Credit Market Overview
From what has been published it appears that barely 1/5th of the stimulus that Congress passes will be spent in fiscal 2009 and with just 3% of that being anything that you could honestly call stimulus; Rohm Emanuel’s “never waste a good crisis” seems to be gaining momentum while Larry Summers’ “targeted, timely and temporary” seems to be losing it.
The market added 22.75 S&P points on Friday as anticipation that Timothy Geithner was now both current on his taxes and was going to announce his plans on how to clean up the financial mess on Monday. In comparison the S&P moved 98.69 points on the Thursday and Friday preceding the Monday when Hank Paulson was going to announce TARP 1.0.
Given that the market was 148.69 S&P points lower by the 29th of September and 345.16 points lower by the 8th of the following month maybe Friday’s smaller number will mean that the move from here will only be down 78.63 points once the market realizes that anything short of the Swedish good bank/bad bank approach will to little more than prolong the pain.
Just to close the loop on all of the index math 78.62 points would put the S&P at 789.97 near but not exceeding the November lows. The test many are expecting which also reduces the probability of it occurring.
High yield spreads moved from 1494.4 on Thursday to 1444.3 as of Friday’s close as measured by the CDX indexes published on Bloomberg. Investment grade spreads moved back below the 200 line again as the spread players in the debt market are swallowing all the bonds they can while the relative cheapness lasts and corporate treasurers and CFO’s are issuing as fast as they can while nominal yields are at close to all time lows.
Something else to keep in mind, the market had 6 counter trend rallies of at least 20% in the 30’s before the market had erased 89% of its pre-1929 value. As of Friday’s close we are down 44% from the October 2007 high and have had one.
In a sidebar in Barron’s this week Charlie Minter and Marty Weiner of Comstock partners did an analysis on the “E” of the P/E of the S&P. The last paragraph says it looks like 640 is a real possibility.
Enjoy the week.