"ROCK"Y RIDE

As the stock markets around the world are waiting with bated breath for the FED meeting on Sept 18th for the Interest rate cut, the credit crunch took its 1st toll in U.K as Mortgage Lending bank -NORTHERN ROCK - ran into difficulties. No sooner than the news that it has taken a short term loan from Bank of England to overcome its temporary(as what it claims) financial crisis on Thrusday, its share price fell 32% on Friday and more than 1 billion Euros were withdrawn from the Savings a/cs in 2 days. In fact out of its total borrowings, only 25% accounts for deposits and the balance 75% is borrowings from money markets. Now it is this business model/policy which has led this bank into trouble as short term rotation funds stopped rotating as in the past.This once again reconfirms the most famous saying in money market

" YOUR MONEY IS SAFE IN THE BANK ONLY AS LONG AS YOU DONT WITHDRAW IT "

If everybody wants to withdraw their money,that too at the same time, then no bank, however sound it may be, is safe. It has happened in the banking history in the past under different circumstances and this time it is happening due to excessive, cheap and substandard lending in housing sector.

Now the debate in stock markets worldover is How much the U.S.fed will cut interest rate - quarter or half percent. Fed is caught is a tricky situation. The higher the cut the better for stock market but bad for the U.S.Dollar and vice versa.
In My Opinion, any rally in Stock markets will be temporary and ultimately they have to deal with the negatives and reprice themselves to factor in the slowdown in Economy and Corporate Growth.

Personally I am more bullish in Gold and Rupee than stock market though stock picking will be an ongoing exercise. GOOD LUCK.