Credit Markets Arise From the Dead, Economic Numbers Disappoint

Three month Libor slid again overnight to 4.55%, off nearly 30 basis points from the horrifying peaks it hit last week.  Spreads in other credit market instruments have also started to narrow slightly.  We are back from the brink, yet much uncertainty and unpleasant news remains.

Retail sales slid 1.2%, the most in three years as consumers avoided the mall out of a renewed sense of frugality.  Consumers are scared of losing their jobs, worried about their investment portfolios, watching the value of their equity in their homes disappear, so it's no wonder that nobody feels like shopping.  Furthermore, people were far too busy pulling their money out of their equity mutual funds (a record $65 billion was pulled out of equity mutual funds last week) and their bank accounts and putting it into their fire safe boxes at home to wonder if they should pick up a new pair of shoes.  Certainly it will take some time to restore confidence in the battered consumer.  But perhaps after years of cash-out equity refis used to pay off credit card bills, it's appropriate that we become a nation of savers for awhile until we emerge from the recession.

Some glimmers of hope appeared in corporate earnings.  Intel reported a surprisingly sold earnings report yesterday after the close.  The tech giant earned $2 billion on $10.2 billion in revenue and issued an upbeat sales outlook.  Both JP Morgan and Wells Fargo reported profits, yes, that's right profits.  Although both institutions increased their loan loss reserves and had significant profit declines, they proved why the Treasury has entrusted them with its money.  Stocks are down sharply on all of the gloomy economic news.  The volatility in equities is likely to continue for some time as investors digest the new economic environment that we are in.  It is hard to forecast much of anything when so much uncertainty about economic conditions remains so the markets will trade on extreme emotion for some time.