The assessment of risk, moreover, is severely constrained, in a qualitative manner, by the failure to understand the global economy on one hand and by the dynamics shaping the fate of the poor countries on the other.
As far as the impact of the bailout package is concerned, there is one key indicator which will assist you in cutting through the thick fog to be created by an excess of information through next week: the spread between 3-month US treasuries and 3-month LIBOR (London Interbank Offered Rate), commonly called the TED spread by inter-bank traders. Really? Wilful blindness or plain old-fashioned ignorance?
What these self-styled experts would have you believe is that there is a fundamental disconnect between debt and equity. But anybody who vertical bearing suppliers has run a business knows that, at their roots, both instruments emanate from the same value drivers: in the briefest of terms, under a logically constructed business model, the impact of the same valuation premises which are attributed to equity must form the basis for debt pricing. For instance, the economic reality of the developing world (where both fascism and despotism are on the rise) is that real family incomes are declining and growth numbers are being artificially fuelled by credit and government spending; the prism of the so-called tiger economies is now turning out to be an illusion.50% through this decade, until the start of the US economic downturn around this time last year.
Hopefully, retail investors will realize that professional players on Wall Street are already arbitraging between the spreads on debt and the price of equity, by insisting on significant dilution when granting bailouts.
That LIBOR-against-treasury differential, priced well over 3