The Credit Crunch Is Far From Over

The Fear Index

The spread between the fed funds rate and 3-month T-bills reversed back into the danger area above 1 percent. The shift from long-term to short-term maturities contributed to falling T-bill yields, but the widening spread demonstrates that investors continue to shun inter-bank and commercial paper markets, preferring the safety of treasuries.

Banks And The Dow

The Dow Jones Industrial Average closed more than 2 percent higher, rallying on news that JPMorgan had exceeded earnings expectations. The response is strange as the New York-based bank reported earnings of $2.37 billion — a fall of 50 percent. And the situation would have been far worse but for a $1.5 billion pretax gain from the sale of its share in the recently listed Visa Inc. (V) (Associated Press). We need to remind ourselves that:

1. this is a bear market;
2. there is strong overhead resistance at the former primary support level of 12800;
3. sharp rises are typical of a bear market rally — while in a bull market retracements are sharp and prices tend to advance at a more measured pace.

The Fed faces the worst financial crisis since the 1930s, with banks forced to raise new capital, in order to maintain their capital ratios, at the worst possible time. The cost of capital is at its highest in a bear market. Banks have also borrowed record amounts from the Fed. Discount window borrowings now exceed total bank reserves — with a further $100 billion advanced through the Term Auction Facility. Available data goes back to 1960 and the previously recorded high for borrowed reserves was 32% (of total reserves) in 1984.

Pronouncements that the crisis is close to an end appear premature.

Comments

[crowdofchee...:]

google will save America, we'll pay-click our way out of the recession :D

2008 Apr 17 05:02 PM

[Ames Tiedeman:]

The worst of the credit crunch is over.

2008 Apr 17 07:10 PM

[johnnybigsp...:]

all of this is known... its priced in and accounted for... the pros knew this a year ago.

2008 Apr 17 11:58 PM

[Bob Wehbe:]

i like this "priced in" and "baked in" mantra. I can imagine people rioting on the streets and the gang at CNBC saying "priced in". regular gas is at $4.00 here in san diego. Foreclosures are all over the place. Even the smart ones that did not purchase homes when they were peaking and are trying to buy a house now are finding it very hard to qualify for a motgage.
Can someone tell me what is not priced in?

2008 Apr 18 01:06 AM

[User 143167:]

The worst of written down may be over, but not the credit crunch itself. AND the earning debacle has just begun.

2008 Apr 18 01:14 AM

[I'm a Sucker:]

The bottom is in. Someone should create a website documenting how wrong these pundits are. There's no bottom until you have real rate of return that beats inflation.

2008 Apr 18 02:14 AM

[apppro:]

I said this 6 months ago and I continue to say it now:

"Has EVERY loan EVER written by EVERY bank and covered by EVERY insurance company, made to EVERY person, in EVERY financial level, and in EVERY neighborhood in EVERY State going into foreclosure????

I don’t think so, but they sure are making it seem that way."

So stop it now with all the collapse bs.

2008 Apr 18 07:06 AM

[cat & mouse:]

Kudos! For reiterating that this is a bear market! The banks and the trading firms are living on FED money, and create the market RISE and FALLS violently. Many investors are make money in one day and losing the next day. The RISE and FALL have no logical reasoning except wild guesses by the MARKET SPECIALISTS. This is similar to horse racing!

2008 Apr 19 12:52 PM

[fxtrader07:]

"the pros knew this 1 year ago". HELLOOO??
NOBODY of these pros expected this kind of mess, not to speak of KNOWING it. Many of the young guys working at the IBs and driving around in their expensive cars HAVE ZERO CLUES about the economy, about the stock and credit markets. they have never ever witnessed a real crisis, they DO NOT KNOW fair valuations or rock-bottom valuations because they have mostly grown up in a bubble environment where everything only went up. And this applies to almost all assets. Did these golden-parachute-overp... CEOs at C, Mer, BSC, etc. even have a remote understanding of risk? Or worse, DID THEY EVER REALLY BOTHER AT ALL? No, they didn't. Otherwise a lot of these deals and the business would have NEVER been done in the first place! So don't tell me the pros knew anything. some smart one imagined what could happen.
But nobody really knows how things will play out and how bad it may become before it gets really better.
@ johnnybigspenad and apppro: Do you have any understanding what leverage means, what a pyramide of leverage means and what deleveraging of that means? Trillions in perceived "assets" today do ONLY exist because excessive leverage brought them into being. But they are to a large extent just thin air that will go out along with the leverage. How bad the overall economy and everybody will be affected depends on the pace and the way of the deleveraging process. The slower and more "orderly" it can be done, the less harm will be inflicted. NOBODY can forecast how this will play out. It's unprecedented. So how shall the market have "priced it in" - when not one single market player really has a clue?

2008 Apr 21 08:26 AM