The TED spread is the difference between the yield on the 3 month t-bill and the 3 month LIBOR (London Inter Bank Offered Rate). This is, in essence, the risk free rate vs. the rate at which banks lend to commercial banks. It’s a good measure of credit risk. The last time the rate was this high was just before the 1987 market crash. Now, I’m not implying that the market might crash, but we certainly have all the ingredients and if this bill doesn’t pass tomorrow I would not be shocked to see a 1,000 point + drop on the Dow. It’s time to pare back risk. The bond market is not telling us it’s time to take risks in stocks.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.