How Equity Investors Should Track the Credit Markets

by: Jeff Miller

The credit crunch was the proximate cause of six weeks of stock market stress, beginning with the Lehman (LEH) non-bailout.  At the very minimum, this will cause an economic vacuum for a month or two.  The question is if and when policies will have a significant effect.

We are well aware of the issues involving the extent of the recession and the impact on earnings.  Following progress involves tracking credit markets.  To this end, we follow some key sources:

  • JCK at Alea.  There is a daily update (often skeptical and challenging) on the various Fed moves and the impact on various indicators.  Yesterday's report is typical.  There are also great articles on subjects like light trading in the ABX, used to mark securities and possibly subject to manipulation via the CDS market.  This is a daily must read for us.
  • Calculated Risk.  CR is now doing a daily update on credit markets.  This is another must read for equity investors looking at credit markets.  There is much, much more, but the credit stuff is especially valuable.
  • Tony Crescenzi at RealMoney.  (Full disclosure -- we write there, but we paid for the site before joining.)  Tony's daily blog is very valuable on all things economic.  Some of it gets reported elsewhere, but it is worth reading right away.
  • Abnormal Returns.  This is a consistent source of new ideas from academic papers and "new" bloggers.  The author reads nearly everything and consistently points to new ideas, including credit issues.

There are plenty of other great blogs on our featured list, but today's focus is the credit markets.  Anyone wanting to look for signals of a potential turn in equities should be paying attention.