主题：03/11/2009 Market View -- 宁子

Treasury is snake bit.

Into early February the market was holding up pretty well, working on new patterns and bases in leadership groups such as chips, retail, and more than a few techs. The new Treasury Secretary is outmatched, at least in the public perception. The wheels started to come off with his first major presentation. Everyone was ready for the announcement of the bank plan details. They got a short talk about doing the best they could to get a plan in order. In two weeks we would know the plan. The market started the February selling.

Two weeks later we were told it would take another two weeks. The market was consolidating laterally after that first leg lower, and this news started the next leg lower.

Today the G-man held another announcement about the illusory, fugacious plan. There were some details such as it would involve a public/private partnership where the private sector sets the price. Not bad, but that was all we got. No timeline, no other specifics. All of that will come, all together now, in two weeks. AT LEAST the market did not sell off on this news, yet.

Stimulus could not wait but the bank plan can?

All of this time was needed to come up with this? This is basically the plan that was originally presented by Paulson with some tweaks. We had to have a stimulus package within minutes of the inauguration but no bank plan. Economist after economist and financier after financier agree that no stimulus can work (not even a good stimulus plan which is not what was passed) without fixing the banking and credit markets. Nonetheless there is still no plan for the banks.

Does this show the true intentions behind the stimulus, an inability to get things running, both? Is it, as the chief of staff said, using the crisis and the stimulus as a vehicle to get policy changes? If the economy was really the issue the bank plan would have been in place a week ago given that even the economist the Administration relies upon say the credit and banking systems have to be cured for the economy to grow. If the economy was really the issue Treasury would be fully staffed rather than Geithner and his shadow. Lots of promises similar to no more ear marks, putting legislation online ahead of passage so any citizen, EVEN legislators, could read it before voting on it. What we are getting is more of the same as we always get from Washington. There is no change in the way things are done, just the goals of those in charge.

LIBOR and the TED spread.

A reader asks what the LIBOR rates mean as well as the TED spread. Good time to cover this given the stimulus package, the market's bounce this week, and some optimism getting ginned up about a recovery.

That is why we bring up LIBOR just about every day. LIBOR (London Interbank Offer Rate) is the interbank lending rate between banks when the banks need additional short term cash to fund operations. It is (or was?) a vast, free-flowing method to transfer the funds needed to conduct bank operations and client operations. When things are fine in the financial markets and there is trust among banks, rates are low and spreads are narrow as no one is worried about lending funds to someone that may not be there the next day. Thus the threat of nationalization could mean money lent today could be with a new partner tomorrow or maybe no partner. How that would work out for the banks is not really known for certain and thus there is fear. That is just the ancillary problem. With many financial institutions in dire condition, there is plenty of worry and distrust to pump rates up and spreads higher.

That is where the TED spread comes in. TED is the difference between the 3-month LIBOR and the US 3-month Treasury Bill. This shows how in line the money markets are or are not. When they are close, calm. When the spread is large, something serious is up.

The average back in mid-2006 was 0.36%. Narrow, things are calm. In September after LEH it was 4.34%. Wide. Huge. Right now LIBOR is 1.33% and the 3-month T-bill yield is 0.22. That puts TED as 1.11%. Low compared to September when the unknowns where huge and CDS insurance (Credit Default Swaps) spiked several thousand percent in days. Things were heading off a cliff at that point. That has been avoided.

Now TED shows crisis averted, but still a very sick credit system. Problem is, it is on the rise again thanks to the worries about the Administration's banking policies and its spending plans. Don't believe me? I talk with bankers in Europe and even the socialists are worried about what we are doing. They depend upon us so much, capitalists that we are, that they do not want us to skew too far their way. We have to fund much of the world's largesse and if we head toward the European model (at least 'old Europe' as Rumsfeld said) who will fund things? China is strong but no one is looking for that kind of cooperation with Europse from that nation.