主题：12/19/2009 Market View -- 宁子

So much for any serious requirements on our $13.4B.

You had to applaud the few republican senators that stood on principal and did not want to bail out the auto industry without some form of restrictions similar to what a bankruptcy court would impose. Problem is, they played their momentary advantage too far, reached for a little too much, and as a result, no deal and no legislation.

That lobbed a softball over to the Executive branch, giving the President and his men the opportunity to do whatever they wanted. Bush did follow a lot of what was in that failed legislative package, requiring proof of solvency and a viable game plan by March 31 or else bankruptcy.

Problem is, the authority is all in the executive without any legislation backing it up. That means when the Presidency changes hands in January the new executive will have complete power to do as he sees fit with the prior plan and what happens in the future. If Congress had struck a palatable deal for all it would take legislation to change plan, not just the stroke of a pen.

Thus we likely threw the $13.4B and another $4B they can grab a bit later right down a hole . . . likely to be followed by more of our money after the automakers fail to make the necessary changes to become competitive. Already the UAW is howling about having to bring its wage structure in line with what foreign automakers with US plants pay their employees. While I agree you don't want the government telling you what you pay your employees, the fact that the automakers came to DC with their hats in their hands (at least the second time around) begging for taxpayer money necessarily requires our government to exercise a bit of control when the feds fork over the dough. That the UAW is howling only tells you that the plan actually has some teeth in it.

In any event, the automakers have some of our cash and will 'endeavor to persevere' over the next three and one-half months and radically change their fortunes. Not too excited I will see my money on this deal. Maybe GM would give me one of those three quarter ton, 4 wheel drive Yukon XL's or a Yukon Denali and we can call it even.

Credit rates continue to improve, need more improvement.

US Treasuries took a pounding this past week as the Fed cut the Fed Funds rate 75BP and pledged the kitchen sink in order to fight deflation and bring the credit markets back to functionality. A bit of a rebound late in the week helped but didn't change things much as the 10 year and 30 year bond yields fell to record lows.

That may help mortgage and other consumer rates, but it is also somewhat forestalling a faster recovery in the overall credit markets. You might ask 'but LIBOR rates are falling nicely'. You would be right. LIBOR fell again Friday with the key 3-month rate dropping to 1.50% from 1.53% Thursday and 1.92% to start the week. Hefty drop.

With LIBOR falling, the TED spread, the difference between 3-month LIBOR and 3-month US Treasury, should be narrowing, making money cheaper and credit more readily available. It is, but the US bond is falling fast as well. In other words, they are moving somewhat together and thus the spread is falling, but not as fast as if the US yield was rising.

As of the start of Friday the TED spread was right at 150BP. That is much, much better than the 434BP in September. It is also still quite high. For example, in 2006 the TED spread averaged 0.36% or 36BP. That puts it just over 4 times more 'normal' levels. Thus there is improvement to be had, but with the US 3-month treasury trading near a quarter of a percentage point, the decline is going to have to come on the LIBOR side. Fortunately it fell 22% this past week and hopefully it will continue to do so.