The bad news is that the Lehman high-yield bond index (constrained) reaches new heights every day. The most recent level is 18.51% and is double what it was a year ago. The spread over ten-year notes also sets a new high every day. This spread indicates fear in the bond market that normally flows into the stock market.
The S&P is only 5% above its lowest levels in 2002. With this volatility, we could breech that in one day.
The good news is that M1 and M2 have finally expanded. This may not last; the
Fed has been taking $29 billion out of the financial system every day for about two weeks. I assume that these "reverse repos" are an effort to balance the $700 billion rescue plan.
A summary of this plan is available on the Fed's website. Just google it.
Further good news is that the commercial paper market seems to work better. Rates for highest quality paper have declined and curves for this sector are normal. Some days. Some days - not.
It's probably a good idea to stay risk-averse in your portfolio.
2 comments:
What is the information for the very surprising claim that the Fed is actually soaking up liquidity?
Dear Artichoke,
The Fed's website has announced a $25 billion reverse repurchase agreement (reverse repo or rrp) every day for several months. http://www.ny.frb.org/markets/omo/dmm/temp.cfm
You can register for their daily alerts.
Deb
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