solarbird | waiting on the edge of the precipice

Good morning.

TED spread at 4.52, bouncing off 4.59. The VIX, a measure of stock-market instaibility, has broken the record set yesterday, bouncing solidly over 70. Again, as it's been a long time, I'll remind you of more normal numbers; the TED traditionally wandered between .25 and .50 in good times; the VIX around 15-20. 3-month LIBOR is similarly crazy. It's global; a variety of markets closed early, and Japan and Australia had their worst days ever, with the Australian dollar collapsing. Yes, look at that last link and look at the Aussie dollar chart. PM Berlusconi of Italy has floated the idea of a global equities market shutdown while more emergency measures can be put into place.

The DOW briefly had a 7-handle this morning as overnight queued sales all regsitered in at once; markets were down briefly over 8% before bouncing on real-time trading back to break-even and falling again. Currently the picture appears very grim with the DOW and S&P 500 down close to 6%. The NASDAQ continues to do slightly better, as it has the last couple of days. Amusingly, GM is up so far on the day.

Despite all this, 10-year Treasuries continue to be in mostly a selloff mode, with the interest rate rising to 3.87%.

Normally, with comments like this:

I'm trembling. I fear for my own security...I fear for the security of my business...I have a hedge fund up 40% this month...but I question whether I have a future.

We had a sense yesterday that the problem had become bigger than government. We've never experienced a matter as grave as this.

The only defense left is to sell assets. This is a liquidation. That's why you see in the last hour of trading a cascading of orders...in the final hour there is a panic to fulfill those sell orders...and the market runs out.

The big issue confronting the market is...I'm afraid...the health...the sustainability of Morgan Stanley and Goldman Sachs. It is unimaginable that they could be allowed to [fail]. I suspect...that they will be nationalized at some point....today...or over the weekend.

...I'd call this kind of sentiment "blood in the streets" time and consider if nothing else some lotto stock tickets. (Oh; that was Hugh Hendry, CIO Electica (London), on Bloomberg Television this morning.) But the reality is that the credit market just keeps getting worse, not better; the US is considering insuring all bank deposits and a substantial portion of bank debt. I wish they'd start guaranteeing new interbank lending instead, but, well, you know.

Mish Shedlock does some traditional technicals analysis on the S&P, if you're interested in that; they indicate a pullback to at least 1996, which doesn't sound so bad until you realise that's over 60% off highs.

As I've typed all this, there's been a little bit of an intraday rally. The Lehmen Brothers action results hit around 11am (Pacific). If that's better than expected, maybe things will calm down a bit. Really, everyone's waiting for that.