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Yes, you may hear that the corporate bond market is breathing again and the exotic "TED spread" -- the difference between T-Bill and LIBOR rates -- is shrinking, but no one is lending money to anyone and confidence is non-existent.
Recently the entire country of Spain (meaning Spanish national debt) was put on credit watch due to deteriorating economic conditions.
Remember, the Wall Street Crash of 1929 and the Great Depression (I am not forecasting either one, by the way) started at a medium-sized bank in Austria, not on Wall Street or in London.
Credit markets are not only frozen because we don't know what is on the banks' balance sheets; they are also frozen because banks are repairing their own balance sheets by hoarding capital.
Be sure to read all 7 reasons the stock market isn't going up any time soon.
Michael Shulman is a contributor to OptionsZone.com.
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Reader Comments (Page 1 of 1)
1-29-2009 @ 6:37PM
Cliff said...
Disagree on #1 and #2. Most folks who own homes bought them a long time ago and bought them to live in them, not make money. My house cost $172k in 1994 and I've put $50-60 into it. At the height of the housing frenzy, comparable properties in the neighborhood were selling for $650k and I thought that was nuts. They are now around $500k, and I still think that's nuts, but who cares when you are living in the joint?
2) The proportion of mortgages on an ARM basis is low, and new mortgages are being written overwhelmingly at fixed rates.
I don't disagree on the others, but that ain't going to produce another crash or even slow severe deterioration in the markets. The smart money is making money by moving in and out of positions quickly. 4-5 years from now, the markets will be higher. How much? Even 20% would beat anything you can get from savings or money market funds.