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Friday, November 21, 2008

Drowning Market Grabs for a Lifeline

There's not much I could say about the markets today that can't be said in charts. All the major averages gave weekly sell signals at the end of day yesterday.
One thing isn't going down -- gold. It is showing strength today -- maybe it's the fear trade, maybe it's just options expiration craziness. We'll have to see if there's follow-through, so stay tuned on that.

Here are the charts ...

The Progress of the Financial Crisis in One Picture: Mortgages, Flight to Safety, Credit Lock

Interest Rate Spreads. The top panel shows the LIBOR-OIS spread (dark shaded area). The TED spread (LIBOR minus the Treasury bill rate) is given by the sum of two shaded areas. It also captures the fact that Treasury bonds are especially sought-after collateral in times of crisis.
And here's the yield on T-Bills ...

The commentary on this chart: “Where the credit markets are trading, it’s all but implying a 1929 scenario,” said Joe Balestrino, fixed income strategist at Federated Investors.

It sure seems like the current move is driven by something other than fundamentals. A negative swap spread — according to the FT – implies that “investors are somehow reckoning that they are more likely to be paid back by a private counterparty than by the government.” That doesn’t seem consistent with what the rest of the market is telling us.

XX Sean's note -- I talked to a broker in Chicago this morning. He says the rumor in the pits is that there could be a default on delivery of December Treasury bond Futures. That may or not be true, but someone may be pricing it in. Get a load of the TLT ...
In other news worth reading, Naked Capitalism takes a look at The Ill-Considered Problem of a GM Bankruptcy .

And Bloomberg says the collapse of GM alone would cost taxpayers about $200 billion.
Check out my new gold and energy blog at