Best of the Week
Most Popular
1.US Dollar Crashes, Gold And Bitcoin Skyrocket As Economic Recovery Lie Is Exposed - Jeff_Berwick
2.Now Obama Warns Americans to ‘Be Prepared’ for Disaster… What Does He Know? - Jeff_Berwick
3.EU Referendum - Britain's Immigration / Migrant Crisis Explained - Nadeem_Walayat
4.EU Referendum - British People vs Establishment Elite, Vote LEAVE an Act of Defiance! - Nadeem_Walayat
5.Prominent Billionaire Investors Warn of Financial Crash, Quietly Position Themselves - MoneyMetals
6.Bankers Warn of BrExit Financial Armageddon if British People Vote for Freedom - Nadeem_Walayat
7.Bad U.S. Jobs Report Prompts Stocks Bear Market Rally Towards New All Time Highs! - Nadeem_Walayat
8.Gold And Silver – Friday May Have Marked A Pivotal Turnaround - Michael_Noonan
9.EU Referendum - British People vs Establishment Elite, the Illusion of Democracy and Freedom - Nadeem_Walayat
10.Felix Zulauf: Monetary Stimulation Creates Bubbles, Not Prosperity Nor Growth - GoldandLiberty
Free Silver
Last 7 days
Venezuela vs. Ecuador (Chavismo vs. Chavismo Dollarized) - 25th June 16
Gold, Silver And PM Stocks Summer Doldrums Risk - 24th June 16
Here’s Why China “Economic Hard-Landing” Worries Are Overblown - 24th June 16
Jubilee Jolt: Markets Crash, Gold Skyrockets as Britain Takes Brexit - 24th June 16
BrExit Morning - New Dawn for Britain, Independence Day! - 24th June 16
LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - 24th June 16
Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - 24th June 16
EU Referendum Shock Results Putting BrExit LEAVE in the Lead Hitting Sterling Hard - 24th June 16
Final Opinion Poll Gives REMAIN 52% Lead, Bookmakers, Markets and Pollsters ALL Back REMAIN Win - 23rd June 16
Does BREXIT Matter? Outlook for Sterling - 23rd June 16
Keep Calm and Vote BrExit - Last Chance to Break Free of EU Superstate - 23rd June 16
Here’s the Foreign Policy Trump and Clinton Really Want - 23rd June 16
Details Behind Semiconductor Stocks Leadership - 23rd June 16
Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - 23rd June 16
BrExit Looks Set to Win EU Referendum, Final Opinion Polls Give LEAVE Lead Over REMAIN - 22nd June 16
Proof that the Gold Bears are Wrong - 22nd June 16
Here’s a Trillion-Dollar Investment Opportunity for Those Few with No Debt - 22nd June 16
BrExit to Save Europe from Climate Change Refugee Migration Apocalypse - 22nd June 16
Increase In U.S. Rig Count Will Not Cap Oil Prices - 22nd June 16
Are Copper and China Stocks Set to Rally? - 22nd June 16
SPX May Break Its Trendline - 22nd June 16
Believe it or Not: More Kids Live At Home Now than Since The Great Depression - 21st June 16
EU Referendum Latest Opinion Polls Show LEAVE Halting REMAINs Surge - 21st June 16
British Pound Outlook - BREXIT, Europe and You - Does your vote matter? - 21st June 16
Fascist Victory Behind the European Union - 21st June 16
EU Referendum Opinion Polls Analysis Shows Strong Momentum in REMAINs Favour - 21st June 16
Is It Time to Dump Gold and Buy Platinum? - 21st June 16
Could Central Bankers Be Gold and Silver's BIGGEST Allies? - 20th June 16
Words Still Mean Things – Brexit With Graham Mehl - 20th June 16
Baroness Warsi the Manchurian Candidate Quits LEAVE for REMAIN, Boris Johnson Next? - 20th June 16
FTSE Soars, Stock Markets Bounce on LEAVE Polls Surge, Bookmakers Widen BrExit Odds - 20th June 16
Brexit Would Trigger Devolution of Europe - 20th June 16
Stock Market Week Of Uncertainty - 20th June 16
Will Gold’s Bullish Price Chart Outperform Gold’s 5 Bearish Indicators? - 20th June 16
Bonds And Stocks At All-Time Highs: Are Markets Confused Or Broken? - 20th June 16
Silver Sleeping On the Job - 19th June 16
BrExit Odds Sink, REMAIN Polls Boost by Jo Cox Killing by Radical Right Extremist, Conspiracy? - 19th June 16
How Elliott Waves Tell You When to "Jump In" & When to "Jump Out" of Markets - 18th June 16
Stock Market Inflection Point During Bifurcation - 18th June 16
Gold And Silver – Insanity Is World “Norm.” Keep Stacking! - 18th June 16
Gold Stocks - Bull Markets that Follow Epic Bears - 18th June 16
The Fed Giveth and the Gold Bullion Banks Taketh Away… - 17th June 16
Brexit: "The Vote Heard Around the World" - 17th June 16
Gold Stocks Summer Breakout? - 17th June 16
Stock Investors Get Higher Returns and More Dividend Income - In Less Time With Less Risk - 17th June 16
How to Use the Gold-to-Silver Ratio? - 17th June 16
Inflation, Deflation & Associated Trading Prospects - 17th June 16
Overnight Markets Struggling to Stay Flat - 17th June 16
Gold Price Surges to Highest in Nearly Two Years On Central Bank and Brexit Haven Demand - 17th June 16
Stock Market Thinking Upside Down; Dow 18k Still Key - 17th June 16
Jo Cox MP Terror Attack Killing Claimed for "Britain First" - Witness Report - 17th June 16
Stock Market, Iron Ore, Bitcoin – Is Silver Next for Chinese Momentum Investors? - 16th June 16
EU Referendum Campaigning Suspended Following Shooting of MP Jo Cox, Suspect Named as Tommy Mair - 16th June 16
Why People are Migrating to the UK, Illegal Immigration, Housing Crisis Consequences - 16th June 16
Stocks Fluctuate Following Recent Decline - Bottom Or Just Pause Before Another Leg Down? - 16th June 16
The US Consumer-Driven Economy Has Hit a Brick Wall - 16th June 16
Bitcoin Price Going Parabolic Again, Now At $730 and Up 60%+ In Last Three Weeks - 16th June 16
China's Hard Landing Has Already Begun! - 16th June 16
Crude Oil Price - Oil Bears vs. Support Zone - 16th June 16
Central Bankers Are Wrong About Inflation and Deflation - 15th June 16
Alignment Of The Dow, Interest Rates, Debt and Silver Cycles Will Deliver A Fatal Blow - 15th June 16
Stock Market Bounce May be Over - 15th June 16
EU Referendum: Have the Bookmakers Got it Wrong? LEAVE Opinion Polls Lead - 15th June 16
Gold Price Rally - 15th June 16
How to Invest for Brexit Report - 15th June 16
Stock Market Short of the Decade? - 15th June 16
Stock Market Sell Off Coming! - 14th June 16
QE - The Good, Bad & Ugly - 14th June 16
This Demographic Shift Makes Our Social Security Useless - 14th June 16
Gold Stocks Ultimate Objective in a World of Monetary Transition - 14th June 16
Philosophy of the New World Order - 14th June 16
The Brexit Game - Boris Johnson vs David Cameron EU Referendum Zombies - 14th June 16
EU Referendum: LEAVE Opinion Poll Lead of 51% to 49% Whilst Bookmaker Odds Still Strongly Favour REMAIN - 14th June 16
George Soros Making Big Bets on Gold - 14th June 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

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.


© 2005-2016 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

Catching a Falling Financial Knife