Skip to main content

Money is cheap and unavailable

Last week, in a post on the dollar and expected Fed moves on interest rates, we included a link to a recent Wall Street Journal interview with investor Wilbur Ross.

I mention this because Ross said something interesting during this interview about the availability of money and credit in recent weeks. Ross noted that we are currently in a period of very tight liquidity, and that money, while cheap, is practically unavailable.

This is an odd situation, because as Ross notes, "usually when money is cheap, it's also very plentiful". Today, this is not the case. Ross continues, "Now, it's cheap, except you can't get it".

This leaves me with a few questions to ponder over.

What's behind this tightening of money and credit? Why is money priced cheaply if you can't get your hands on a loan? Is money and credit artificially cheap? Has the Fed set short term interest rates at an artificially low level, thereby distorting the market for money and credit?

Also, how do these things factor into the ongoing credit crunch? Will cutting interest rates further do anything to solve the situation, or will this simply make things worse?

For now, one thing is certain. The rapid demise (and ensuing bargain sale) of investment bank Bear Stearns has got everyone's attention. Talk of a systemic financial crisis, which until very recently was the exclusive domain of "permabears" and "doomsayers", is now widely discussed in mainstream press.

"Citing a worsening “credit pandemic,” economists predicted the Fed would take more aggressive action tomorrow by slashing its benchmark rate by another full point - or even more.

“We are in the midst of the most pervasive financial crisis in a generation, which has destroyed untold sums of wealth in housing and financial assets and has driven the U.S. economy into recession,” said Sherry Cooper, chief economist at BMO Capital Markets."

Keep a sharp lookout. Rough seas ahead.

Popular posts from this blog

The Dot-Com Bubble in 1 Chart: InfoSpace

With all the recent talk of a new bubble in the making, thanks in part to the Yellen Fed's continued easy money stance , I thought it'd be instructive to revisit our previous stock market bubble - in one quick chart. So here's what a real stock market bubble looks like.  Here's what a bubble *really* looks like. InfoSpace in 1999-2001. $QQQ $BCOR pic.twitter.com/xjsMk433H7 — David Shvartsman (@FinanceTrends) February 24, 2015   For those of you who are a little too young to recall it, this is a chart of InfoSpace at the height of the Nasdaq dot-com bubble in 1999-2001. This fallen angel soared to fantastic heights only to plummet back down to earth as the bubble, and InfoSpace's shady business plan , turned to rubble. As detailed in our post, " Round trip stocks: Momentum booms and busts ", InfoSpace rocketed from under $100 a share to over $1,300 a share in less than six months.  In a pattern common to many parabolic shooting stars, the s

New! Finance Trends now at FinanceTrendsLetter.com

Update for our readers: Finance Trends has a new URL!  Please bookmark our new web address at Financetrendsletter.com Readers sticking with RSS updates should point your feed readers to our new Finance Trends feedburner .   Thank you to all of our loyal readers who have been with us since the early days. Exciting stuff to come in the weeks ahead! As a quick reminder, you can subscribe to our free email list to receive the Finance Trends Newsletter . You'll receive email updates about once every 4-8 weeks (about 2-3 times per quarter).  Stay up to date with our real-time insights and updates on Twitter .

Jesse Livermore: How to Trade in Stocks (1940 Ed. E-book)

If you've been around markets for any length of time, you've probably heard of 20th century supertrader, Jesse Livermore . Today we're highlighting his rare 1940 work, How to Trade in Stocks (ebook, pdf). But first, a brief overview of Livermore's life and trading career (bio from Jesse Livermore's Wikipedia entry). "During his lifetime, Livermore gained and lost several multi-million dollar fortunes. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one's position as it goes in the right direction and cutting losses quickly. Ironically, Livermore sometimes did not follow his rules strictly. He claimed that lack of adherence to his own rules was the main reason for his losses after making his 1907 and