Tuesday, October 14, 2008

One View of the Bank Bailout/Markets/Rates, Etc.

...and not one of unalloyed optimism.

In my opinion, I see the following.

1. Global Increase in Long Term Interest Rates –the massive amount of debt that will need to be issued will cause rates worldwide to rise even in the face of a likely significant economic slowdown. …….


10yr U.S. Treasury rate is up 50bps in the last week even with the Fed having cut the fed Funds rate by 50bps…

IBM issued debt last week in the midst of this tsunami….they borrowed for 5yrs at app 6.75% and 10yr money at app 7.75% ( a full 400bps over Treasurys for one of the strongest global companies!!!!!!)

3 mo Libor is only down to 4.63% this morning from 4.75% at the end of last week…hardly a resounding vote of confidence

...The rise in interest rates will depress bond values. With slower worldwide economic growth and increasing unemployment GDP prospects are not pretty for the foreseeable future. I think there is a very strong chance that we will see “stagflation”.

The author is not convinced that $250Bn re-capping the Banks is sufficient; he opines that the banks have $1 trillion in "embedded losses".

Ugh.

HT: No Quarter

2 comments:

asianbadger said...

Hmmm...debt markets were closed on Monday and the market goes up 900 points. Debt markets re-open on Tuesday and the equity markets plummet. Hmmmm.

Dad29 said...

Bear market rally/selloff.

I think deflation is the watchword.