Weekend thoughts

This is one of the quieter weekends over the past few weeks. Has the eye of the storm passed? I sure hope so. Did we see the capitulation in the stock market that signifies the end of a rout?

The credit market did thaw to a certain extent, but the effect seems to be very limited. News reports are saying that banks have begun lending to banks now, although such lending, much of it I think, is guaranteed by the government, so banks are making guaranteed money over the risk-free interest rate. Although many other interest rates, such as mortgages, are tied to some interbank lending rates such as LIBOR, will financial institutions actually start lending to borrowers without the guarantees? The slowdown in the economy will certainly bring more defaults. With the broader market being very unpredictable in a very short period of time, the risk rises substantially for lending past even a few days. For example, the overnight LIBOR dropped quite a bit, but not so much for anything longer term. In fact, longer term rates have increased, since the government will have to borrow more, depressing bond prices and increasing the yield.

I was in Georgetown this weekend, where the mood on campus was pretty positive and M Street remained crowded. Although shops on M Street do cater to people other than students, from this albeit very ancedotal evidence, perhaps students may be the segment of the population that is relatively shielded from this economic downturn, unless they have serious trouble getting student loans and/or parents start cutting off credit cards. Some are worried about their job prospects, but how much of the budget can a student cut? Fewer nights out may mean more gatherings/parties inside, with more consumption of pizza. In contrast, with polls out saying that over 60% of the population are worried about their jobs, spending cutbacks will definitely come from the adults.