Saturday, November 8, 2008

Debt Spreads Continue to Soar

Good Afternoon!

Things are pretty quiet on the news front so far this weekend. I wanted to hop on real quick and give you an update on the credit spreads this afternoon. As you can see they continue to soar:

AAA

AA
BBB

My Take:
Ignore CNBC when they tell you things are continuing to improve in the credit markets. As you can see, spreads are back on the rise again after dropping a few weeks ago when the worldwide bailout was announced. The moves on all of these charts are parabolic.
AAA debt is rated to be the safest debt available. The rising credit spreads tell you this is a bunch of hogwash. The spreads on the BBB debt tell you that its basically worthless at this point. All of this garbage debt is what is sitting in the banks books folks.
These charts show you no one wants to touch any of it. We are reaching new highs from a spread perspective day after day.
Bottom Line:
Things are not well in the credit markets folks. You won't see these charts on CNBC.
The only thing that's improving in the credit markets is the LIBOR rate is dropping. This is a lending rate set in London for banks. Keep in mind, this statistic is meaningless if no one wants to borrow! Mortgage applications were down 20% last week! The fact that the banks don't want to lend right now as they try to heal their balance sheets makes the LIBOR rate even more irrelevant.
As I said yesterday, ignore all of the "silver linings" on CNBC. They are blowing smoke up your ass when they tell you all is well in the credit markets.
Larry Kudlows new mantra is we are now planting "mustard seeds" for the next bull market. The problem Larry has is they will bloom 25 years from now! What happened to Goldilocks Larry? My guess is she now working as a hooker in order to pay her $3000/month mortgage payment on her 600k McMansion.

5 comments:

teddy bear said...

Did Oracle of Omaha say buy, buy, buy now?

http://www.bloomberg.com/apps/news?pid=20601087&sid=aheAqHgL2mhg&refer=home

;)

teddy bear said...

Did Oracle of Omaha say buy, buy, buy now?

http://www.bloomberg.com/apps/news?pid=20601087&sid=aheAqHgL2mhg&refer=home

;)

Avl Guy said...

what would u do if u were Obama's econ adviser on bailing out GM & Ford, cuz it seems Bush plans to let it land in Obama's lap. I see this as a big lose-lose situation for taxpayers, Dems and GOP.

GM bleeds billions at its Sept and Oct sales rates and there is no evidence future monthly sales will even be this good. These piddly stimulus proposals will do nothing to put consumers in a better position to buy items as expensive as new cars, and the likelihood of a return to Home ATMs to finance auto purchases is zilch. The recession continues to pinch buyer's creditworthiness so auto loans get stingier. Bleeding billions $ by GM/Ford remains a given and thus TARP or any other bailout is like bailing water out of a sinking ship whose gaping hole remains unplug.

Yet, if nothing is done, a GM/F collapse will see its disappearing payroll take down a wide swath of communities in Midwest, South and Cali, wherever plants & supplier chains reside. If saving those jobs is the rationale for the bailout...and GM/F still goes under anyway, just later than sooner...then everyone supporting the bailout looks bad.
3rd option is to use the bailouts to keep GM/F afloat longer while it accelerates plant closures and layoffs...and again, defeating the very rationale for the bailout (i.e. saving jobs).

DC will need a big story to distract taxpayers from this quagmire; maybe they can confuse us all by muddying the picture by asking Toyota or Volkswagen to buy GM using Fed TARP financing (grin).

Jeff said...

Teddy

Yep..haha

He reminds me of the banker in 1929 who walked onto the trading floor and announced that he was buying stocks as he tried to restore confidence.

Ooops! That didn't work out so well

Jeff said...

avl

I agree

That auto problem is an absolute nightmare.

I see no reason why we should bailout bad companies. However, I can understand why they would want to do it because the Midwest would literally collapse without those jobs.

I think the Fed needs to start letting some companies fail because their balance sheet has soared to $2 trillion. they can't save everyone.

That being said its a PR nightmare if the big 3 go down. YOu raise a great point. If they continue to bleed, when does the government eventually walk away?

I personally would make each of them fire all management and totally restructure themselves before I gave them a penny.

The current CEO's have all failed badly and they need to shown the door.