Early part of last week was a grim reminder that our markets have not decoupled from those of the US and the rest of the world, as has been widely believed and preached on the electronic media.

And if the greenbacks don't pour in, our markets can't do the Indian rope trick. That has been very evident last week and all of November. The FIIs have just sold stocks worth close to a billion dollars and our markets have taken a 10 per cent or 2,050 point correction.

It would be wrong to lay the blame at the door of the outstanding open interest in the derivatives, which crossed a record Rs 1,08,000 crore last Tuesday. We had seen Rs 1,07,000 crore (Rs 1,070 billion) in October.

So it to would help if we knew what lies ahead in the US and the rest of the world.

From November 15, a new rule from the US Financial Accounting Standards Board, known as FASB regulation 157, came into force. It affects the Level 3 assets that are currently valued according to in-house models.

The tougher standards will prohibit US banks from setting values to sub-prime mortgages and other forms of exotic debt on the basis of assumptions, compelling them instead to value assets at market prices, mostly far lower.

This could lead to a further $100 billion of writedowns as banks are forced to come clean, with total losses climbing as high as $ 500 billion across all forms of distressed credit. The top six banks alone have $365 billion of assets in Level 3.

The lowest grades of 2006 vintage debt are worthless. BBB grades are valued at just 18 cents to a dollar and AA grades at 60 cents. Only few of the banks have admitted to losses on anything like the scale suggested by market prices. A large Swiss bank is still booking its US mortgage debt at 90 cents on the dollar.

Another storm that is brewing in the US is credit card defaults. A payment crisis similar to the one hitting the US housing mortgage market could strike the credit card business. And it is not smaller in size, if not large. It is believed to be around $ 915 billion in size.

Over the last three years, credit card companies have mailed over eight billion credit cards offers, many of which were accepted by the spendthrift Americans. The bad news is that a growing number cannot pay their bills, and in recent months the problem has been getting worse.

Whether or not it erupts into a full blown crisis will be a function of to what extent the US is able to generate jobs. Currently, there are fewer people at work than there were last year, but the current jobless rate is steady at 4.7 per cent, largely because of the jump in number of people leaving the labour force.

Earlier individuals could pay their credit cards debt by borrowing more on their houses as long as prices were rising. But with a decline in property prices, some people are now paying their housing EMIs by credit cards. This is disastrous as the interest rates on credit card outstandings is more than double that of the housing loans.

Card users now have a higher outstanding balance and some have even started taking cash advances, which indicates probable problems. The fact that credit card outstandings are unsecured makes them all the more dangerous than housing debt , which is secured.

Then you have a Fed which is worried about inflation as crude continues to spurt. There were strong rumours midweek that the Fed would cut further by 0.25 per cent in a special session.

Not only did the much expected cut not materialise, the minutes of the last Fed meetings that were released made it clear that even at the next meeting on December 11, it will be a difficult cookie to bake.

How the dollar behaves or the yen trades is very much going to affect our lives as much as our economy, corporate bottom lines and the internal regulations. Now that the valuations are in the twilight zone, it might make sense to keep the international developments on the touch screen as well.