This was yesterday after stocks looked like they were ganna rally at the beginning, there was some barginning hunting... at the begining and then those sub-prime mortgage worries kicked in once again, we seem to be in, in a bit of a perfect storm here a downward spiral, don’t we.

We do. I mean these markets are looking a little oversold at the moment, so you know hopefully we will see some stability set in, but there is an issue here that is troubling the markets and it really relates to the... you know the size of the write-offs that these banks might have to undertake, and the numbers are growing daily you know and I think that the concern in the market place is that they're very very large, it looks like they could be, that that would diminish the capacity of banks to lend, and if that happens they won’t be able to finance economic growth, and if that’s the case, then companies won’t make the money they have been making, and the stock market will weaken, and I think that's, to some extent where the stock market is really eh beginning to discount.

And there are a number of other factors playing into this, we got the high price of oil at the moment, a low, despite an easing of oil. Yesterday that didn’t come on wall street we've got the extremely weak dollars as well playing into this thing.

Well, the oil prices is a bother, you know but it was a bother everybody thought at 50 dollars and 60 dollars, I mean the pain threshold must be somewhere and what we had thought were fairly close. The dollar however... the weak dollar I think is a good thing, because the weak dollar enhances the competitive position of us companies in the global market place. And after all there're large areas of the global economy that are still quite strong like Asia. And here in Europe, it’s not as if we're, the background here is all that weak. Things are slowing but there still is a good deal of growth here, so the weakness of the dollar enhances the competitive position of the US economy and US companies, and so that in a sense is one of the plus factors at the moment.

But there is no doubt that the weak dollar is hurting particularly exporters here in Europe, I mean how long before international trade if you like begin to slow down because of the weak dollar.

Well I think that the key thing really is, certainly they are over here, it’s having the opposite impact that should be having in the US, but the important thing is that the American economy is still a big economy, and if it does slow or if we do enter a recession. Although, I am not sure that is yet on the cards, ok, ah, then a washback clearly will be felt here in Europe and the UK, but what that means is that the central banks will then have to respond to all of that. They will have to cut interest rates.I mean they just can’t stand by and watch the economy moving to a recession. We will see interest rates cut. And that will be good.

Yeah, you've got Ben Bernaky though, in a tricky position at the moment, I mean he knows that he’s got a ...perhaps one more rate-cut up his sleeve that he can play, but by his own admission, inflationary pressures haven't gone away,have they. The underlying US economy is still pretty sound at the moment.

It is, there is a certain sturdiness there, and I think that there is a balancing act, but I think the other point is that if the bank really do have the sort of problems that the market senses they have, then what the central bank will want to avert is the kind of situation we saw in Japan where you know the banks went from difficulty into more difficulty they had lots of bad debts, they couldn’t finance economic activity and the central bank responded very slowly to all of this. And here we are ,17 years later still on the secular bear market in Japan and the economy is not performing all that well. So I think what the federal reserve will want to do is it will act fairly assertively, and I think it's already given an indication of how it will respond after all it has cut interest rates by 75 basis points so far, and I think what it will say to us is that, look we may have a short-term problem here with inflation, but the longer-term problem is potentially disinflationary or even ultimately deflationary and therefore we are gonna have respond to it and deal with that more than the short-term prospect of inflation which in fact could be utimately disinflationary too, high inflation squeezes real disposable incomes, which in turn reduce spending powers. So you know it’s all pointing in the same direction, it's all pointing as if the... the way the central banks will have to respond to this is by cutting interest rates and I think that will eventually limit the downside to the stock markets.

Notes:

Something up one's sleeve: ften used in the forms the card up your sleeve or the ace up your sleeve, meaning a secret advantage you can use.