Has the Market Bottomed? Financials, Homebuilders, and LIBOR Say Yes
Topic: Markets and Trading| 1 Comment »The 500 point selloff in Dow Jones Industrials futures, with the
stock markets closed for the Martin Luther King Day holiday, put
“DOOM!” headlines on the front pages of all the major papers Tuesday
morning. But something is amiss. Sure, the markets slid Tuesday, and
they slid today - but it’s a different kind of slide. Financials and
homebuilders, whipping boys for the subprime mortgage crisis, actually
went up.
A bit of context: last week,
LIBOR dropped below the fed’s key interest rate for the first time since 2003. (LIBOR is the London Interbank Offered Rate, the rate at which commercial banks lend to one another.) This signals a thaw in the commercial credit market; this is a powerful sign that the worst of
the financial writedowns are behind us. Banks were charging each other
more because nobody knew what anyone else’s exposure to credit
derivatives was.
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