Friday, 3 October 2008

ECB to Cut Rate...Pretty Soon.

"European Central Bank President Jean- Claude Trichet indicated the bank is poised to cut interest rates for the first time in more than five years as the credit crunch hurts the economy and damps inflation.

Investors are betting the ECB will lower borrowing costs as soon as next month after Trichet told a press conference in Frankfurt that policy makers discussed a rate reduction today. While leaving the benchmark at a seven-year high of 4.25 percent, Trichet said financial-market turmoil is damping economic growth and inflation risks 'have diminished.'

It should come as surprise to readers that the global economy is sharply slowing with many economies in recession or about to enter a recession.

In reality, I wouldn't be surprise to see both the US, UK and the ECB cutting rate all at the same time, maybe even as early as next order to shock the market. A bit like a patient that has had an heart attack...the credit market needs an electrical shock to bring it back to life.

The credit market is not functioning at about the end of the economical cycle, making the slump even worse than the mild recession of 2001. The U.S. they are trying to avert a depression without being able to avoid a deep recession.

The impact is global with the emerging market being hit the most.

China will have to fight with their social stability while the US and Europe will be batling with rescuing their financial stability.

Russia is batting its worst financial and economical slump. The country financial system is too young and not mature enough to respond fast and adequately amid massive foreign reserves.

To conclude, in memory this is the worse I have seen since 30 years ago, back in the late 70's...

Would I want to buy in this environment?
Yes, if you don't trust the ECB and the Euro and believe that we are going into an inflationnary spirale.
No, You think that deflation has started and price in all asset class will fall in the next few years to come. So why buying now when you can buy more tommorow?

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