As we move to FOMC time again!

While the broad market, especially financials, continue to tread unchartered negative territory, crude rose to a new high - at over $108 a barrel! Personally, i feel both are extreme reactions to market scenarios and not backed by fundamentals.

Starting with Meredith Whitney (Oppenheimer), almost every analyst covering C, JPM, MER, BS, GS have been cutting earnings estimates for the year drastically. The continued turmoil in the MBS and ABS markets, along with sustained uncertainty over bond insurers future butress the analyst speak and add more gloom to the market. However, i feel the financials would move upwards in the medium term - i had the same view early January and have been proven wrong by the market so far; but i hold on to my views. Credit-related losses definitely pose significant short-to-medium term earnings impact, but not to the extent reflected in stock prices - especially those of C and GS. Citi's market value is just a wee bit over USD 100 bn - as against over 250 bn less than 12 months back.

However, there might be more downward pressure as we near the FOMC meeting next week - i for one would strongly believe the Fed's going to limit its rate move to a maximum of 25 bps. And the market would obvisouly not react positively to this. On another note, if the Fed does indeed cut rates by 50 bps or more, i would call it suicidal long-term...staglation risks are serious at this point.