TED Spread Update
Okay, I'm finally updating the action going on with the TED Spread. I mentioned in my 4/15 post that the action was puzzling and I would let you know when I thought I could figure out what was going on. So here goes.
It turns out that the divergence I pointed out back then has indeed caused the upward trend to turn around. So now the TED Spread has broken back below the 50-day moving average and held there for a few days.
What's really puzzling about this, though, is the fact that things are heating up in Europe and you'd think the markets would reflect that concern with a tightening of credit, if not potential liquidity problems. But it seems that's not happening so far. My guess is that the market is betting that the ECB (European Central Bank) continues its policy of kicking the can down the road for the time being.
On the other hand, in his latest commentary, Doug Noland said (in his Credit Bubble Bulletin) that "Spain is in line to suffer the consequence of an interminable global sovereign debt crisis. It’s the timing that is most in question, and I would expect a Greek default and/or bout of global risk aversion to push the timeline forward."
So maybe the can's being kicked, but not as far down the road as the ECB thinks.
Plus, with QE2 ending in June, you'd think that there could be liquidity issues brewing. But again Noland doesn't think this will be a problem - at least not for now.
So where does that leave us? I'm not sure. But I'll be looking to see if the TED Spread stays below its 50-day moving average. If it stays there for a week or so, that will mean that credit and liquidity concerns may be cooling, in spite of the media headlines about Greece, Ireland, Spain, et al. What would really seal the deal is if the 50-day average drops below the 200-day average.
It turns out that the divergence I pointed out back then has indeed caused the upward trend to turn around. So now the TED Spread has broken back below the 50-day moving average and held there for a few days.
What's really puzzling about this, though, is the fact that things are heating up in Europe and you'd think the markets would reflect that concern with a tightening of credit, if not potential liquidity problems. But it seems that's not happening so far. My guess is that the market is betting that the ECB (European Central Bank) continues its policy of kicking the can down the road for the time being.
On the other hand, in his latest commentary, Doug Noland said (in his Credit Bubble Bulletin) that "Spain is in line to suffer the consequence of an interminable global sovereign debt crisis. It’s the timing that is most in question, and I would expect a Greek default and/or bout of global risk aversion to push the timeline forward."
So maybe the can's being kicked, but not as far down the road as the ECB thinks.
Plus, with QE2 ending in June, you'd think that there could be liquidity issues brewing. But again Noland doesn't think this will be a problem - at least not for now.
So where does that leave us? I'm not sure. But I'll be looking to see if the TED Spread stays below its 50-day moving average. If it stays there for a week or so, that will mean that credit and liquidity concerns may be cooling, in spite of the media headlines about Greece, Ireland, Spain, et al. What would really seal the deal is if the 50-day average drops below the 200-day average.
Comments