5 Jan CUT CUT CUT 75bp

Bernanke got full marks in 2006 when he resisted pressures and keep hiking to 5.25% and pause. Inflation then was mild, economy was in Goldilock. He was just in the eye of the hurricane.

The last 50bp cut was given to forestall the credit crisis not exactly for the economy. And then in last FOMC he cut only 25bp, b'cos Hank was visiting China, and it is not nice to show your depositor (China buy US treasuries) that you are on a accelerated rate cut schedule.

With election in November and knowing that rate cut has a lag of 6 months to a year to have a impact on economy, Ben has to accelerate the cut to benefit the Republican, instead of letting the harvest goes to the next President.

With the impending FOMC on 30 Jan, the next one on 18 Mar, there leaves no choice, but to cut 50 bp/75bp of on 30 Jan.

However, we may have a call for a inter-meeting rate cut announcement, perhaps on the week starting 13 Jan. Then 50 bp would be appropriate.

The difference between Recession and Slowdown is a matter of confidence of the masses. With such agressive cuts, the public would acknowledge that the gloom and doom.

That brings us to the topic of ECB. Trichet has been most reluctant to cut, as he understands the behviourial economics aspect of rate cut. He wants to keep people in Europe buoyant, feel good and be productive. Overall Europe is still doing fine, just showing signs of slowing down.

While BoE is an opposite. With the recent cut, London is full of gloom and doom. Football is no longer fun. Mervyn mishandled the Northern Rock debacle and has lost the ability to forestall any further rate cut. However London is likely the one to emerge from the slump earlier than Europe or US.

Hence next week 10 Jan is key.

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