Wednesday, October 01, 2008

Morning Update: Credit Markets Remain Tight

The equity markets are lower this morning on continued tightness in the credit markets, which is spilling over and affecting GE today.

The credit derivative swaps for GE Capital are spiking this morning, which is putting the stock under heavy pressure. This is despite the fact that GE is a AAA credit. Just shows you how whacky these markets are. Nonetheless, GE is currently -8% lower today.

Bank stocks are actually bucking the weakness and up on the day. The bank index is up +2.9% right now, while the oil index is down -3.3%, along with the broader market being lower.

The volatility index (VIX) is still high at 41.59 (+5.6%), even after yesterday's plunge lower. Libor rates are also still elevated, though lower than yesterday. The tight credit markets are likely to begin having a pronounced effect on the overall economy as well, not just here in the U.S., but in Europe and Asia as well.

The Senate is going to vote on its version of the relief plan this evening. Their version is said to include a provision to increase FDIC insurance to $250,000, which would be a good idea. The SEC also said that it will provide guidance on mark-to-market accounting. I know this sounds like manipulating the fair market process, but you can't have these illiquid securities bringing down more financial institutions.

Yesterday was the last day of Q3, a quarter most would like to forget. I will be back later with a roundup of how the various financial markets fared for the quarter.


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