Credit Crisis Indicators are easing

Lending rates continued to fall Friday, a sign that the government's numerous plans to ease the credit crisis are taking effect.

The overnight Libor rate fell for the fifth-straight day to 0.41% from 0.73% on Tuesday, according to the British Bankers' Association. It was overnight Libor's lowest level since the BBA began calculating the rate in 1997.

The 3-month Libor rate also dropped to 3.03% from 3.19% on Thursday.

Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend money in the U.K.

Lending rates have been trending downward for the past several weeks. Just a month ago, 3-month Libor was over 4%, and the overnight rate was at an all-time high of 6.88%. Lower rates are a major boost for the strangled credit market, as more than $350 trillion in assets are tied to Libor.

"The credit crisis is tentatively solved - money is available to those who need it," said Pierre Ellis, senior economist at Decision Economics. "The next step is to get banks to trust each other, but that won't happen until we have a period of sustained stability."

Emerging-Market Stocks Exit Bear Market With Three-Day Surge

Bloomberg says

Emerging-market stocks exited a bear market after MSCI Inc.'s index of developing nations surged more than 20 percent in three days following liquidity injections by the U.S. and International Monetary Fund.

The MSCI Emerging Markets Index of 25 nations jumped 9.2 percent to 558.02 at 10:07 a.m. in New York, bringing its advance since the Oct. 27 close to 23 percent. Russia's Micex Index increased the most, adding 17 percent.

US Q3 08 GDP Data

Economists expect the U.S. GDP figures to show a decline of 0.5 percent in the July-September quarter, according to the median of forecasts in a Reuters poll, and many see that as the start of a nine-month contraction, or possibly even longer.

The GDP data could also foreshadow a grim fourth quarter for the U.S. economy which began this month with a stock market crash, a credit freeze, and huge jobs cuts by U.S. companies.

Did we reach the bottom yet?

Is it time to buy stock? Ever since mid-September, we have read that the bottom is in because investors have "panicked" and "capitulated." But market history does not support this widespread view.


Here's part of Bob Prechter's explanation from his latest Elliott Wave Theorist:


"Ever since mid-September, we have read that the bottom is in because investors have 'panicked' and 'capitulated.' But market history does not support this widespread view. A perusal of volume data since January 2008 shows that, despite claims to the contrary, investors actually have not panicked. Here's why: In a market panic, the number of shares traded increases substantially on down days and bottom days. In October 1929 and in October 1987, for example, daily volume surged to between triple and quadruple the preceding summer’s average as prices plummeted. In contrast, volume recently has been quite steady, aside from two spikes."

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Financial Markets May be Shutdown

New York University Professor Nouriel Roubini said curbs placed on U.S. futures trading today shows his prediction that markets will be shut down amid panic selling is coming true.

``This morning, even before the markets in the U.S. opened, the S&P futures fell by more than their daily limit,'' resulting in curbs on futures trading, Roubini told a conference in Madrid today. ``What I said yesterday has already started.''

Roubini said yesterday that policy makers may need to shut down financial markets for a week or two as investors dump assets. Trading in futures on the Standard & Poor's 500 Index and the Dow Jones Industrial Average was limited today after declines of more than 6 percent. Trading of U.S. stocks would be suspended for an hour should the Dow Jones Industrial Average decline 1,100 points to 7,591.25.

``Things are getting worse, they are not getting better,'' Roubini said. There's an increased risk of a ``multi-year economic stagnation'' in the U.S. and ``we have a whole set of emerging market economies in trouble. Even a few of them going bust may cause systemic trouble.''

Russia's RTS exchange today stopped trading after stocks slumped more than 10 percent. Europe's Dow Jones Stoxx 600 Index slid 8.5 percent. The MSCI World index of global stocks has lost 45 percent this year as the fallout from the U.S. housing crisis toppled banks from Seattle to Paris.

Great Depression

Still, Roubini said he doesn't expect the economic consequences of the current crisis to be as severe as the Great Depression. ``During the Great Depression, output in the U.S. fell by more than 20 percent, I don't believe that's going to be the case,'' he said.

In July 2006, Roubini predicted the financial crisis. In February this year he forecast a ``catastrophic'' meltdown that central bankers would fail to prevent, leading to the bankruptcy of large banks exposed to mortgages and a ``sharp drop'' in equities.

Roubini said that the European Central Bank should provide ``much more monetary easing'' and governments around the world must put together a massive fiscal stimulus package after action so far failed to halt the stock-market rout. The U.S. bank bail- out plan will likely require between $600 billion and $700 billion, he said.

Roubini, a former senior adviser to the U.S. Treasury Department, said earlier this month that the world's biggest economy will suffer its worst recession in 40 years.