Déjà Vu All Over Again

Sound familiar? [italics mine]

“Europe Strains Global Markets” (Wall Street Journal)

Global markets are showing some signs of stress not seen since the 2008 financial crisis amid alarm at the expansion of Europe’s debt troubles.

Strains appeared on both sides of the Atlantic. The cost for European banks to swap euros for dollars climbed to levels last seen in late 2008. Pressure also was felt in the U.S., where higher funding costs were registered in markets for commercial paper, interbank lending and securities repurchases, or repos, all key sources of short-term financing for banks and corporations. The two-year swap spread, a gauge of how market participants feel about the risk of default by counterparties, widened to levels last seen in May 2010, when the Greek crisis initially flared.

“Bank Stress Gauges Show Pain Lasting Through ’11″ (Bloomberg)

Three weeks after European leaders hailed an “historic” agreement to restore confidence to the region’s banking system, rising gauges of stress in funding markets signal tensions will last at least through year-end.

The gap between three-month euro interbank borrowing and lending rates rose to the widest since March 2009 yesterday in the forward market, used to speculate on future interest rates, according to data compiled by Bloomberg. The cost for European banks to fund in dollars surged this month, with the three-month cross currency basis swaps falling to as much as 1.32 percentage points below the euro interbank offered rate, the most since December 2008.

“We are in the midst of the crisis,” Chiara Manenti, a fixed-income strategist at Intesa Sanpaolo Spa in Milan, said in a telephone interview. “The liquidity in the money market is not flowing normally between banks. Tensions in the funding markets will remain through year-end, and will be more pronounced in Europe.”

“Money-Market Spreads Climb to Two-Year High on Europe Crisis” (Businessweek)

Investor demand for the relative safety of Treasuries during the European debt crisis has sent the difference between U.S. short-term yields and bank rates surging to levels not seen in more than two years.

The gap between the London interbank offered rate and the overnight index swap, or what traders expect Federal Reserve’s benchmark to be over the term of the contract, widened to 38 basis points. It was the highest level since June 2009. U.S. five-year swap spreads climbed to 45 basis points, the most since August 2009.

“GM Sees Europe Crisis ‘More Serious’ Than 2008 Credit Bubble” (Businessweek)

Europe’s debt crisis is a “more serious” situation than the housing bubble three years ago that preceded a global recession, General Motors Co. Chief Executive Officer Dan Akerson said today.

“The ’08 recession, which was a credit bubble that manifested itself through primarily the real estate market, that was a serious stress,” Akerson told the Detroit Economic Club today. “The government took some insightful actions. This is much more serious.”

And. as The Big Picture reminds us with a great quote of the day from Bill King of Ramsey Securities, we are also seeing something else that we saw just a few short years ago.

“An inordinate number of traders keep buying dips and playing for a rally. They apparently adhere to the view of Carl Spackler (Bill Murray) in Caddy Shack. “I’d keep playing. I don’t think the heavy stuff’s going to come down for quite a while.”

As we have warned for months, the current environment is very similar to 2008. In August 2007 the global financial system collapsed and the global economy was in contraction. But stocks kept rallying because equities always get it last and are susceptible to hope & hype.

As the financial crisis worsened, stocks kept trucking. The DJTA hit an all-time high in July 2008. At the time the US was at least a couple quarters into the worst economic decline since the Great Depression and the financial system was imploding. The main difference now is sovereign governments are in crisis for bailing out their banks and economies; and central banks are left with only one option – to go Weimar.”