A Dark Morning 11 comments
-
Font Size:
-
Print
- TweetThis
A hardy perennial in sci-fi movies is the scene where people start firing ever-larger weapons at some alien object, only to see it wobble a little instead of getting obliterated as expected. I'm beginning to see the TED spread (432bp today) as one of those alien objects. Which is not to say people aren't hopeful:
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...
"Government participation in the banks along with the huge liquidity operation is flooding the financial system, which is having the desired effect on Libor," said David Keeble, head of fixed-income strategy in London at Calyon.
Er, no: "the desired effect on Libor" is not a 9bp drop from 4.64% to 4.55%. The desired effect on Libor is to get it down to below 2% -- something which would normally be entirely reasonable when the Fed funds rate is 1.5%.
Meanwhile, stocks are down again today, thanks probably to the truly atrocious September retail sales report, which also came with a certain amount of understatement:
The Commerce Department said that retail sales decreased 1.2 percent last month, nearly double the 0.7 percent drop that had been expected. The surprise showing significantly increased the risks of a recession.
I suspect that the probability of a recession was already so close to 1 that it's no longer possible to significantly increase it. But you know what they mean: Things are worse than expected, and they're likely to remain that way for the foreseeable future. We're in a vicious cycle: No one wants to lend going into a recession whose length and severity is likely to be unprecedented in the postwar era. So that's going to keep credit largely frozen -- which in turn will only exacerbate the recession's effect on stock prices. Governments might be able to prevent financial meltdown. But they can't prevent a major economic slump, or its reflection in the Dow.
Related Articles
|
Find People on SA
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largest
increase in followers
in the last 7 days-
1
David Fry
-
2
Philip Davis
-
3
Bill Gross
-
4
Tyler Durden
-
5
TraderMark
Fastest Climbers » -
1
-
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 11 comments:
The comments you ridicule refer to the 3-month libor rate, which is much more important to the commercial paper market than the overnight libor rate, which is akin to the federal funds rate you reference. Overnight libor dropped to 2.144%, which is not significantly different from where it was from May to August.
Perhaps you should issue a correction. And perhaps an apology to Mr. Keeble for assuming that he doesn't know what he's talking about.
"It Was A Dark And Rainy Morning" ? Much more dramatic, don't you think?
Come on, what did you expect? The recession has been here for several months already. It has finally gotten so bad for Joe Sixpack that the government agencies can't hide it by fudging the numbers any more.
We have finally reached the point in Keynesian economics where the consumer has a debt load that his income can barely support. How is he supposed to continue 'consuming' via borrowing if his income can't support the both the bare necessities and the minimum payments on his credit cards now?
Doesn't it become self-defeating to borrow in order to buy a big plasma tv only to turn around a pawn same tv for 20% of it's purchase price so you can put food on the table and gas in the tank?
Joe Sixpack has finally reached the point where he has to hunker down and make do with only the necessities until his debt is paid off and he has some savings left over to spend on luxuries.
Expect more of the same in the future as reality spreads.
The raw numbers are even darker and stormier:
"unadjusted retail sales overall dropped 8.5% in September from the month before"
Yikes! Time to batten down the hatches.
Do a little research before blindly accepting what just anybody writes. Last year, retail sales fell between August and September by 8.84% - more than this year (www.census.gov/marts/w...). This happens EVERY YEAR.
Based on personal experience in the local restaurant my partners and I run I can tell you that times are hard. Our sales are down 20% this month from the same month a year ago. Given that margins range from 10% to 15% for a typical restaurant you can imagine what impact that will have on the bottom line for the month.
Now that's a number you can use for getting an idea what's going on out there and you don't have to manipulate it to see that it's pretty bad. In the six years I've been involved in this business we've never seen that big a drop y-o-y.
And are you now telling me that your one data point (your restaurant) is more descriptive of the overall economy than the thousands that are conglomerated in the census report? Really?
Mr. G - I never said that consumer spending isn't down. I contested the basis for Mr. Smarty's gloomy outlook. Basically, if you want to cite supporting information, make sure it's good.
As for the consumer being "sick," I'd say that the consumer is making a movement towards health. Yes, that means less consumer spending, as people save more. I believe this is change will last many years.