Morning Update From The World
News since last night: Tokyo down close to 10%, the European markets opened down close to 10% and have since improved but are still down over 5%. Russia and Jakarta are not opening and it appears that LIBOR is being set at a higher rate that yesterday. On the bright side (although not really because it is an indication of economic weakness), crude continues to drop. Are we getting to the point of capitulation, or is this something else?
A Way Out?
Anyone can take a look at the action today, yesterday, the day before...well you get the idea, and say that there is no end in sight and that gloom and pessimism will rule the day. Very logical, and I will get to that after I begin with the fact that I believe the global governments will get this right. After all, even a broken clock is right twice a day.
First, Is There A Light At The End Of The Tunnel?
On the bright side, the solution to loosening up the credit markets will be found, hopefully sooner than later, and the recession resulting from all of this will hopefully be short and shallow. The government is throwing the kitchen sink at this problem, and will find the right combination. The incredible amount of cash that is sitting on the sidelines will pounce on stocks and real assets, and we will see a ferocious amount of buying.
There will come a time when this debacle will be a fading memory, and fortunes will be made off of the bottom. There won't be a whistle or a bell telling you when that is, and sometimes when things are the darkest and fear the greatest you have to hold your nose and take the plunge.
Tomorrow could be the day, as you have to assume that the G-7 will make damn sure that they have an answer before the Asian markets open Sunday night.
Global Recession, Frozen Liquidity and Record Levels Of Fear
Good Thing I Work On The First Floor?
I hate to continue to beat a dead horse, but the indicators that we have been watching to see improvement not only don't improve, but continue to get much worse.
The Ted Spread, the difference between the 3 month Treasury and 3 month LIBOR set a new post 1985 high at 4.23. This spread, with all of the intervention that has occurred was supposed to narrow, and narrow significantly. Since September 12, the LIBOR rate has soared 200 basis points.
LIBOR is the London Interbank Offered Rate, and is the benchmark that many of the worldwide adjustable loans are set off of. This weekend the G-7 is meeting, and it is hoped that there will be a government guarantee of loans that banks make to each other. This guarantee will allow banks to trust each other, and will bring the LIBOR rate down.
The key for the credit markets is to create an environment of trust. We have gotten to the point in this crisis where that simply means more government guarantees.
The VIX, that measure of terror in the marketplace, is at another incredible closing level of 63.92.
The damage that is being done to the economy in terms of the lack of liquidity to businesses that need immediate cash flow, consumers seeing there nest eggs shrivel, and access to the piggy banks that were homes having disappeared is not calculable right now, but it will be huge.
These are unprecedented times, and our leaders are doing a patchwork job of addressing each new problem as it comes up. What we need is greater cooperation from overseas to recognize that we face an economic world war, and that if all countries don't work together in some coordinated fashion to solve it, the consequences will be something that none of us wants to see.