It’s a busy day on the global markets front. So let’s get right to the news …
* U.S. dollar LIBOR rates generally rose again, with 3-month LIBOR up 3 basis points to 4.32%. That is just shy of lastFriday’s cycle high of 4.33%. Overnight LIBOR jumped to 3.94% from 2.37%, though that is still below the cycle peak of6.88% on 9/30. 6-month LIBOR, for its part, dipped to 4.02% from 4.05%. The TED spread, another indicator ofcredit market stress, is slightly below its recent peak — 3.72% as I write versus a10/3 high of 3.87%. Two-year swap spreads are down to 136 bps or so, versus a recent peak of 167 on 10/2.
* In the overseas markets, Australia’s central bank lopped a full percentage point off its benchmark short-term interest rate. TheReserve Bank of Australia’s cash rate target dropped to 6% from 7%, the biggest cut since 1992. In the U.K., the Bankof England announced it will hold dollar loan auctions to help ease market stress. Policymakers there are alsodiscussing injecting $79 billion into leading U.K. banks. Meanwhile, in Europe, the European Central Bank lent awhopping $339 billion to banks in its latest weekly auction, the most since December 2007.
* And of course, the speculation here is that the Federal Reserve will come riding to the rescue with another biginterest rate cut. The funds rate target is currently 2%, down from 5.25% last summerbefore the credit crisis got underway. It might come too late for Iceland, where thegovernment is trying to get morethan $5 billion in loans from Russia to save itself … and where the government just had to seize Landsbanki Islandshf, the country’s second-largest bank.
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While this bailout is of great concern and has virtually no chance of saving us from ourselves, one thing I wonder about is this - according to Jim Cramer and at least one other analyst, the underlying values in these portfolios
that the gov’t is buying is not all junk. In fact, I believe Cramer said that only about 20% of the mortgages are in default in these packages. I have no idea how he can know that. But if true, isn’t it possible that in the very long run that this could
be a profitable investment for the gov’t?? Trying to find some silver lining to this very dark cloud!