last blog. I have been on the road with work and family commitments.

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