Thursday, May 15, 2008
Thoughts To Myanmar and China
My thoughts go out to the people affected by the cyclone in Myanmar and the earthquake in China.
Wednesday, May 7, 2008
Some Analysis of The TED Spread
Someone asked me about what the Ted spread has been doing lately and if its movements had any impact on the stock market today. Here was my response:
"Today TED has come back down to 1.0 then bounced back to around 1.10. This level was the lowest it has been since March. In January and February its lows were at 0.83 and 0.79 before turning back up to above 2.0 on March 20th. As recently as April 23rd it was above 2.0. Also for reference on August 20th it spiked to 2.3 or so before falling back to 1.0 on August 24th.
The TED spread is the difference between the LIBOR and the 3 Month TBill. When the Fed cuts rates the 3 month TBill moves lower almost exactly the same amount. However LIBOR is determined by an average of what banks are willing to lend to each other at. If the Fed cuts rates theoretically the banks should be cutting the rates that they charge to each other. However due to persistent nervousness in the banking sector banks are charging a premium to other banks if another bank wants to borrow money. This has the Fed worried. Clearly some banks are being charged higher rates, but the question remains why? Since LIBOR is an average rate it is hard to know exactly where the problem lies.
My take is that the Fed watches this like a hawk and is concerned. Therefor it has been a piece of information that I follow closely. The Fed wants the spreads to drop to around 0.50 that is why they increased the treasury facilities - they are trying to funnel money into the problem. TED has been elevated for quite some time and that is also a component of this problem. In my view the TED spread has been very high since August and although a couple of times it made an attempt to normalize by going below one it never made it and soon after retreated back to above 1.0 before spiking twice to 2.0 or above.
Did it cause the market turmoil today? Not really if anything it may have helped the markets since the spread narrowed a little today and over the past week or so. That said it still is in elevated territory and remains a big problem for the Fed. If it makes its way below 1.0 and sticks and eventually makes its way to 0.50 that would mean things are better but until that time there is a persistent problem in these spreads."
"Today TED has come back down to 1.0 then bounced back to around 1.10. This level was the lowest it has been since March. In January and February its lows were at 0.83 and 0.79 before turning back up to above 2.0 on March 20th. As recently as April 23rd it was above 2.0. Also for reference on August 20th it spiked to 2.3 or so before falling back to 1.0 on August 24th.
The TED spread is the difference between the LIBOR and the 3 Month TBill. When the Fed cuts rates the 3 month TBill moves lower almost exactly the same amount. However LIBOR is determined by an average of what banks are willing to lend to each other at. If the Fed cuts rates theoretically the banks should be cutting the rates that they charge to each other. However due to persistent nervousness in the banking sector banks are charging a premium to other banks if another bank wants to borrow money. This has the Fed worried. Clearly some banks are being charged higher rates, but the question remains why? Since LIBOR is an average rate it is hard to know exactly where the problem lies.
My take is that the Fed watches this like a hawk and is concerned. Therefor it has been a piece of information that I follow closely. The Fed wants the spreads to drop to around 0.50 that is why they increased the treasury facilities - they are trying to funnel money into the problem. TED has been elevated for quite some time and that is also a component of this problem. In my view the TED spread has been very high since August and although a couple of times it made an attempt to normalize by going below one it never made it and soon after retreated back to above 1.0 before spiking twice to 2.0 or above.
Did it cause the market turmoil today? Not really if anything it may have helped the markets since the spread narrowed a little today and over the past week or so. That said it still is in elevated territory and remains a big problem for the Fed. If it makes its way below 1.0 and sticks and eventually makes its way to 0.50 that would mean things are better but until that time there is a persistent problem in these spreads."
Saturday, May 3, 2008
This Week's Abelson Commentary
I love reading Abelson in Barron's every week. He is definitely tilted to the bearish side so you have to really analyze his arguments carefully. This week though I think he hit the nail on the head. The Employment report released yesterday used a rather large number for the birth / death factor that the Labor Department uses to calculate job losses for April. The birth / death adjustment seems to be a guess as to how many new businesses were formed (births) and how many businesses went out of business (deaths). According to Abelson's article this estimated number added about 200,000+ jobs to the payroll number. Had this number been zero the number of jobs lost to the economy would have approached 300,000. He astutely pointed out that the Labor Department estimated that finance jobs were created as well which does not blend well with the massive retrenchment occurring on Wall Street. Great stuff Mr. Abelson!
George Vecsey on Character
I am a little late with this but there was a great article this past Wednesday in the NY Times sports section written by George Vecsey. I will not do Mr. Vecsey justice by writing my summary about it so it is best to read it if you can. I will just mention that if you ever need to define the word character then the behavior of these young ladies in this article fit the description. The title of the article is "A Sporting Gesture Touches 'Em All." A very uplifting story, so great job Mr. Vecsey! Here is a link to the article:
http://www.nytimes.com/2008/04/30/sports/baseball/30vecsey.html?_r=1&oref=slogin
http://www.nytimes.com/2008/04/30/sports/baseball/30vecsey.html?_r=1&oref=slogin
Friday, May 2, 2008
April Employment Estimate
From Yahoo Finance and Briefing, the non farm payrolls estimate is for the loss of 75,000 jobs. Based on all of the information that I take in my guess is that the job losses will be much larger than that for a loss of 130,000 jobs. Again I may be skewed because how bad things are in finance around the New York City area. I also follow the residential rental market around the tri - state and it has been extraordinarily weak, plus the very small businesses I speak to all say that business has been weak.
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