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Rate Cut and London Plan - are these enough ?

As expected 6 major central banks including US Fed did a co-ordinated rate cut of 50 basis points. Since it was expected move, markets have already discounted this move. British came up with its own rescue plan with nearly trillion dollars in supports/guarentees of one form or other. I think overall it was good plan especially providing guarantee for interbank lending. Due to British rescue plan, RBS common and mainly preferred shares jumped while overall market was down. I think RBS preferred (RBS-M, RBS-P, RBS-L) do provide good value as long as bank does not get nationalized completely. They offer about 6-7% interest with face-value of $25. However since they are trading at 5-8 ranges, effective yield would be north of 20% as long as RBS does not cancel dividends. It would also provide an upside when values start climbing towards face-value in due time - again if RBS survives and in this market conditions, that's big IF.

However if regulators have learned anything from letting Lehman fail, it would be not big bank like RBS fail. The crisis exploded with Lehman failure since confidence in the system was lost and it would take months (if not years) to build up confidence in these big financial banks. We could see Dow going down below 9000 before any recovery starts.

Obama scored one more win by winning the debate yesterday. I think he was way better than McCain and some folks are calling this election to be over. There are 27 days left and lot can heppen in those 27 days but if Obama just keep on doing what he is doing and McCain keeps on making the mistakes/flip-flops/personal attacks he is making, Obama would be next USA president and that would be good for US and world economy

Have a good night!

/Shyam

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