Tuesday, January 13, 2009

Staying in touch with TED (Ben, and Lee)

So the story of the day seemed to be that of the TED spread beginning to reach pre-Lehman implosion areas. The TED spread is commonly used to gauge banks willingness to lend to their counterparts worldwide. It is based on the difference in like-maturity Treasury yields and LIBOR, with 3-month being the most often quoted. Today it is sitting just north of 100 bps, which is down significantly from the 400+ bps spread when the credit crunch turned into a credit tsunami.

In the below chart, the 3-month TED was 201 bps on Sept 15th 2008, the day Merrill was sold, and Lehman Brothers (founded in 1850!) failed. The spread hit the 405 bps peak on October 13, 2008, doubling in under a month. The lead up to the turmoil is not really obvious, and displays just how out of touch our appointed officials (Ben, Hank, and Tim) really were with the systemic risks far outweighing any gained moral hazard sobriety. Too bad there are not models for that?

The real story will be when there is a pick-up in reported borrowings released by the Fed. Given Bernake's recent statement, he doesn't sound like he is optimistic on the way we are currently systematically structured, stating...

“Even as we strive to stabilize financial markets and institutions worldwide, however, we also owe the public near-term, concrete actions to limit the probability and severity of future crises,”

Lee Scott, in his last public speech as the CEO of Wal*Mart made some insightful comments on the state of the consumer, absent the heady economic language. He was at The National Retail Federation's Annual Convention, and positively made attendees second guess forging ahead with their retail plans.

Rachel Dodes from the Heard on the Runway blog over at WSJ reports this eye opener - "The recession could fundamentally change the way consumers live, adding that he’s “not convinced” that people will be willing to take on additional debt for a long time. Retailers “are closer to working men and women…than any other industry,” said Mr. Scott, who noted that the biggest jump in sales at Wal-Mart has been in the frozen meals department, as consumers stop going out to dinner but still find themselves strapped for time and in need of convenience."

Recent struggles in holiday retailing don't seem to be pointing in the right direction, nor the increase in microwave dinners. Wonder what the margins are on a frozen turkey dinner?

We will strive for a positive next post, promise.

Llenrock Group

1 comment:

Anonymous said...

that was an a positive reaction,,
i totally agree...there are more people eating frozen meals..and going to Walmart..sorry to agree rather than disagree.