As discussed in previous blogs the Federal Reserve cut interest rates by 0.25% basis points both the Funds rate and Discount rate were cut, however the markets expected more and we had a huge fall on share prices as clearly markets were disappointed. Many had expected a 0.50% cut but Bernanke and the Fed are worried about the problems of inflation so rates will remain at 4.25% for the time being. The main worry however is the economic slowdown, and the falling dollar as 2008 will probably herald what we have all been speculating a Recession. American investors hoped the rate cut would have eased fears around the housing slump and the worsening credit squeeze as banks are still reluctant to lend to each other many are sitting on huge reserves but with the discount rate above the fund rate for interbank lending some banks are seeking alternative sources of liquidity. The fact to remember is the Fed does not have the cure to the markets ills, they can only do so much "Monetary Policy" is the key role of the Fed and whilst the markets had priced in a rate cut Bernanke must get the balance right.

The fall out continues from the Sub-prime crisis as UBS this week announced another write down of $10bn taking the total lost by the bank to $13.5bn. This after UBS telling us in Q3 they did not see anymore significant losses. So what doe this mean? Well many banks will now be reviewing and looking at the book value of these CDO's and SIV's they have on their books. Sad to say we have not even scratched the surface of sub-prime losses expect more revelations over the coming weeks and months. Banks will look to source other cash revenues just as Citigroup went cap in had to Abu Dhabi, UBS have received a cash injection of $9.7bn with the bulk of the money coming from the Singapore Government and the Oman Government pumping in $1.75bn. It's further evidence of the transfer of financial power from the western economies to the great cash generating economies of Asia, Russia and the Middle East - which are able to dictate the terms on which they prop up important institutions,"

This coming on the worries by CIBC banking analyst (Meredith Whitney) that Citigroup is in worse shape than thought. Whitney believes that Citigroup needs to raise $30 billion of capital, and may have to do things like sell assets, issue new stock or cut its dividend, which pays out $2.7 billion of cash each quarter. My major worries is that Citigroup will announce huge losses, probably they should under new boss Vikram Pandit and then concentrate on getting the bank back to profit. Pandit is a ex-Morgan Stanley who left the bank to set up "Old Lane Partners" a hedge fund that he later sold to Citigroup for $800m. Note that Pandit's management team at Citigroup will consist of four ex-bankers from Morgan Stanley. We all await Q4 losses from Citigroup with abated breath who says another $11bn?

Losses announced by banks thus far look like this: (As of 11th December 2007- Freddie Mac announced further losses of $10-12bn)

UBS: $13.5bn
Citigroup: $11bn
Merrill Lynch: $8bn
Morgan Stanley $3.7bn
HSBC: $3.4bn
Bear Stearns: $3.2bn
Deutsche Bank: $3.2bn
Bank of America: $3bn
Barclays: $2.6bn
Royal Bank of Scotland: $2.6bn
Freddie Mac: $2bn
Credit Suisse: $1bn
Wachovia: $1.1bn
IKB: $1bn
Source: Company reports

As the housing market in the UK starts to splutter under the credit crunch it will become harder for those looking to enter the housing market also those who wish to re-mortgage. 1.4 million UK house owners who have fixed rate mortgages that re-set in 2008 will see payments rise on average £200, forecasts next year for repossessions are for 45,000 homes.

So what stocks and funds can you invest in during this crisis, I will look at giving some tips next time.