The Credit Crunch is Over, Sort of

The TED spread is a key barometer of credit market risk aversion, and it has fallen to levels last seen before the credit crunch began. In other news, treasury yields are approaching levels last seen before the credit crunch (despite or because of quantitative easing?), and the dollar has lost it's "safe haven" credit crunch aura. These developments are positive as they indicate a dissipation of the massive fear in world markets over the last 2 quarters. However, as that fear dissipates, investors will start to view the US without their rose-colored "flight to safety" goggles on. There are still plenty of reasons to be pessimistic about the US, including tremendous loss of US household wealth (including my own!), resulting consumer deleveraging, and increasing federal budget deficits. (International markets have better prospects over the short term: for example, compare the US unemployment outlook with the Brazilian unemployment outlook.)

In the face of both good and bad news, the US market is doing some very interesting things. My favorite story this week is Saks Fifth Avenue, which experienced a huge bump in stock prices after losing less money than analysts expected (seriously?), only to give most of it back by the end of the week.
Another example of temporary insanity is Deere & Co., which announced falling revenues and slashed forward guidance before the open on Wednesday, skyrocketed, and then fell back to Earth.
One analyst said it "defies logic that this company is trading higher on the news of further lowered guidance". Indeed.

Yet there is no shortage of craziness, especially in the retail sector. Barnes and Noble on Thursday had a horrible earnings report, but less horrible than what analysts expected. This is a company that even without the credit crunch is destined to be crushed under Amazon's boots, yet here is the market response:
I like to stay out of the market's way until I see signs that craziness is abating: I made modest but not maximal amounts of money on Saks and Deere this week because I waited until the euphoria had faded to buy puts. So I shall be watching Barnes and Noble for signs of buyer's fatigue.