Credit Crunch Bites Down Hard!

Some important lending rates as of today:

Fed's lending rate to AIG 3-month LIBOR (3.06%) + 850 basis points = 11.56%

Overnight asset-backed commercial paper: was 2.15% to 3.5% on Monday night. Currently 4% to 8%.

MosPrime (Russia) overnight lending rate: 11.1%

And then there's this rate: 3-month Treasuries: 0.17%

Interesting news:

Russia has closed the stock market to stem the panic. The MICEX index has plunged 25% in three days. Why? Three reasons: 1. Oil down. 2. Distrust of warlike government. 3. Capital flight that has become a self-reinforcing cycle and self-fulfilling prophecy. This causes a highly leveraged bubble market to implode. "`Every day Russia falls due to people not being able to meet margin calls,' said Marina Akopian manager of the Hexam EMEA Absolute Return Fund in London" (Bloomberg).

What else is there to say? The credit crunch is spreading worldwide. Deflation is devouring bubbles like a hoard of locusts. Trillion-dollar companies like AIG are out of money. That said, I'm not sure what to do about it. I'm trying to have patience and wait for a commodity bounce. Maybe I should also look for an opportunity to sell FXP, the ultrashort Shanghai 25 index ETF. It disappointed me when it didn't drop along with the mainland shares. I have since learned that it tracks Hong Kong much more closely. But I'm stubborn. I want at least $150 for it. I've had to hold it since February, for Pete's sake. And eventually, it's gotta be worth $200. Also, the PE ratio is 15. 15?!? You got to be kidding me. This market will be lucky if it holds at 7.

Other than that, the only thing that worries me is whether I should have bought PWE and ALD yesterday. And is it time to pull the plug and give up on IPSU? Heck, they've got $9/share in cash. It's too late to get out at $12. Then again, it depends on what the meaning of "cash" is.

And one last thing. I was discussing the impact of lower gasoline prices on the economy with a fellow economically-minded soul. He was of the opinion that the drop in gas prices would stimulate the economy. I said that te new direction was down, and that whatever the stimulus, the weakness in the economy was the greater force, and would coontinue to pull down gas prices. Here is confirmation of this view - with numbers to boot - from Merrill Lynch's David Rosenberg.

Job losses offsetting drop at the gas pump
Ever since we highlighted that every penny at the pumps (down) gives
households an extra $1.3 bln of discretionary income to spend, we have been inundated with calls over this factoid. The search for the needle in the haystack is ongoing – but here is where reality bites: Every 30,000 decline in employment wipes out that $1.3 billion of gas price relief – so while gasoline prices are down 30 cents from the summertime peak, which is $40 bln of extra cash flow, the economy has shed 144,000 jobs, which has amounted to a $25 billion annualized decline in income (ie. offsetting two-thirds of the positive cash flow impact from lower gasoline prices).

I wonder if we can predict future job losses by watching gas prices...