First things first: here's a breakdown of the Lehman Brothers CDS auction tomorrow. We should know how it went by 11am Pacific. Possibly in anticipating, banks are hoarding cash harder than ever - the TED spread, a measure of interbank lending costs, bounced off 4.13 this morning, tho' it's currently down to 4.01.
Interest rates (not just spreads) continue to worry me. Note the Fed overnight rates - they cut rates half a percent and miss to the upside by 74 basis points. I suppose that's within their newtype definition of "in range" if you're within 75, but c'mon. Much worse is that we're currently in our third straight day of selloffs in both stocks and treasuries. Christopher Grey at TheStreet says to run, not walk, from Treasuries. There're worries about capital flight, but also speculation that investors are moving to newly-insured Corporate bonds which offer higher interest rates. Either way, it means higher borrowing costs for the US government. Checking Karl at Market Ticker, I see he's worried too.
Mish Shedlock offers critical commentary on the proposed partial nationalisation of assorted US banks. Bloomberg talks about the LIBOR crisis and how it's affecting business across the world. Brad Setser suspects the US trade deficit will decline very sharply in September - unexpectedly so.
Incidentally, Congress is reportedly talking about screwing around with 401(k)s:
“With respect to the 401(k), it appears to be a plan that is not really well-devised for the changes in the market,” Rep. George Miller, D-Calif., said.And General Motors fell below $6/share for the first time since 1951. But market theorists say we're nearing the end of Wave 3 of 5 (Down) and should be entering Wave 4 (Up) in this 5-move decline, so.
“We’ve invested $80 billion into subsidizing this activity,” he said, referring to tax breaks allowed for 401(k) contributions and savings.
With savings rates going down, “what do we have to start to think about in Congress of whether or not we want to continue and invest that $80 billion for a policy that is not generating what we … say it should?” Mr. Miller said.