Global Unwind Continues, Paulson Doesn’t Help

The global unwind continues this morning with US equities, commodities and currencies taking another beating. The US dollar and Japanese Yen continue to outperform with the British pound hitting a fresh 5 year low.

The story is still the same, which is sell first and ask questions later. It is earnings season and the reports that we have seen so far are a harsh reminder of the growing problems in the US economy. Retail sales are due for release on Friday and the warnings from retailers indicates that consumer spending has slowed materially.

Best Buy cut its full year forecast today, DHL is shutting down its US operations and Circuit City became the 14th retail chain to go bankrupt, joining companies like Linen N Things and Steve and Barry.

We are in a global easing cycle and the market expects central banks around the world to follow the UK’s aggressive interest rate cuts.

Central Bank Meetings: What Do I Expect for December

Federal Reserve: 50bp cut
Bank of England: 75bp cut
European Central Bank: 50bp cut
Reserve Bank of Australia: 75bp cut
Reserve Bank of New Zealand: 75 to 100bp cut
Bank of Canada: 50bp cut
Bank of Japan Japan: no rate cut

Paulson’s comments aren’t helping either

The Treasury Secretary indicated that he has scrapped plans to buy troubled assets and will instead be using the remainder of the $700B to help relieve the pressure Americans are facing with car loans, student loans, and credit card. This shift makes the Treasury look like they do not know what they are doing, which has exacerbated the slide in US equities.