So I understand the idea that the SWF put has once again displaced everything else at the front of the trader’s/speculator’s mind, and that it might justify some long-forgotten bullishness.
But meanwhile, the Treasury-London interbank offer rate, also approximated as the Treasury-LIBOR, Treasury-eurodollar, or ‘Ted’ spread, is now the widest it has been in at least 20, probably 27 years. It’s now at 2.08.
The market can get as deliriously bullish as it wants. But–why?? The exploding divergence in the interbank offer rate means that banks are extremely unwilling to lend to each other (as unwilling as any time in the past 27 years), because they don’t have confidence in each others’ balance sheets. I am pretty sure they have a better sense of that than I do.
So I will sit this rally out. There’s at least one dead whale that hasn’t floated to the surface yet.
Then again, Fed Vice-Chairman Don Kohn indicated today that he’s leaning towards more rate cuts. As I never tire of saying, the 1970’s have just begun.
The bond market is effectively forcing the Fed’s hand and pricing in a pretty massive slug of rate cuts over the next several quarters. Conventional wisdom is that the bond market is much smarter than the stock market. I don’t know.