Old Project Avalon Forum (ARCHIVE) - View Single Post - halfpasthuman says crash may have begun!(10/22/08)

eugene_vn · 10-23-2008, 01:21 PM

Regardless of how one might wish to interpret evidence based on "predictive linguistics", the fact of the matter is that both technical and fundamental indicators of the stock market's health are both decidedly negative.

Don't be fooled by the recent big cut in the LIBOR rate. Just because banks are starting to lend to one another, doesn't mean they will lend to end consumers. In this economy, who wants a loan for a home, car, or business start-up? And that is just on the demand side. Banks receiving cash from the Fed or from one another are going to want to use that money to deleverage, not create more credit.

Credit spreads (i.e. the difference between interest rates on high-quality vs. low-quality debt) are continuing to widen at a frantic pace in spite of the machinations of central bankers, and this should continue to be a more reliable indicator than LIBOR. For example, the difference now between the yield on 30-year U.S. treasury notes and the Moody's BAA corporate loan index is well over 5%. A more normal value would be around 2%.

The economic and financial collapse will be punctuated by numerous (and sometimes sharp) upward corrections which many in the media will hail as signalling an end to the bear market. The key is to not get pulled into these short-lived rallies and instead, to preserve cash both for survival as well as investing in useful things when stuff is dirt cheap some time in the next decade.

10-23-2008, 01:21 PM	#46
eugene_vn Avalon Senior Member Join Date: Sep 2008 Posts: 31	Re: halfpasthuman says crash may have begun!(10/22/08) Regardless of how one might wish to interpret evidence based on "predictive linguistics", the fact of the matter is that both technical and fundamental indicators of the stock market's health are both decidedly negative. Don't be fooled by the recent big cut in the LIBOR rate. Just because banks are starting to lend to one another, doesn't mean they will lend to end consumers. In this economy, who wants a loan for a home, car, or business start-up? And that is just on the demand side. Banks receiving cash from the Fed or from one another are going to want to use that money to deleverage, not create more credit. Credit spreads (i.e. the difference between interest rates on high-quality vs. low-quality debt) are continuing to widen at a frantic pace in spite of the machinations of central bankers, and this should continue to be a more reliable indicator than LIBOR. For example, the difference now between the yield on 30-year U.S. treasury notes and the Moody's BAA corporate loan index is well over 5%. A more normal value would be around 2%. The economic and financial collapse will be punctuated by numerous (and sometimes sharp) upward corrections which many in the media will hail as signalling an end to the bear market. The key is to not get pulled into these short-lived rallies and instead, to preserve cash both for survival as well as investing in useful things when stuff is dirt cheap some time in the next decade.