Fresh Round of Credit Concerns Hit Market

Another fun night in LA-LA land. Day 2 of no power for the Kahn family. Luckily, some friends put my whole family up for the night. Nice to know someone with an extra crib, right? Ugh. If ever I thought there was a need to updgrade the power grid, it's now!

Back to the markets. A fresh round of credit concerns is hitting the markets this morning. A Japanese govt. official stated his worries that the subprime issues could spread more.

Also, LIBOR in Europe is spiking to its highest levels relative to our fed funds rate since 9/11, as problems in the commercial paper market increase. The ECB will need to inject liquidity like the Fed, maybe even more so.

With the market up nicely over the last four days, the initial selling was also probably some good old fashioned profit taking. But a very weak housing report caused the selling to accelerate, as pending home sales plunged -12.2% last month (20% in the West).

The ADP employment report estimated only 38k new jobs last month, a low figure.

All of the above support the thesis that the Fed needs to cut rates, and will do so at its next meeting. The question is how much will they cut, meaning could they do another 50 bps in the discount rate, along with a cut in the fed funds rate?

Most measures of investor anxiety are spiking this morning, which could help the market bottom and pare its losses into the close. I think the recent action in the market has been constructive, and that we will not test the 8/16 lows.