Our models correctly predicted the Fed's cutting interest rate by 25 basis points. However, we see a coming calamity with inflation caused by the decline in the value of the dollar. Most if not all international commodities are priced in dollars, causing an immediate price increase when interest rates are decreased. Inflation pressures will not cause the Fed to pause in the interest rate cuts, indicating that exporter’s gains will start to diminish versus increased consumer prices.
Citigroup (C) is the latest casualty in the subprime crisis. C's reserves are estimated to take a $30 billion hit by having to bring the SIVs back onto its balance sheet where the value is substantially less than the original issuance price. C gapped downed by $4.00 at the opening indicating there is a problem brewing at C and other money center banks.
Oil prices are rapidly soaring approaching $100 per barrel caused by the decline in the dollar caused by the cut in the interest rates. Gold is also soaring nearing $800 per ounce.