Yesterday the markets were down about 2.5% as the wariness of weak economic news and poor corporate earnings punished stocks. Stocks continue to be very volatile and the markets are anxiously awaiting the resolution of the Auto bailout. We note that Chrysler loans are trading at 35-37, Ford at 42-43, and GM at 46-48. 100 represents full value for a loan. Discounts this large usually indicate a restructuring is needed and will occur.
As we peruse bond and loan prices for all corporations we continue to notice the steep discounts in these prices. Historically, bond prices cannot trade at big discounts to full value while stocks rise to new heights. The credit crisis will continue for awhile and a new bull market will likely need to first see improvement in the credit markets. The market may be in the bottoming process but an extended period of positive stock price movement now can only be a bear market rally. When bond prices move up significantly so will stocks and we will then be ready for a new bull market.
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