-- Market Summary, Wednesday morning, October 15, 2008
Wall Street indexes fell sharply at the open, and have continued to
fall. At present, the indexes have lost 3-5%.
The market seems to be springing back from the drunken orgy on
Monday, where the market went up 11%, following the incredible
worldwide fantasy bailout over the weekend. Now, the market seems to
have resumed its path for the preceding three weeks, where the market
fell 25%.
A major problem is that interest rates are not falling fast enough.
This was apparent yesterday from the quote from Rick Santelli that I
posted yesterday.
The news services are trying to put the best face on it. Here's a
Bloomberg story from this morning:
> Libor for Dollars Drops as Central Banks Offer Unlimited Cash
> By Gavin Finch and Nate Hosoda
> Oct. 15 (Bloomberg) -- Dollar money-market rates fell after the
> European Central Bank, Bank of England and Swiss National Bank
> offered lenders unlimited U.S. currency for the first time in a
> coordinated effort to unlock credit markets.
> The London interbank offered rate, or Libor, that banks charge
> each other for three-month dollar loans dropped for a third day,
> its longest sequence of declines in seven weeks, according to the
> British Bankers' Association. It slid 9 basis points to 4.55
> percent today. The comparable euro rate declined to 5.18 percent.
> Asian rates also decreased.
>
http://www.bloomberg.com/apps/news?pid= ... refer=home
That sounds pretty good, until you read several paragraphs later:
> While the cost of three-month dollar loans has dropped in the wake
> of the measures, it's still 305 basis points more than the Fed's
> target rate. The difference was a record 332 basis points on Oct.
> 10. It was 82 basis points on Sept. 15, the day Lehman Brothers
> Holdings Inc. filed for bankruptcy and 11 basis points on July 31,
> 2007, just before the start of the credit squeeze.
In other words, if you look at interest rate spreads in the past
(where 100 basis points equals 1%):
Date Basis points
--------------------- ------------
July 31, 2007 11
Sept 15, 2008 82
Oct 10 332
Oct 15 305
In other words, the Libor spread has fallen a tiny amount, compared
to where it was even just a month ago.
Unless this changes, then the latest massive bailout will have failed
completely. Paul Krugman, at least, is still hopeful.
Sincerely,
John
