WRAPUP year of the rat

if you read this blog and sell most if not all of your stocks earlier, you have already protected your capital to losses of 15-20% min, even more so if you hold financial stocks, so read on.

BOA incident
integrity; credibility; ethics, you name it - they are all out of the window. back in mid dec [17 dec, the day of my blog on tbond yield ] lewis of boa knew that merrill ran into severe losses of 15b and wanted to scuttle the deal. he went to fed/treasury to tell them his intentions, but was told that it is in boa and the public interest that the deal goes through. tbond yield also fell through 3% at the same time. the deal went through with help from fed and treasury. layman can only guess what is happening behind the scenes, but tbond yield tells you something big is going on at that time. the rest are history.

thain should go, lewis should go.

BARCLAYS
brown announced a series of measures to bailout the banks. while barclays is not one of them, uk treausry thinks that the funds barclays got from customer CRN [callable rate notes at 9%+] are deemed too expensive and it got funds from treasury to pay them off as the traditional business it is running cannot generate enough revenue to get it going. so recently barclays pay off such notes in full. it is already nationalised and expect more funding from govt not in the form of preferred shares as they are now known to be too expensive, new ordinary shares will keep on diluting other common shares investors.

GOLDMAN
goldman got its share of [high interest rate] preferred shares or loan from buffet, i think there is a high chance that the deal be modified at a time when goldman shares hit low later. its share price still has room to go lower at present. you will not see 105/115 for goldman for a long long while, the price buffet stroke with goldman. this conclusion draws from the fact that the interest rate is too high for normal operations. after it converted to bank holding, it cannot leverage as high as before, also it does not enjoy the command and respect from hedge funds or have such leverage over them, thus it cannot command the resources to make its trading as profitable.

YAM
our HKMA chief recently stated that the second financial tsunami is coming and even more severe. he did so only after reading stories from wsj. if he had forecasted back in 17 dec - day of my blog, then he deserves his salary of usd1m plus.

GOLD
it went through the roof [hit 900+] last nite in us closing and 30 yr tbond yield rose above 3.2, all these pointed to the market thinking us govt have to print money to fend off a depression.

DJIA, HSI
it is almost certain that djia and hsi will trend lower. djia at 6000, hsi at 9000.

UPDATE

if you have been watching CNBC or Bloomberg for the past month, you probably have heard from 9 out of 10 guests on show saying this is a great time to buy into stocks and you will come out a winner 3-5 years down the road. should so many funds be buying into the market assuming these guests do what they say then why isnt dj rallying. they probably are lying or are sitting on the sidelines watching while preaching [dont do what i do, do as i say].

the market is telling you a different story, funds go straight into t-bonds [read earlier post on tbond yield in this blog] and the dj is going nowhere even after the rate cut of 75 basis points by the fed although it did rally a few hundred points to touch 9000 but didnt manage to stay there.

wall street journal had an article about synthetic cdo that said so many town councils round the world and pension funds are involved in synthetic cdos that any serial bankruptcies of companies listed in the cdos will lead to even more credit crunch for the global economy. there are also mbs on alt A loans [arm - adjustable rate mortgages] that have to reset interest rates in 2009/10 which could accelerate foreclosures of real estate. there are also prime mbs and conventional loans on the banks' balance sheet that will hit the wall if the tbond yield is any guide to bankruptcies.

china is also seeing its foreign reserves contracting. this is the reverse of what happens when its foreign reserves expand which add to the yuan money supply. the shrinkage of such reserves indicate a contraction of yuan money supply which will balance out the effects of any stimulus if the contraction is serious and could be an obstacle to its plan to stimulate the economy.

you have been told what will happen, prepare yourself and see how the final outcome will pan out shortly.

HSBC

This is the most favored bank and listed company here in HK and probably UK/USA for the past year or two since the subprime problems surfaced. But no more illusion should be placed on this bank for the future, why?

A number of factors have changed and its management had been slow in reacting to the current environment, here below are the facts:

• blanket deposit protection in HK - this raises cost of funds as depositors switch to higher rates at smaller banks;
• capital injection by UK authorities - it is one of the few banks that refused to accept capital from the UK govt, depositors may choose a govt sponsored bank over a totally independent one given the seriousness of the current crisis;
  
• fund raising - missed the opportunity to raise funds though a few UK banks raised capital with the current rally;
• faced downgrades on its outlook and possibly its debt as well;
• economies of the key regions where it operates deteriorate sharply which means heavy loan loss provisions on the loans or investments it made are on the horizon when it reports results for Dec08 and Mar09.
• limited avenue for new revenue - the contribution from retail wealth management sector has all but disappeared, now it has to rely on the bread and butter of interest spreads on conventional loans and the fees or interest it charged on below min balances. Given the zero interest rates environment, there is not a lot to earn even from interbank markets.
  

HSBC got herself in a quagmire after current price declines as the costs of raising capital have skyrocketed - capital raised at a lower price will have a more dilutive effect on current shareholders and even more so with the dividend. Any cut in dividend will drive its price even lower so it becomes a vicious circle. If you cut dividend before a rights issue, the dilution becomes even more severe. If you raise capital and do not cut dividend then the cash drain is huge. If you do both at the same time, then the impact is devastating. Look at Standard Chartered, the rights issue price is a discount of 40%+ of the current price before announcement.

HSBC may not have to use such deep discount as enticement for her shareholders, but its future price may be a total disappointment for her fans.

T Bond Yield and the rest

30 year tbond yield dropped below 3% for the first time. this indicates that it is forecasting deflation ahead, whether the recent fed intervention of targeting almost zero for short term rates [0-0.25%] can starve off the deflation is still unknown.

stocks are definitely in a rebound mood for the xmas season, next year may not be so lucky.

what does less than 3% yield mean? it probably forecast the following:

1. a wave of bankruptcies in the year ahead or more;
2. no inflation but deflation setting in - more price declines in commodities including maybe gold;
3. even oil can get much lower than range bound 40-50 if the unemployment is serious;
4. more assets deflation;
5. more fund redemptions pushing stocks even lower;
6. as unemployment rises, foreclosures closely follow, this will lead to
   
7. more equity funding required for financials when losses mount on their risk portfolio of asset backed securities as valuations decline as well as hits to traditional portfolio of mortgages; credit card and unsecured consumer loans not to mention commercial loan defaults due to more bankruptcies of corporations.
   
8. the 3 motor car companies have to shed quite some staff and benefits to break even, in my opinion a cost cutting of 30% or more is required as sales slow.
   

i forecasted zero interest rates policy earlier in my blog that many central banks will, even reluctantly, have to pursue. the current spike in foreign currency exch rates against the usd will put even more pressure on other central banks to follow suit since a rising currency will impede exports, industry of which is already in a fragile state for countries such as uk, italy, germany, china, korea etc.

so brace yourself for a really really tough ride in 2009 and sell most of your stocks into this sucker rally.

UPDATE

The twin w of tse and hsi bottom formation did not materialize, instead hsi formed a double top around 15300 neckline 13200, it will likely hit 11100.

After the state of flux in oct, a lot of the over extended funds have liquidated their positions, the final third leg may take much longer to wind down - likely 6-9 months since the second leg took only three plus months to fall from 23000 to 10600.

gm is the lever that may trigger the next wave of selling [if it files for chapter 11] or any sharp rise of the market once a bailout plan is in shape even it might not have been announced to the public

commodity based currencies such as aud [0.626], nzd [0.543] and cad [1.26] are near their near term lows which indicates a deeper recession, thus dj has the possibiltiy to fall to 6000 depending on how things and data pan out.

TSX N HSI

some readers have asked me to add more canadian contents.

as canada is a small country population wise with a large area, the spread of info on the net is not as easy to locate. readers who have more info such as websites or key indices can comment via the comments icon at the bottom of each blog article so i can broaden the coverage.

tsx
hopefully if it climbs above 10400 and stay above it, it will at least achieve 12300 with resistance at 11900.

hsi
hang seng has a similar pattern trying to form a w bottom neckline around 15300 and achieving min 20000 with resistance around 17000. the qualifying criteria is a high volume pushing the index through 15600 and stay above it.

Country/regions Update and others

USA
After election victory, obama should concentrate in the following areas:

• fiscal stimulus of the magnitude 1-3% of gdp for 2009 and maybe 2010 as well
  
• saving the auto industry from total collapse but avoiding bailouts which are costly to taxpayers, the industry must consolidate and uaw must give in to lower benefits and job protection
• all banks receiving govt support must not spend extravagantly or pay bonuses more than 1-2 years salary and that other employees must also be paid bonuses before management got paid so consumer confidence can rise early in the recovery to boost spending
  
• implement some form of universal health care
• cut wasteful govt spending such as support for farmers or biofuel mandate
• raise some form of duty on gasoline as crude prices fall to conserve oil reserves both locally and overseas
• retreat from iraq to cut military expenditure thus reducing govt deficits to free up resources for other areas.
  

CHINA
The fallout will be bigger than most thought as her citizens are not familiar with capitalist style crashes, many are trying to avoid facing the ultimate consequences by unconventional tactics such as property owners not paying mortgages and arguing that promises made by developers on prospectuses are not met. Most consumers in developed regions know the bank and developer are not one party and any action against one will not have effect on the other, but such consumer behavior hurt banks along the way.
The export sector which comprises many manufacturing concerns had already been hit by slow or reduced orders from us and europe, it will have repercussions throughout the service sector such as logistics, restaurants and leisure industry, banking, insurance etc.
Meeting the min 8% growth next year will be difficult.

EUROPE
UK is the hardest hit followed by a number of countries such as spain and italy. the ecb simply has maintained interest rates way too high for too long and it may get into a deflation spiral.

JAPAN
It may have the safest currency for the moment, but its aging demographics will push it into an everlasting zero or negative growth for a long long while if it does not allow immigration into the country which will boost consumer spending and property demand.

Expect zero interest rates policy by key central banks to fend off depression which inevitably will lead to higher inflation not too soon into the future.

One bright spot that may come is HSI which may climb as high as 20000 if it forms a w bottom with neckline around 15300.

CITIC

The biggest debacle in town.

Many of you would like to know in detail the AUD deal that begins the demise of CITIC PACIFIC - a blue chip company here in HK.

Read the announcement below without the proper indentation as it is extracted from the PDF file:

PROFIT WARNING

This announcement is made by CITIC Pacific Limited pursuant to Rule 13.09 of the Listing Rules.

The Board informs Shareholders and potential investors that:

(1) the Company’s results for the financial year ending 31 December 2008 are expected to be affected by a loss arising from certain leveraged foreign exchange contracts entered into by the Group with a view to minimizing currency exposure of the Company’s iron ore mining project in Australia; and

(2) the liquidity of the Company will be strengthened by CITIC Group, a state owned company in Beijing holding 29% of the Company’s Shares, agreeing to coordinate to arrange a standby loan facility of USD1.5 billion.

Shareholders of the Company and investors should exercise caution when dealing in the Shares of the Company.

At the request of the Company, trading in the Shares of the Company was suspended with effect from 9:30 a.m. on 20 October 2008 pending the release of this announcement. An application has been made by the Company to the Stock Exchange for resumption of trading in the Shares of the Company with effect from 9:30 a.m. on 21 October 2008.

INTRODUCTION

This announcement is made by the Company pursuant to Rule 13.09 of the Listing Rules.

The Board wishes to inform Shareholders and potential investors that:

(1) with a view to minimizing the currency exposure of the iron ore mining project in the Western Australia, the Group entered into various leveraged foreign exchange contracts, including target redemption forward contracts, to obtain AUD and EUR. In addition, with a view to minimizing the currency exposure of Group’s projects (including the iron ore mining project) to fluctuations in RMB, the Group entered into RMB target redemption forward contracts; and
(2) the liquidity of the Company will be strengthened by CITIC Group, a state owned company in Beijing holding 29% of the Company’s Shares, agreeing to coordinate to arrange a standby loan facility of USD 1.5 billion.

THE LEVERAGED FOREIGN EXCHANGE CONTRACTS

The Group has outstanding AUD target redemption forward contracts and daily accrual contracts for AUD. Under the AUD target redemption forward contracts and the daily accrual contracts for AUD, the Group will receive AUD against delivery of USD. The contracts are linked to the AUD : USD exchange rate. The maximum deliverable amount to the Group under all AUD target redemption forward contracts is AUD9.05 billion and is deliverable in monthly instalments up to October 2010. The maximum deliverable amount under the daily accrual contracts for AUD is AUD103.3 million and is deliverable in monthly instalments up to September 2009. The outstanding AUD leveraged foreign exchange contracts have a weighted average strike price of AUD : USD0.87. The remaining maximum aggregate profit under the outstanding AUD target redemption forward contracts is USD51.5 million. Each AUD target redemption forward contract will be knocked out (i.e. the obligation to deliver outstanding AUD instalments to the Group will automatically cease) when the stipulated maximum profit is reached for that contract (which ranges from USD1.5 million to USD7 million).

However, there is no similar knock-out feature for losses.

The Group has outstanding dual currency target redemption forward contracts. Under the dual currency target redemption forward contracts, the Group will receive the weaker of AUD or EUR. The contracts are linked to the EUR : USD and AUD : USD exchange rates. The maximum deliverable amount to the Group under the dual currency target redemption forward contracts is AUD290.7 million or EUR160.4 million and is deliverable in monthly instalments up to July 2010. The outstanding dual currency target redemption forward contracts assuming AUD is the weaker currency have a weighted average strike price of AUD : USD0.87. The outstanding dual currency target redemption forward contracts assuming EUR is the weaker currency have a weighted average strike price of EUR : USD1.44. The remaining maximum aggregate profit under the outstanding dual currency target redemption forward contracts is USD2 million. Each dual currency target redemption forward contract will be knocked out (i.e. the obligation to deliver the outstanding currency to the Group will automatically cease) when the stipulated maximum profit is reached for that contract (which ranges from USD0.8 million to USD1.4 million). However, there is no similar
knock-out feature for losses.

The Group has outstanding RMB target redemption forward contracts. The RMB target redemption forward contracts are settled in USD by reference to the gains or losses against certain predetermined USD : RMB exchange rates and calculated by reference to a notional RMB amount per month. No physical delivery of RMB takes place.

Monthly net settlement under the RMB target redemption forward contracts is to be made up to July 2010. The maximum notional amount under the RMB target redemption forward contracts is RMB10.4 billion. The amount payable in USD (which is the maximum actual exposure of the Group bearing in mind no physical delivery of RMB takes place) is calculated to be not more than USD42.8 million based on an exchange rate of USD : RMB6.84 as at the Latest Practicable Date. The outstanding RMB target redemption forward contracts have a weighted average strike price of USD : RMB6.59. The remaining maximum aggregate profit under the outstanding RMB target redemption forward contracts is RMB7.3 million. Each RMB target redemption forward contract will be knocked out (i.e. the obligation to pay any USD under the RMB target redemption forward contracts will automatically cease) when the stipulated maximum profit to the Company is reached for that contract (which ranges from RMB2.4 million to RMB3.8 million). However, there is no similar knock-out feature for losses.

The Board confirms that to the best of its knowledge and belief after having made all due and careful enquiries, save as disclosed in this announcement and plain vanilla foreign exchange contracts (including simple buy and sell foreign exchange contracts), there are no other foreign exchange derivative products in AUD, EUR, RMB or any other currency entered into by the Group.

Accounting treatment for the outstanding Leveraged Foreign Exchange Contracts

The Leveraged Foreign Exchange Contracts are foreign exchange contracts which do not qualify for hedge accounting. Accordingly the contracts are marked to market at the end of each financial period and the Company will have profit and loss exposure for

(i) foreign exchange movements in these contracts,

(ii) their termination and

(iii) accepting delivery of currencies under such contracts.

Realized loss and mark to market loss

Since becoming aware of the exposure arising from these contracts on 7 September 2008, the Company has terminated some of the then outstanding leveraged foreign exchange contracts at a loss of HK$626.6 million. In addition, the Company has bought and sold AUD foreign exchange forwards to manage its exposure on AUD which resulted in a loss of HK$128.6 million. CITIC HK agreed on 8 September 2008 to share one half of the loss arising from various contracts entered into by the Group between 8 September 2008 and 13 October 2008 only to buy and sell AUD foreign exchange forwards to manage the Group’s exposure to AUD and accordingly CITIC HK has borne a total loss of HK$64.3 million.

In addition, during the period from 1st July, 2008 to the Latest Practicable Date, the Company has taken delivery of AUD308.7 million and EUR42.3 million from

leveraged foreign exchange contracts and performed monthly net settlement in respect of its RMB target redemption forward contracts. The total realized loss incurred from taking delivery of such currencies and net settling the RMB target redemption forward contracts is HK$110.8 million. The Company has also incurred a loss of HK$6 million from selling AUD94.5 million delivered in such period. Accordingly, for the period between 1st July, 2008 to the Latest Practicable Date, an aggregate loss of HK$807.7 million was therefore incurred by the Group (“Realized Loss”) as a result from the above actions. The Realized Loss is non-recurring in nature.

While historically, such losses would have been non-recurring in nature, given the current large open position, it is likely that such losses will become recurring in nature until the excess position is closed out. The termination of the outstanding target redemption forward contracts and daily accrual contracts and the fixing or the taking of deliveries of currencies under such contracts prior to year end may affect the realized loss for the year ending 31 December 2008.

The Group’s result for the financial year ending 31 December 2008 is expected to be affected by the Realized Loss and the mark to market loss using rates on 31 December 2008.

Based on the valuations received on the Latest Practicable Date from the relevant counterparties to the outstanding Leveraged Foreign Exchange Contracts and (a) an exchange rate of AUD : USD0.70; (b) an exchange rate of EUR : USD1.35; (c) an exchange rate of USD : RMB6.84, all as of 10:00 a.m. on the Latest Practicable Date in Hong Kong, the mark to market loss of the outstanding Leveraged Foreign Exchange Contracts is HK$14.7 billion (the “Mark to Market Loss”). The amount of the mark to market loss as at 31 December 2008 will be driven by a number of factors including, among other things, termination of any of the Leveraged Foreign Exchange Contracts, interim fixing and delivery of foreign currencies, changes in the exchange rate, volatility of the currency market, interest rate differential, market liquidity, bid and offer spread and may not be the same as the Mark to Market Loss.

Intentions in relation to the Leveraged Foreign Exchange Contracts

The iron ore project of the Group has a current estimated AUD requirement of AUD1.6 billion for its capital expenditure up to 2010. In addition, it is estimated that the project (which is anticipated to be 25 years) will require at least AUD1 billion for its operating expenditure for each of its full operational years. The total maximum amount deliverable in AUD under the outstanding AUD target redemption forward contracts, daily accrual contracts for AUD and under the dual currency target redemption forward contracts (assuming AUD is the weaker currency) is AUD9.44 billion. Given the AUD needs of the Group, the Group may restructure some of these contracts to provide for longer settlement terms in line with such needs. Accordingly the Group will monitor these positions carefully and terminate contracts and/or restructure contracts and/or take delivery of the AUD as required, in order to mitigate any losses to the Group.

The iron ore project of the Group has a current estimated EUR requirement of EUR85 million for its capital expenditure. The total maximum amount deliverable in EUR under the dual currency target redemption forward contracts (assuming EUR is the weaker currency) is EUR160.4 million. Accordingly the Group will monitor these positions carefully and terminate contracts and/or restructure contracts and/or take delivery of the EUR as required, in order to mitigate any losses to the Group.

The Group does not intend to terminate the RMB target redemption forward contracts.

The total estimated RMB requirements of the Group are approximately RMB10 billion.

CITIC GROUP SUPPORT

CITIC Group, a state owned company in Beijing holding 29% of the Company, has indicated its full support as always to the Company. CITIC Group has agreed to coordinate to arrange a standby loan facility of USD1.5 billion in order to strengthen the liquidity of the Company on normal commercial terms as to interest and security.

PERSONNEL CHANGES

Because of the currency exposure described above, Mr. Leslie Chang Li Hsien, the Group Finance Director and Mr. Chau Chi Yin, the Group Financial Controller, have resigned as Directors with effect from 20 October 2008. Both Mr. Chang and Mr. Chau confirm that they have no disagreement with the Board and there is no matter relating to their resignation that will need to be brought to the attention of the shareholders of the Company.

Mr. Vernon Francis Moore, a Director since 1990, has been appointed as the Group Finance Director on 20 October 2008 responsible for the Group’s finance and internal control. Mr. Moore will also act as the Company’s qualified accountant under the Listing Rules.

GENERAL

The Board believes that the principal business activities of the Group will not be

affected. In addition to the CITIC Group support referred to above, the Group has

substantial long term finance in place for its capital requirements.

Shareholders of the Company and investors should exercise caution when dealing in the Shares of the Company.

7

At the request of the Company, trading in the Shares of the Company was suspended

with effect from 9:30 a.m. on 20 October 2008 pending the release of this

announcement. An application has been made by the Company to the Stock Exchange

for resumption of trading in the Shares of the Company with effect from 9:30 a.m. on 21 October 2008.

DEFINITIONS

In this announcement, unless the context otherwise requires, the following terms have the following meanings:

“AUD” Australian dollars, the lawful currency of Australia

“Board” the board of Directors

“the Company”

CITIC Pacific Limited 中信泰富有限公司, a company incorporated in Hong Kong with limited liability, the Shares of which are listed on the Stock Exchange

“CITIC Group” CITIC Group 中國中信集團公司, a state-owned enterprise

established under the laws of the PRC and the 100% holding company of CITIC HK, the single largest shareholder of the Company holding as at the Latest Practicable Date 29% of the issued Shares

“CITIC HK” CITIC Hong Kong (Holdings) Limited 中信(香港集團)有 限公司, a wholly owned subsidiary of CITIC Group

“Director(s)” the director(s) of the Company

“EUR” Euros, the lawful currency of those member states of the European Union that have adopted such currency

“Group” the Company and its subsidiaries (as defined under the

Listing Rules)

“HK$” Hong Kong dollars, the lawful currency of Hong Kong

“Hong Kong” the Hong Kong Special Administrative Region of the PRC

“Latest Practicable Date” 17 October 2008, being the latest practicable date prior to the date of this announcement for the purpose of ascertaining certain information contained in this announcement

8

“Leveraged Foreign Exchange Contracts” collectively, the outstanding AUD target redemption forward contracts and daily accrual contracts for AUD, the

outstanding dual currency target redemption forward contracts and the outstanding RMB target redemption forward contracts entered into by the Group

“Listing Rules” the Rules Governing the Listing of Securities on the Stock

Exchange

“PRC” the People’s Republic of China

“Realized Loss” the aggregate realized loss of HK$807.7 million incurred by

the Group as at the Latest Practicable Date

“RMB” Renminbi, the lawful currency of PRC

“Shares” ordinary shares of HK$0.40 each in the capital of the Company

“Shareholders” holders of the Shares

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“USD” United States dollars, the lawful currency of the United States

By Order of the Board

CITIC Pacific Limited

Stella Chan Chui Sheung

Company Secretary

Hong Kong, 20 October 2008
The url link
http://www.citicpacific.com/upload/en/20081020-2e.pdf

DJ

Look at this chart, DJ has just fallen 600 point plus and is about or almost surely breaking out to the south of the trendline from the early 90s, it has already broken out a second trend line [from 1994] to the south which makes it very bad.

The lingering support now is 7500.

Hopefully it is not all gloom and doom as the moving averages [in mths] of 10, 20, 50 pointed to a very sharp rebound once it hits a short term low, check the ma on this chart between the years from mid 99 to about 2002 for a similar pattern which might resurface in this downfall, but dont forget that DJ will retry and hit new lows after the sharp rally.

When will this end? It is anybody's guess, but there are clues:

• an exhaustive volume of 2-3 times the 3mth average couple with a sharp fall of at least 500 points or more;
• a spike in LIBOR causing a panic selloff and then rates started to level off and trend lower; without rates trending lower, the fall will continue as it indicates trust is still to be found between FIs or between depositors/FIs.
  
• at least after the year end as banks are scrambling now to get funds ready for year end reporting and write offs;
• a gm/ford filing for chapter 11 bankruptcy, 6-9 months after it the recession may come to a close

The sequence of materialization is not known, 1 and 2 might happen simultaneously or in sequence, any three of the above happening in sequence or simultaneously might hit at least a short term low limiting further fallout for a while.

Further Upheavals

Latest incidents on the credit crunch involve:

• Iceland backing up one of its largest bank - leading to the official currency plunged more than 10% in the past few days;
• Ireland guaranteeing all depositors of her six largest banks;
• Greece also guaranteeing all depositors of her banks leading to big rows with UK & France that this may become predatory practice that will hurt their banks if customers transfer deposits out of British and French system to Greek banks;
• California and Florida state govts unable to raise funds;
• the fixing by Germany's finance ministry to get 35b euro funding [27b govt, 8b from private banks] to HYPO was rejected by the private banks;
• further liquidity problems at Fortis

Europe is heading into financial catastrophe as there are just too many countries involved with no clear cross border recovery plan(s).

Expect both Europe and US central banks to cut interest rates further, even between target meeting dates, to help bolster their banks and stablize the financial sector. Will such cuts help, only if trust between FIs and between depositors/FIs come back.