Saturday, October 25, 2008

The Credit Spreads say it ALL

Good Afternoon!

I can imagine that many of you are wondering why the market blew up last week. I talked a lot about the locked credit markets yesterday and how this problem is wreaking havoc on the stock market. Today I wanted share some graphs with you showing you why the traders in the credit markets look like they just saw a ghost.

Quick Take:

This is AAA rated debt. This is supposed to be the best of the best from a debt perspective. As you can see above, the spreads came down sharply on October 10th as the central bankers of the world decided to bailout everything under the sun. This was done to loosen up the credit markets and get the banks to start lending again. Short term it helped as spreads dropped earlier this week. However, as you can see it only lasted a few days and now spreads are actually rising.
Folks, if this continues, you will see Financial Armageddon. Without credit, the economy stops working. You don't hear about this stuff on CNBC because its too terrifying for them to report. They prefer to stick with their "silver linings".
Please ignore these talking head idiots. Hour after hour they continue to give air time to these "bottom calling" morons. Folks if you listen to these clowns you will end up bankrupt. How many times have they called bottoms?
How many tech wreck bottoms were called by the pigmen at Nasdaq 4000 then again at 3000, 2000 etc.? The "bubble boys" bottom called themselves right down the toilet bowl. Focus on the steak like the credit markets and the fundamentals and please ignore the CNBC bubblevision "sizzle"!
Lets take a look at "Garbage debt" spreads:
Final Take:

Folks, this chart is even worse. Number one, the spreads are already back to the highs when we all thought the world was going to end if the worlds central bankers didn't bailout out Wall St.

Number two, spreads this wide make this debt essentially worthless. I will repeat what I said yesterday. Any debt that isn't government guaranteed is screwed. Its worthless. The Treasury has essentially thrown all non backstopped debt under the bus.

As a result, banks are going to continue to keep their money in government guaranteed debt versus lending it out. Why risk lending to a bunch of companies that are about to get trounced by one of the worst global slowdowns in history?

I am extremely concerned about what I am hearing out there folks.

There are some frightening reports of uprisings in countries all around the world. Poverty stricken countries are much less able to handle a global slowdown than we are. If you can't put food on the table, you rise up and raise hell.

I am afraid its going to start happening here if things don't start turning around.

Bottom Line:

Watch the credit spreads like a hawk. If spreads continue to rise, head for the hills. I am extremely concerned that you could see the mother of all stock market crashes if these spreads continue to stay elevated or rise from their current levels.

The credit market is what causes stock market crashes. I am officially on crash alert now.

If the economy has no funding it will fall off a cliff. Lets all hope we find a way out of this.

So far, its not looking good.


teddybear said...


teddybear said...

"It is the economy, stupid!" :D

Jeff said...


Love the sheet on your second post.

That ones going inot my archives. Me likey likey.

Thanks for sharing.

Seven Star Hand said...

Hey Jeff,

So, why should all of humanity be forced to suffer and struggle any longer, now that the entire global financial system has been exposed as a mind-boggling deception within many other deceptions? No one in their right mind would continue to be enslaved by a proven deception, which is also proven to be undeniable slavery-by-proxy !!!

The derivatives scams alone have grown to more than 10-times the entire global GDP (at last counting) and are now failing because the scam/pyramid scheme broke and exposed the deception for all to see. A significant portion of global wealth and power was created and propped-up using these and other now-proven smoke and mirrors and house of cards illusions and delusions.

These deceptions have grown many times larger than the rest of the entire world economy. Consequently, there is no way that all of the world's governments combined, who themselves borrow so-called "money" from other central-bank smoke and mirror deceptions, can solve this debacle, by using more smoke and mirrors money scams. The only solutions they are offering will take centuries to repay, if ever.

Here is Wisdom...

Jeff said...


I agree. Great post. The derivatives are what scare me the most.

The credit problems are proof of what you are saying. The scam has been exposed and no one will ever trust the system again until transparency comes back.

HOw we pay this all back is the million dollar question. My guess is we will suffer for a couple generations to work through all of this crap.

I like your blog BTW. A nice read.

I fear for our future seven. Lets hope we find a way outta this mess!