Chris, Some of your assumptions are the same as mine, but I have some additional ones. Here is where we differ:
1. Many of the cos. that have borrowed to buy back stock are getting hit already by lower stock prices. That practice is market wide, but the leading players are the non-internut tech cos. The put warrants scam has already either disappeared or been tuned down so low it is inaudible. Even some of the less cerebral players, such as those on the Dell thread, are starting to notice that lots of cash is being spent on share buybacks, but lots of shares are not leaving the books. Spreads above Treasury rates continue to soar.
2. Individuals are already getting margin calls, and this has been the weakest of market dips. A real correction ends the speculative borrowing tout suite, just as it did last Fall. The layoffs from good jobs continues while minimum wage jobs grow. One cannot pay the nut on a $300,000 mortgage with a minimum wage job.
Here is where I have additional factors: 1. A major NYC bank, and perhaps more than one, will stumble on derivatives trades. That will immediately shut off the liquidity spigots. 2. The banks will be forced to take real estate on their books as mortgage payers go belly up. Not a big move, but enough to slow down the growth in this area. 3. The rest of the world is not really recovering, so nascent bounces in oil and agricultural goods will evaporate.
So, I see rates for lower quality credits, the ones doing all the borrowing, increasing, while Treasury rates decline in a flight to quality. |
