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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (10148)	10/3/2008 12:34:56 AM
From: Hawkmoon	Read Replies (2) \| Respond to of 33421

These loans, known as "commercial paper," run anywhere from a few days to three months, and are routinely used by businesses of all stripes to fund day-to-day operations -- paying the bills, meeting salaries. The market for these loans, which totaled $2.2 trillion last summer, has shrunk to $1.6 trillion.' Just got off the phone with my GF in NYC.. The leasing company she works for normally borrows millions every day to finance their operations. But a couple of weeks ago her boss decided to take out $50 million, part in 3 month and the rest in 6 months, at 3% which seems, in retrospect, to be a hell of a deal over 6% rates they are seeing now for overnight paper. Apparently he had some expectations that there was going to be a crisis in the commerical paper markets so he opted to lock in longer term funding. Also, the overnight deposit rates they are receiving for the excess capital they borrowed is only netting 1/2 of 1 percent. If they deposit for 2-3 days, they'll get up to 2%. But that just goes to show you that the banks are paying squat for overnight deposits, but lending it out at 6% due to perception of risks. One would think that, with people willing to pay 6% for overnight paper, that they would be clamoring to pay higher interest rates for short-term deposits to meet that overnight demand. Thus, given this current situation, I think we really need to see if this decline in commercial paper is truly as drastic as being reported, or whether businesses have opted to lock in longer term funding, despite what would have seemed an obvious additional cost to them. Also.. if the Fed is pumping in hundreds of billions into the banking system, it would stand to reason that companies have opted to replace that short term debt with longer term borrowing in order to guarantee they had what they needed to continue operations. What say you? Hawk