The TED spread is at 0.94, still moving lower. (improved) The TED spread was stuck above 2.0 for some time. The peak was 4.63 on Oct 10th. The TED spread has finally moved below 1.0, although a normal spread is around 0.5.

The TED spread measures the difference between the interest rates on interbank lending (as measured by LIBOR) and  the three-month US Treasury.  Its decline indicates a slowly recovering tolerance for risk taking.  Trend economic growth won’t resume until risk tolerance normalizes.

There is still plenty of bad news across the global economic landscape, but the continued thaw of the credit markets will soften the economy’s contraction and lessen the chance of a worst-case, depression scenario.

The bad news that bothers me is that new home sales dropped to a record low in Dec of 331k.  My reaction isn’t, “gee that’s low,” it’s “are you kidding me?  331k people actually bought a new home smack in the middle of the worst housing decline in history?  Who are these people?”  Everyone on the planet by now should realize that housing will be cheaper tomorrow than today.   They probably don’t intend to perpetuate the mispricing of an asset class and the continued misallocation of scarce resources into the housing sector, but they are feeding the albatross that’s crushing the US economy.  If everyone realized housing is tanking and stepped out of the market, then finally the stickiness of housing prices on the way down would ease, prices would plummet to a bottom, and we could begin to recover.