If the VIX closes below 30 today, it will be the first time since Sept
12th, the Friday before the Lehman bankruptcy announcement on the 15th.
The Sept 12th close was 25.66.
Nice interactive map from AP showing where the economic weakness has hit the hardest:
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click thru, than mouse over cities for interactive map
via AP
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Source:
AP IMPACT: Stress map outlines recession’s stories
TED ANTHONY
AP National Writer
http://news.yahoo.com/s/ap/us_stress_map
One of my more favored Wall Street researchers, the former Merrill Lynch North Amercian economist David Rosenberg, has moved on to Gluskin Sheff.
Rosie’s new firm is making his research available for free, via email, on a trial basis. He should start publishing after the holiday weekend.
You can sign up for what was formerly client-only research by pointing your browser here:
click for research sign up page
Ron Griess of The Chart Store has such simple informative charts, I cannot help but linking ot them on a regular basis:
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Credit Crisis Watch: Thawing – noteworthy progress
Are the various central bank liquidity facilitiess and capital injections having the desired effect of unclogging credit markets and restoring confidence in the world’s financial system? This is precisely what the “Credit Crisis Watch” is all about – a review of a number of measures in order to ascertain to what extent the thawing of credit markets is taking place.
First up is the LIBOR rate. This is the interest rate banks charge each other for one-month, three-month, six-month and one-year loans. LIBOR is an acronym for “London InterBank Offered Rate” and is the rate charged by London banks. This rate is then published and used as the benchmark for bank rates around the world.
Interbank lending rates – the three-month dollar, euro and sterling LIBOR rates – declined to record lows last week, indicating the easing of strain in the financial system. After having peaked at 4.82% on October 10, the three-month dollar LIBOR rate declined to 0.83% on Friday. LIBOR is therefore trading at 58 basis points above the upper band of the Fed’s target range – a substantial improvement, but still high compared to an average of 12 basis points in the year before the start of the credit crisis in August 2007.
Importantly, US three-month Treasury Bills have edged up after momentarily trading in negative territory in December as nervous investors “warehoused” their money while receiving no return. The fact that some safe-haven money has started coming out of the Treasury market is a good sign.
Source: The Wall Street Journal
The TED spread (i.e. three-month dollar LIBOR less three-month Treasury Bills) is a measure of perceived credit risk in the economy. This is because T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. An increase in the TED spread is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing. On the other hand, when the risk of bank defaults is considered to be decreasing, the TED spread narrows.
Since the peak of the TED spread at 4.65% on October 10, the measure has eased to an 11-month low of 0.67% – still above the 38-point spread it averaged in the 12 months prior to the start of the crisis, but nevertheless a strong move in the right direction.
Source: Fullermoney
The difference between the LIBOR rate and the overnight index swap (OIS) rate is another measure of credit market stress.
When the LIBOR-OIS spread increases, it indicates that banks believe the other banks they are lending to have a higher risk of defaulting on the loans, so they charge a higher interest rate to offset that risk. The opposite applies to a narrowing LIBOR-OIS spread.
Similar to the TED spread, the narrowing in the LIBOR-OIS spread since October is also a move in the right direction.
Source: Fullermoney
The Fed’s Senior Loan Officer Opinion Survey of early May serves as an important barometer of confidence levels in credit markets. Asha Bangalore (Northern Trust) said: “The number of loan officers reporting a tightening of underwriting standards for commercial and industrial loans in the April survey was significantly smaller for large firms (39.6% versus peak of 83.6% in the fourth quarter) and small firms (42.3% versus peak of 74.5% in the fourth quarter) compared with the February survey and the peak readings of the fourth quarter of 2008.”
Source: Asha Bangalore, Northern Trust – Daily Global Commentary, May 4, 2009.
“In the household sector, the demand for prime mortgage loans posted a jump, while that of non-traditional mortgages was less weak in the latest survey compared with the February survey. At the same time, mortgage underwriting standards were tighter for both prime and non-traditional mortgages in the April survey compared with the February survey,” said Bangalore. In other words, more needs to be done by the lending institutions to revive mortgage lending.
Source: Asha Bangalore, Northern Trust – Daily Global Commentary, May 4, 2009.
The spreads between 10-year Fannie Mae and other Government-sponsored Enterprise (GSE) bonds and 10-year US Treasury Notes have compressed significantly since the highs in November. In the case of Fannie Mae, the spread plunged from 175 to 26 basis points at the beginning of May, but have since kicked up to 38 basis points on the back of the rise in Treasury yields.
Source: Fullermoney
After hitting a peak of 6.51% in July last year, the average rate for a US 30-year mortgage declined markedly. However, the rise in the yields of longer-dated government bonds over the past eight weeks – 57 basis points in the case of US 10-year Treasury Notes – resulted in mortgage rates creeping higher since the April lows. Also, the lower interest rates are not being passed on to consumers, as seen from the 414 basis-point spread of the 30-year mortgage rate compared with the three-month dollar LIBOR rate. According to Bloomberg, this spread averaged 97 basis points during the 12 months preceding the crisis.
Fed Chairman Ben Bernanke said on May 5 that “mortgage credit is still relatively tight”, as reported by Bloomberg. This raises the possibility that the Fed will boost its purchases of Treasuries to keep the cost of consumer borrowing from rising further. [The Fed has so far bought $95.7 billion of Treasury securities from $300 billion earmarked for this purpose. Similarly, purchases of agency debt of $71.5 (out of $200 billion) and mortgage-backed securities of $365.8 billion (out of $1.25 trillion) have taken place.]
Source: Fullermoney
As far as commercial paper is concerned, the A2/P2 spread measures the difference between A2/P2 (low-quality) and AA (high-quality) 30-day non-financial commercial paper. The spread has plunged to 46 basis points from almost 5% at the end of December.
Source: Federal Reserve Release – Commercial Paper
Similarly, junk bond yields have also declined, as shown by the Merrill Lynch US High Yield Index. The Index dropped by 40.8% to 1,291 from its record high of 2,182 on December 15. This means the spread between high-yield debt and comparable US Treasuries was 1,291 basis points by the close of business on Friday. With the US 10-year Treasury Note yield at 3.13%, high-yield borrowers have to pay 16.04% per year to borrow money for a 10-year period. At these rates it remains practically impossible for companies with a less-than-perfect credit status to conduct business profitably.
Source: Merrill Lynch Global Index System
Another indicator worth monitoring is the Barron’s Confidence Index. This Index is calculated by dividing the average yield on high-grade bonds by the average yield on intermediate-grade bonds. The discrepancy between the yields is indicative of investor confidence. There has been a solid improvement in the ratio since its all-time low in December, showing that bond investors are growing more confident and have started opting for more speculative bonds over high-grade bonds.
Source: I-Net Bridge
According to Markit, the cost of buying credit insurance for American, European, Japanese and other Asian companies has improved strongly since the peaks in November. This is illustrated by a significant narrowing of the spreads for the five-year credit derivative indices. By way of example, the graphs of the North American investment-grade and high-yield CDX Indices are shown below (the red line indicates the spread).
CDX (North America, investment-grade) Index
Source: Markit
CDX (North America, high-yield B) Index
Source: Markit
In summary, the past few months have seen impressive progress on the credit front, with a number of spreads having declined substantially since their “panic peaks”. The TED spread (down to 0.67% from 4.65% on October 10), LIBOR-OIS spread (down to 0.63%% from 3.64% on October 10) and GSE mortgage spreads have all narrowed considerably since the record highs.
In addition, corporate bonds have seen a strong improvement, although high-yield spreads remain at elevated levels. Credit derivative indices for companies in all the major geographical regions have also shown a marked tightening since the November highs.
Most indications are that the credit market tide has turned the corner on the back of the massive reflation efforts orchestrated by central banks worldwide and that the credit system has started thawing. However, although the convalescence process seems to be well on track, it still has a way to go before confidence in the world’s financial system is restored and liquidity starts to move freely again.
Here is an excerpt from our latest issue of The Institutional Risk Analyst comment and some additional thoughts since we’ve published. Got some very good responses/retorts that we’ll share with with la famiglia ritholtz as with previous comments.
The Rag Blog
March 22, 2009
Despite bringing the world economy to its knees and costing taxpayers hundreds of billions of dollars in bailouts for events such as Bear Stearns, Lehman Brothers and American International Group (NYSE:AIG), the Masters of the Universe who run the largest Wall Street firms of have learned not a thing when it comes to credit default swaps (“CDS”) and other types of high-risk financial engineering. Indeed, not only are the largest derivative dealers fighting efforts to reform the CDS and other derivative instruments that caused the AIG fiasco, but regulators like the Federal Reserve Board and US Treasury are working with the banks to ensure that a small group of dealers increase their monopoly over the business of over-the-counter (“OTC”) derivatives.
Once again, the PPT gets credit for the rally:
Mad props to Richard Suttmeir for getting this right . . .
Hat tip ZeroHedge
Another brutal number:
Building permits in April fell -50.2% (±1.4%) below the April 2008 rate. The monthly seasonally adjusted annualized rate of 494,000 was -3.3% (±2.3%) below the (revised) March rate of 511,000.
Single-family permits were up 3.6% (±2.2%) above March figure of 360,000, but fell 42% below April 2008.
Privately-owned housing starts in April were (seasonally adjusted and annualized) 458,000. This is 12.8% (±13.0%)* below the revised March estimate of 525,000 (Note that the high error number means it is not a statistically significant finding). The year over year number was down 54.2% (±6.0%) below the April 2008 rate.
As bad as these numbers sound, they are actually a net positive. More inventory is a bad thing, so less starts and permits is a good thing. . We still have several million foreclosures possible over the next 3 years, and that will add to supply and drive prices further down. Int he evnet that prices do move higher somehow, expect to see millions of shadow inventory — homes bought on spec or to be flipped — to hit the market.
New Housing Starts: Any Change in Trend Detectable?
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Source:
NEW RESIDENTIAL CONSTRUCTION IN APRIL 2009
Census.gov
MAY 19, 2009 AT 8:30 A.M. EDT
http://www.census.gov/const/newresconst.pdf
I’ll say this much about Ron Paul: He is intellectually consistent in his staunch opposition to the incredible money creation that has been going on at the Federal Reserve.
While I cannot imagine anyone managing to disband the Central Bank — as long as any other countries have one, it would amount to unilateral disarmament — he can effect change for the better at Fed.
For example, Paul is calling for a full audit of the Fed — including the dreaded Maiden Lane holdings, the mess that is the junk paper formerly owned by Bear Stearns. This would be a positive, as taxpayers would learn the truth about how much financial support was given to incompetently rub financial institutions. These enormous taxpayer giveaways will shock the conscious of those who read the details.
Paul wants ALL of the Fed’s holdings to reflect the “transparency of our monetary system.” This at least puts into debate whether we should be so actively rewarding the speculators while punishing the prudent.
Excerpt:
“The main argument seems to be that congressional oversight over the Fed is government interference in the free market. This argument shows a misunderstanding of what a free market really is. Fundamentally, you cannot defend the Federal Reserve and the free market at the same time. The Fed negates the very foundation of a free market by artificially manipulating the price and supply of money — the lifeblood of the economy. In a free market, interest rates, like the price of any other consumer good, are decentralized and set by the market. The only legitimate, constitutional role of government in monetary policy is to protect the integrity of the monetary unit and defend against counterfeiters.
Instead, Congress has abdicated this responsibility to a cabal of elite, quasi-governmental banks that, instead of stabilizing the economy, have destabilized it. It took less than two decades for the Federal Reserve to bring on the Great Depression of the 1930s. It has also inflated away the value of our currency by over 96 percent since its inception. It has invisibly stolen from the poor and given to the rich through this controlled inflation, and now openly stolen through recent bank bailouts. It has predictably exacerbated the very problems it was meant to solve . . .
As far as the foolishness of placing complex monetary policy decisions in the hands of politicians — I couldn’t agree more. No politician or central banker, no matter how brilliant, is smart enough to know more than the market itself. The failure of central economic planning has been witnessed over and over. It is frankly beyond me why we ever agreed to try it again.”
Interesting stuff from Dr. Paul . . .
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Source:
U.S. Rep. Ron Paul: Audit the Fed and then end it
By U.S. Rep. Ron Paul
Monday, May 18, 2009
http://www.house.gov/htbin/blog_inc?BLOG,tx14_paul,blog,999,All,Item%20not%20found,ID=090518_2909,TEMPLATE=postingdetail.shtml
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Source:
At Estates of the Fabulously Rich, Gilded Era Is Going, Going, Gone
ROBERT FRANK
Mr. Peacock Offers It All in a 1-Day Auction: Mansions, a Ferrari, the Head of an Elephant
WSJ, MAY 19, 2009
http://online.wsj.com/article/SB124268209889631903.html
"I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." -Thomas Jefferson (letter to John Taylor in 1816)
After 3 quarters in a row that averaged just 1.2%, Q4 GDP grew 2.8%, a touch below expectations of 3.0% BUT Nominal GDP grew well below forecasts. Because the price deflator was up just .4% vs the estimate of 1.9%, Nominal GDP was up 3.2% vs the estimate of 4.9%. Personal Consumption rose 2.0% vs the forecast of 2.4%. Fixed Investment rose 3.3% helped by a 5.2% increase in equipment and software spending and residential construction rose by 10.9%. Trade was a slight drag on GDP growth and government spending was as well led by a 12.5% decline on national...
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