After the rescue package, then what?
Many observers note that the rescue package that came out of Congress last week was no panacea. They cite tightening global credit, a run on money market funds, and a lack of interbank lending as symptoms of a sick financial system that is starting to infect the real economy.
Good companies like Harley Davidson or John Deere are having a hard time getting short-term credit. This makes it hard for them to finance customer sales. It may be part of the reason we saw a decline of 150 thousand jobs in Friday’s employment report.
But enough is enough. The bond market, usually pretty rational, is pricing solid A-rated industrial companies at a 50% chance of default. Even AAA Johnson & Johnson debt is priced at a 30% probability. That’s too pessimistic, even in a recession.
There’s no question that the people who deal with markets on a daily basis are rattled. And I don’t blame them. But one man’s trash is another man’s treasure. And the time to buy is when the blood is running in the streets.
Douglas R. Tengdin, CFA
Chief Investment Officer
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