The Chain of Events to Stabilization in my mind

Had a hard time with a coherent title for this post but I just chose this and we'll go from here.
My friend Andrew just emailed me this:

"Data we are getting now is all backward-looking, so it is hard to credit it with that much predictive power. The more interesting question in my mind is what kind of bump we can expect from the upcoming stimulus package. Credit market conditions are much improved in the last month, which remains a good sign."

Here's what I'm thinking. This highlights the positive mortgage application number today, which I think could, I repeat: could (as in "necessary but not suficient"), be the first step to credit flowing again and the economy recovering:

"That is true (that data are backward-looking). Nevertheless, I think people position themselves thinking the economy is somewhere. When these kinds of data come out they realize the current state of the economy is somewhere totally different and any up- or downward movement will make it end up lower than it would have previously.

The credit mkt has improved on things like the TED spread and Libor. I haven't looked at the corporate mkt -- somehow my access has been limited -- but that's what I see as the barometer, really.

And I wonder with mortgage applications up so much if this would stabilize housing prices. B.c if it did it would reduce mortgage default rates, which would stabilize MBS prices, which would stabilize banks' balance sheets, whcih would reduce the need to hoard cash, which would lead them to lend again, which is the problem."

I'm skeptical of the stimulus but am interested to see where he's going with that."

Here are the TED Spread and LIBOR:


(Wow, the TED Spread is coming in -- very good....)