Fear factor

We are perilously close to giving back all the gains made on Monday of this week as the markets remains paralyzed by fear. Credit markets remain locked down tight despite yeoman efforts by the Fed, ECB, BOE and others to reliquify the markets . Despite all that, fear is rife. 1 month T-bills yield a single basis point at the moment. Give the government you money and they’ll give it back to you in 30 days. Suddenly we have our own zero interest rate policy here in the US, unless you need to borrow.

All this is reflected in the currency markets as EUR/JPY comes back under pressure as it has been for much of the last month or more. Stocks markets big and small took it in the teeth today, commodities resumed their slide and interest rates are falling along the coupon curve again. Hedge funds continue to liquidate and the ripple effects of the Lehman bankruptcy continue to reverberate. It will be another 10 days before all the credit default swap nonsense is settled, keeping investors on edge.

Keep positions small and keep one eye on the Dow, because all we do is follow the leader, sad to say.

Now that 135.00 has given way, technicals suggest a full retracement to the 132.25 level in EUR/JPY.

Things just happen quicker these days

i would have expected the afterglow of a 700-800 point rally in the Dow over the last session and a half combined with brighter prospects for the US banking system after several harrowing days to last a bit longer than a few hours. Dealers are already looking at the costs associated with the bailout and fretting over the potential for a trillion dollar deficit this year. Good thing for the government that the fiscal year ends in October, otherwise, these guys might be right. I’m not a deficit lover but I’d rather take one big swallow of nasty medicine than be sick for years on end. The debate over the rescue package has barely begun, but I will stake out the optimistic side of the argument given the incredible resilience of the US economy, I’ll leave the deficits and doom discussion to others.

EUR/USD consolidates gains around 1.4410 while USD/JPY has stabilized after a dip below 107 via a peak just above 108.00

On the doom side, ECB economist Stark is on the wires helpfully pointing out that the financial crisis is not over yet.

NY Times makes big boo-boo

Morgan Stanley has enough trouble with out the NY Times creating mischief. Apparently the Times reported earlier that MS chief John Mack said something along the lines that if we don’t find a merger partner we’re not gonna make it….The Times has covered its short and retraced the quote. Stocks have recovered after the retraction.

More scare headlines on FDIC

Drudge is running a screaming headline that the FDIC is running short of funds. No kidding. The government has bailed out Bear Stearns, Fannie/Freddie, AIG. Do people seriously think the government won’t live up to deposit insurance commitments while bailing out institutions far down the list of government concerns than the bank accounts of the average taxpayer? Please. Noriel Roubini, Chris Whalen and all the others predicting bank runs are just panic merchants, full stop.

A long portrait of ‘Dr.Doom’ in the Times Magazine

Nouriel Roubini does not seem like he’d be much fun to have a beer with, but he has gotten much of the unfolding credit crisis right (except for the deep recession part). The Times has a long piece in the Magazine.