Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
Bitcoin Price Might Move Shortly - 2nd Sep 14
Why Brent Crude Oil Prices Won’t Fall Below $100 a Barrel - 2nd Sep 14
3 Important Gold Charts - Transparent Holdings Fall As Bullion Goes East To Russia and China - 2nd Sep 14
NWO Enforcer: NATO Threatens WW III - 2nd Sep 14
"Financialization" Will Ruin America. Unless We Do This... - 2nd Sep 14
Stock and Commodity Market Ratio Messages - 2nd Sep 14
Gold Price - The Thin End of the Wedge - 2nd Sep 14
U.S. Inflation Pressures in Core Food Components - 2nd Sep 14
Independent Scotland Currency, Plan A, B, C or D - British or Scottish Pound? - 2nd Sep 14
Gold and Silver Price A Critical Juncture - 2nd Sep 14
Gold and Silver Precious Metals Complex Contradiction and Potential - 2nd Sep 14
France And The Long-Gone Thatcher Moment - 2nd Sep 14
Stock Market Approaching An Important High? - 2nd Sep 14
Gold, Silver Price Summer Doldrums Coming to an End - 2nd Sep 14
The Ultimate Demise Of The Euro Union - 1st Sep 14
Palladium Price Breaks Multi-Year High Over $900 - 1st Sep 14
When Complexity Becomes Chaos - 1st Sep 14
Designer War By Default - 1st Sep 14
Islamic State or Russia? Ten Key Questions Towards Pragmatism - 1st Sep 14
Mixed Emotions for the Gold Market - 1st Sep 14
These Clowns Are Dragging Us Into War with Russia - 1st Sep 14
Marx And The Capitalist Cancer Of Overproduction - 1st Sep 14
Scottish Banks Salivating at the Prospects for an Independent Scotland of 6 Million Debt Slaves - 1st Sep 14
Small Man Europe Is Now In “Effective State Of War” With Russia - 31st Aug 14
The Unintended Blowback Of False Flags - 31st Aug 14
Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed - 31st Aug 14
Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge - 31st Aug 14
If U.S. Consumers are so Confident Why aren't They Spending? - 31st Aug 14
Scotland Independence House Prices Crash, Deflationary Debt Death Spiral - 31st Aug 14
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Credit Crisis Warning Signs Surging to Market Panic Levels Again

Stock-Markets / Credit Crisis 2010 May 28, 2010 - 08:19 AM GMT

By: Mike_Larson

Stock-Markets

Best Financial Markets Analysis ArticleHeads up people. Something very big is happening in the global credit markets — something you darn well better pay attention to.

The very same “Credit Crisis” indicators that were flashing red before the stock market meltdown of 2007-2008 — the ones Martin and I used to get our subscribers out of almost all stocks, and “short” the market via inverse ETFs — are flashing red again.


Pay attention and you might save your portfolio. Ignore them and you could get slaughtered.

What the heck is happening? Why is the market in so much peril? Because governments worldwide did exactly what we warned them not to do!

By bailing out, backstopping, and propping up countless lousy institutions and assets during the private credit crisis … rather than allowing a quicker, more painful, but ultimately cleansing collapse … they turned a Wall Street debt crisis into a sovereign debt crisis.

They temporarily postponed the day of reckoning, while failing to solve the underlying problems.

They tried to paper over a private credit crisis brought on by too much bad debt by creating a huge new pile of public sovereign debt.

And now, the markets have had enough. They’re rebelling around the world.

Here Are the Warning Signs — Please Heed Them!

Where’s the evidence of this? All around me …

Swap spreads blowing out as credit rish rises!

First, look at this chart of the two-year swap spread.

This is the cost to swap fixed-rate payments for payments based on floating rates in the derivatives market. It’s expressed as a spread, in basis points, over yields on underlying Treasuries.

I know it sounds complicated. But you can think of this as a crisis indicator that rises when banks are more leery of doing business with each other. They charge higher premiums at times when they’re worried about counterparty credit quality and extreme volatility.

You can see the spread was a paltry 9.6 basis points in March. It has since EXPLODED to as much as 64 basis points — almost a seven-fold increase. That’s also a 13-month high!

Second, check out LIBOR, the London Interbank Offered Rate. LIBOR is the rate banks charge each other to borrow money for short periods of time.

Swap spreads blowing out as credit rish rises!

When credit markets are functioning normally, short-term LIBOR tends to move in lock step with the federal funds rate. But when they start going haywire, LIBOR costs rise as banks price in the risk that the guys they’re lending to won’t be able to pay them back.

Lo and behold, as you can see in the chart to the left of 3-month, dollar-based LIBOR, those borrowing costs are rising sharply. That rate has more than doubled to 54 basis points from 25 points in December.

That’s still low on an absolute basis. But it’s the highest level in almost a year — and it’s coming at a time when both the Federal Reserve and the European Central Bank wouldn’t choose to raise interest rates on their own.

Third, there’s the credit default swap market. That’s where financial players buy and sell insurance against credit risk. When times are good, insurance is cheap. When the credit markets go nuts, the cost goes up … and right now, it’s surging!

An investor would have to spend about $131,000 per year now to insure a benchmark portfolio of $10 million of investment grade corporate bonds against default. That’s up dramatically from $76,000 in January.

What You Need to Consider Doing …

My paying subscribers have already received actionable recommendations designed to protect themselves — and profit — from the chaos in the markets. Naturally I can’t share the same advice here (Though you can join Safe Money Report and get that kind of valuable information for only 24 cents a day. Just click here.).

I will say this, however: We’re already seeing the stock market begin to crack. But the declines so far could be just a walk in the park compared to what lies ahead.

Or in plain English, we’ve had a “bought and paid for” stock market and economic recovery since March 2009. It was financed almost entirely by massive government borrowing and spending. That was designed to paper over the underlying causes of the credit crisis rather than confront them head on.

Now the markets are taking away the credit card for sovereign nations around the world, which could kneecap the recovery.

So if you haven’t already prepared yourself for that possibility by paring back your stock, corporate bond and junk bond exposure, do it now. Yes, now.

Until next time,

Mike

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014