Monday, October 13, 2008

Biggest point gain ever


If you had money in typical stocks or mutuals, today was a good day. But, you knew that already. :)

No doubt many of the purchases were good buys, what with the hammering the market has undergone. Provided the companies in question don't tank.

There are several economic indicators scheduled for the coming week. I expect these will provide a bit more drubbing for the market.

Bad news will probably be exacerbated by the fact that even after the guarantees that helped spark today's buying binge, the TED spread hasn't budged, it is still at 4.57%. That means that short-term business credit is 10x as high as normal since they tend to be set relative to the TED spread.

With the spread this high, businesses have a hard time affording credit from banks. If your business doesn't maintain sufficient cash reserves to handle receivables that are Net 30 or Net 60, that can be a "real bummer." In normal times, when banks are more willing to trust that their customers won't default on loans, the spread has tended to run at .1% to .5%.

The old saying goes that your banker loves to loan you money when you don't need it, but becomes positively stingy when you do. The increase in the cost of short-term credit comes simultaneously with the slowdown in consumer spending. That makes things harder.

The Federal Reserve (which is neither Federal, nor has reserves worth much these days) has stated that they may be willing to start making short-term loans to businesses. I personally find this to be crazy and stupidly risky. But, it may be the only way to help keep many poorly-run large businesses from failing in the coming months.

And hey, keeping poorly-run large businesses going is in the best interest of somebody. Certainly not the long-term interests of the nation. It has to be in somebody's best interest or it wouldn't happen.

It will no doubt continue to be an interesting week.

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