[deMolay]

Pop Goes The Weasel (TED CHART) link

[Roccland]

Mish discusses this here...got bunker?

[dinopello]

Looks like something happened. What is TED ?

Edit: Thanks, roccman

Initially, the TED spread was the difference between the interest rate for the three month U.S. Treasuries contract and three month Eurodollars contract as represented by the London Inter Bank Offered Rate (LIBOR). However, since the Chicago Mercantile Exchange dropped the T-bill futures, the TED spread is now calculated as the difference between the three month T-bill interest rate and three month LIBOR. The TED spread is a measure of liquidity and shows the degree to which banks are willing to lend money to one another.

The TED spread can be used as an indicator of credit risk. This is because U.S. T-bills are considered risk free while the LIBOR rate reflects the credit risk of lending to commercial banks. As the TED spread increases, the risk of default (also known as counterparty risk) is considered to be increasing, and investors will have a preference for safe investments.

[deMolay]

TED spread is the difference in yields between inter-bank and U.S. Government loans.

Initially, the TED spread was the difference between the interest rate for the three month U.S. Treasuries contract and three month Eurodollars contract as represented by the London Inter Bank Offered Rate (LIBOR). However, since the Chicago Mercantile Exchange dropped the T-bill futures, the TED spread is now calculated as the difference between the three month T-bill interest rate and three month LIBOR. The TED spread is a measure of liquidity and shows the degree to which banks are willing to lend money to one another.

The TED spread can be used as an indicator of credit risk. This is because U.S. T-bills are considered risk free while the LIBOR rate reflects the credit risk of lending to commercial banks. As the TED spread increases, the risk of default (also known as counterparty risk) is considered to be increasing, and investors will have a preference for safe investments. As the spread decreases, the risk of default is considered to be decreasing.[1]

TED is the acronym of T-Bill and ED, the ticker symbol for the Eurodollar futures contract. The size of the spread is usually denominated in basis points (bps), e.g. when T-Bills trade at 5.10% and ED trades at 5.50%, the TED spread is said to trade at 40bps. The value of the TED spread fluctuates over time but is often between 10 and 50 basis points (0.1% and 0.5%). A rising TED spread often foretells a downturn in the U.S. stock market as liquidity is withdrawn.

During 2007, the credit crunch, which many believe was caused by the U.S. subprime mortgage securities meltdown, ballooned the TED spread to a region of 150-200bps. On September 17, 2008, the record set after the Black Monday crash of 1987 was broken as the TED spread exceeded 300bps.[2] Some higher readings for the spread were due to inability to obtain accurate LIBOR rates in the absence of a liquid unsecured lending market.[3]

[dinopello]

.. and thanks deMolay. One gets the impression that there is more going on here than the bailout of a few big banks...

The odd thing is that where I live is a different world. Home prices and sales were up in August in Arlington. Private capital and bank loans are still flowing into development projects that are just getting underway.

I lightened up on some regional bank stock that I bought back in January at 27 and just sold for 39 (it had dropped to 22 in the interim!). Now, I see that the CEO of BB&T is vigorously opposing the bailout plan. Interesting.

So, for me I don't see the urgency that is being pushed by the administration for action, but the indicators show that there is a big earthquake of some type.

[deMolay]

Historically everytime the spread gets this big, bad Tings happen. Look for a market crash very soon. Duck and Cover. Hit the foxhole.

[dinopello]

Historically everytime the spread gets this big, bad Tings happen. Look for a market crash very soon. Duck and Cover. Hit the foxhole.

I've done pretty well in the market ever since I stopped listening to other people. At the weighting I am now, my stock values could go to zero and it would be OK - presuming I kept my job ! That is the real key for most people I think unless you are way overinvested in the market. Never invest more than you can afford to lose - that, at one time was the mantra of a wise investor.

[Revi]

My Evergreen Solar stock can't go any lower. It lost half it's value when Lehman went down. I'm not selling now.

Let it go.

[Spanktron9]

Ruh-Roh. And that my friends, is that. See you on the other side.

[Tyler_JC]

Chart (large)

We're off the chart...completely off the chart.

I'm glad I stopped by the ATM today. We might have a "bank holiday" next week.

[deMolay]

Do you believe a TED chart now boys and girls?

[deMolay]

OK big deal I kicked all your asses. Doesn't matter anyway this is survival. New Zealand is opening down. Where is the spread?

[deMolay]

The thing to watch now, is wealth is going to get very portable. Diamonds, real gold etc. I have seen stories where last week bullion dealers were running short of physical gold and silver.

[eXpat]

Chart (large)

We're off the chart...completely off the chart.

I'm glad I stopped by the ATM today. We might have a "bank holiday" next week.

Welcome to the dark side Tyler!

[frankthetank]

I made a bank stop too...

Next stop will be the gun dealer...

[deMolay]

So did the Weasel Go Pop?

[dauterman]

So did the Weasel Go Pop?

Hi,

The TED spread reached a maximum of 4.63 on Oct 10th. It then came back down to 2.63 as of about 10/29/08.

There realy isn't an upper limit where it "pops". It represents the cost of one bank to borrow from another. At the 4.63 level, it would be uneconomial for banks to borrow from other banks. The return on the borrowed money would not be enough to justify borrowing the money. So the banking system freezes up instead...

[deMolay]

I would say the system popped, it came unglued. And it is still unglued inspite of Billions in fiat money propping it up.