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Friday, October 10, 2008

Economic Apocalypse Data for 10/10/2008

posted by on October 10 at 13:18 PM

Ladies and gentlemen, I want metrics.

In the spirit of objectively tracking the downfall of the global economy, I’ve decided to begin a semi-regular post conglomerating data on the (non-)functioning of the financial system. If I’m going to panic, I want evidence backing it up.

Rather than focusing on the stock market (equity), like most daily coverage of this crisis, I’m going to focus on liquidity. The inability of companies, big and small, to borrow seems the most likely thing to impact people on a day-to-day basis. (For those of you seeking to retire shortly, well, this might not be the case. My apologies. You can read about the implosion of the stock market elsewhere.)

I’ve included the TED spread, US bond yields, Corporate bond yields, and a spread of the two I’ve crafted. If you know of an index that you think I should include here, please let me know. I fully admit I’m out of my depth here. Instruct me, and I’ll modify the post. A ton of data is available. Help me coalesce it into something coherent.

I’ve also included a subjective “beaker scale of economist panic” based on my sense of relative state of fear on experts writing about the crisis. As I get a set of objective data together, I plan to make this a calculated value—an SI-unit of doom.

(It’s all after the jump.)

What this means to you
TED Spread 4.62 (up 0.384 or 9.064%) 20081010_TED.gif (Source: Bloomberg.) Lower is better. The TED spread is a rough measure of how scared banks are to lend out their money, even to one another. The higher the TED spread, the harder it is for you or your employer get a line of credit. Lines of credit are crucial for almost all companies to function.
Treasury Yield Curve Short-term:
3-month: Down -0.275
6-month: Down -0.159

2-year: Up 0.079
5-year: Up 0.083
10-year: Up 0.091
30-year: Up 0.029

(Source: New York Times.)

The lower the yield in the short term, the more frightened investors are of investing in anything beyond “risk-free” governmental treasury debt. The higher the long term debt yield, the more concerned investors are about the financial health of the US Government.
Corporate Bond Yield (Source: New York Times.) Higher is bad. The higher the yield, the more expensive it is for companies to borrow money to finance their operations.
Mattress Index: Spread of Corporate Bond yields to short term US government treasury yields Investment Grade Corporate Bonds spread to 3-month and 6-month US treasury debt yield: 834.4 bp High Yield Corporate Bond spread to 3-month and 6-month US treasury Debt yield: 1981.4 bp Higher is bad. The higher this ratio, the more risk adverse investors are. If money is flowing into “risk-free” short-term US government treasuries rather than companies, it will be increasingly difficult for the private sector to function.
Subjective Panic Level beaker.jpgbeaker.jpgbeaker.jpgbeaker.jpg

Some worthwhile posts by actual economists, or people who know more about this than I:

Here’s a metaphor on the $700 billion dollar purchase of toxic debt from banks, with the option of bank takeovers by the government.

CalculatedRisk is freaking out even more than I am about the growing TED spread.

RSS icon Comments


Kudos for highlighting more relevant data than the Dow.

That said, your commentary is rather debtor-biased. If you have piles cash to lend, a higher TED spread and higher corporate bond yields are a good thing.

Posted by David Wright | October 10, 2008 1:43 PM

See, this is why the economy is so bad, we've got way too many math majors with MBAs like Comrade Bush messing things up, when any real business person knows the key things that matter are only two:

1. Free Cash Flow


2. Price/Equity

You can argue leading PE versus trailing PE or the use of Price/Sales, but it all comes down to those two.

Great buying opportunity, actually, especially once the Red Bushies get tossed out of our White House.

Posted by Will in Seattle | October 10, 2008 1:44 PM

You need to move your figures one decimal point to the right in the mattress index category. There are 100 basis points to a percentage point.

Posted by Andrew | October 10, 2008 1:47 PM

Okay, good. Now that my fear has a name ...

Oh, never mind. Now I'm just all scared AND jargony.

Posted by sw | October 10, 2008 1:48 PM

You need to compress all this info down into your own number and name it after yourself. I want anchors to be saying "Oh sweet jesus the market is down by 1000 Golobs!!!"

Posted by Dubcek | October 10, 2008 1:48 PM

I like this, especially the easy to understand explanations with examples. Although the subjective panic level runs off with the prize. :D

Posted by Nay | October 10, 2008 1:48 PM


Thanks! Egads. I initially had this as a ratio, and at the last moment decided to make it a spread in basis points. I've corrected my excel worksheet and the post now.

Posted by Jonathan Golob | October 10, 2008 2:01 PM

Put the LIBOR in there with the TED so we can see where the points are.

Posted by Fnarf | October 10, 2008 2:08 PM

LoL! Thanks for the funnies.

When I moved out here from Long Island they told me I'd be sorrounded Christian idiots and hicks. At least The Stranger is a stong Jewish voice for New York transplants.

We studied the stock market in Hebrew school and my parents invested all my Bar Mitzvah cash in tech stocks.

The one thing Rabbi taught was take a long term approach in the Stock Market. I'm 34 and have plenty of years till retirement. To me this is the time to buy, but, buy.

Also I'm looking to pick up some more investment real estate. I figure plenty of those sub-prime mortgages are in the Central District. Anyone seen any bargan properties there. I can get plenty of cash from my parents if the property is a good value.

Posted by Issur | October 10, 2008 2:16 PM

"you're all dead", said the TED Spread

Posted by mnm | October 10, 2008 2:23 PM

Here you go...

Discount rate & spread are of particular interest. Short story: There was a thriving market for Commercial Paper (an unsecured promise to back a loan within 270 days). Its now all but closed.

On, and you need more Beeker.

Posted by moxietex | October 10, 2008 2:25 PM

Issur, if you're 34, why are you still sucking on your parent's tit?

Posted by Bellevue Ave | October 10, 2008 2:28 PM

Lots of bad news but also a few hints that it might be getting a bit better.

You noted a few days back that Massachusetts was thinking of going to the feds for money, their bond sales went OK this week, better than expected, and now California is backing away from the idea that they may need help is well.

Also, there have been some slight improvements in short-term commercial paper rates (see the second page of the story for the actual rates)

It's still pretty dark but glimmers of light in the far distance, I think the talk of direct recapitalization of banks and getting involved in the CP market are starting to move the needle a little.

On the down side, it looks like Morgan Stanley may need to be rescued in the next few days, and the Ford/GM are on the brink as well.

Posted by bob | October 10, 2008 2:43 PM

Well done, Mr. G.!

Posted by tomasyalba | October 10, 2008 3:23 PM

Stix on funds flow out of mutual funds and money market funds would be good panic indicators.

@ 1 - A higher TED spread is a good thing for lenders, ESPECIALLY if you don't care whether you get paid back. The risk of nonpayment is what pushes up the LIBOR.

@ 2, Will is an idiot, and in particular, Will is an idiot who doesn't know "Equity" from Earnings ... which in any case is hardly what a "real business person" is losing sleep over this week.

Posted by RonK, Seattle | October 10, 2008 3:40 PM

So that's four Beakers out of how many?

Posted by keshmeshi | October 10, 2008 3:46 PM


Good question. I care not to find out, honestly.

I conceived it as a log(2)-base scale, normalized to the following data points in my head:
a) Activation of the LHC (1 nano-beaker.)
b) Reelection of GWB in 2004: 7 beakers.
c) Waking up to NPR, saying "with the incapacitation of President McCain, the inauguration of President Sarah Palin will occur later this afternoon": 8 beakers.
d) Last week, when Ca and Mass couldn't sell their bonds: 6 beakers.

I am actually trying to fashion a mathematically determined beaker "panic" scale, stripping out this subjectivity.

Thank you to Fnarf, RonK and moxietex for your suggestions.

RonK: Do you have a link to such data?
moxietex: In retrospect, it seems more like a five or six beaker day, doesn't it?

And a word on trolls. Issur is pretty fantastic, but my deepest love is for Lord Basil. Kudos to anyone who can deploy the phrase "homosexual, Muslim, Marxist"

Posted by Jonathan Golob | October 10, 2008 4:03 PM

Whoops! The AP is reporting that comrades Bush, Paulson and Bernanke have decided to nationalize the banking system after all.

Well, dosvedanya Milton Friedman and capitalism as we know it!

The invisible hand just gave us a hammer and sickle.

Posted by Original Andrew | October 10, 2008 5:54 PM

Here's a link to the Fed's commercial paper data, interesting stuff -

Posted by bob | October 10, 2008 7:46 PM


Posted by Morgan | October 13, 2008 3:22 AM

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