The TED Spread is definitely telling us things are not all right with
the banks and financials…last week’s rally was likely a short cover
event and somewhat of a smoke screen to steer investors’ attention away
from what is going on in Europe.
The TED SPREAD ($TED) or sometimes affectionately called ‘the TEDDIE’
tracks the yield spread between the historically ‘safe’ 3 month US
Treasury Note and the 3 month LIBOR Rate, which is the European base
lending rate for banks overseas. Generally, when the spread is low,
stock markets tend to perform well.In 2008, the Teddie rose dramatically
which foretold of a significant and damaging credit even which
eventually came to pass. Now the spread is widening again, and though
not anywhere as high as 2008’s eventual highs, the breakout is
significant as a warning shot for risk on markets.
Stocks and ETFs to watch in the coming days and could be prominently
affected by the TED Spread include SPY, SDS, SSO, FAZ, FAS, GLD, CEF,
FXF as well as any other stocks/ETFs that relate to financials and/or
Look, the German DAX was falling like a
rock last week…the German stocks are usually the Rock of
Gibralter…for their market to plummet like it did is definitely a
warning shot to the world…
And the TED SPREAD
keeps racheting higher each day and its already in bearish territory
(bearish for stocks that is)…it appears that capital is fleeing the
European banks…of all stripes and colors…and this goes a long way
toward explaining why US Treasuries are near record low rates…a lot of
that European bank money is hiding in Treasuries right now….and Gold.
last week, we saw how the “authorities” tried to destroy the demand for
gold by once again lifting margin requirements and suggesting that the
FED was about to unleash Operation Twist (to some extent, I was duped by
this notion too–but I was only reacting to what I saw that the quants
were preparing for….I still do think Operation Twist might be started
up after the Fed’s mid-September meeting)…
We have this great threat of our free capital markets becoming unglued once again (as in 2008)…but at the same time, there are incredible bargains out there in stock land right now…I find it difficult to be both bullish and bearish at the same time…I am slowly snapping up great companies (especially the good dividend payors) while also concerned that in the near term, I could suffer more losses….so I also keep hedged.
Currently, I am hedged with SKF…an ultra short ETF on the financials…as we wait to see what is going to happen to the European banks and the spillover that might have on us here.
Finally, in closing this discussion tonight, I can see that my suspicions are confirmed by quite an expert in these matters, and so I leave you with this link…