Tuesday, September 09, 2008
this might be a very dangerous moment
Prices of Treasury coupons surged today as the euphoria which dominated the market yesterday slipped away and an enervating fear replaced it. The fear is most evident in the strength of the 2 year notes which is within spitting distance of cycle lows. It can be felt in the serious reversal in the stock market which at this moment has retraced about 2/3 of the gains of yesterday. It can be felt in the retreat in credit product which has seen large chunks of the advance of yesterday eroded. There is a worrisome view developing today amongst market participants. There is a nascent concern that the commonweal, with the GSE rescue, has fired its biggest bullet, and that there is very little left for the government to do, save loading the members of the FOMC into helicopters with bags of money which they can sprinkle liberally about the countryside.
what happens when the government is out of big bullets? and then lehman fails? and then wamu?
yesterday i noted that the credit markets and the dollar, not stocks, would be the barometer by which the FNM/FRE bailout was measured. early returns are poor. jansen articulates the foul mood of creditors; the dollar abandoned its recent rally.
it is blackest before the dawn, yes.
it is also just past what should be the arrival of dawn that it becomes apparent that the sun really isn't coming up.