Eye on Credit: Signs of a November Thaw?

A few weeks back, wily ole’ George W. Bush commented on the credit markets by explaining “you see… they’re frozen… an ya know, what we need to do here… is, gettem’ unstuck.” We math and physics students knew what he was trying to get at – thawing. The Fed’s commercial paper program begins today. This is the most positive macro signal that we currently see across our global risk factor matrix.

In an interview this morning Bill Gross said that he anticipates a credit “loosening”, resulting from the launch of the Treasury Department’s commercial paper program today, that should start to be felt in the credit markets before the week is out. Gross (the man of the hour as of late), while continuing to express discomfort over Paulson & Co.’s policy decisions, said that he anticipates that the new window will have its desired effect in the near term.

Thawing or “loosening” in the commercial paper market is crucial for Paulson’s “jumper cable” strategy. It is hoped that cheap short term money will act like a bloody mary for hung-over borrowers and that they will return to more normal drinking patterns soon.

As outlined below, we are already starting to seeing to see spreads narrow - this action in the CP market should only facilitate a further narrowing.

Keith McCullough & Andrew Barber
Research Edge LLC

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