Don't Cross the Fed

You might want to be careful about borrowing from the Federal government. The Wall Street Journal detailed the terms of AIG's (AIG - commentary - Cramer's Take) loan. AIG paid a 2% commitment fee, or $1.7 billion, to secure the loan. It pays 8.5% on any amount not being used, and 8.5% plus Libor (London Interbank Offered Rate) on the committed portion. If credit markets return to some normalcy with the rescue plan, that rate would be in the low double digits.

This will motivate AIG to sell assets as rapidly as possible, which may not be a good thing for AIG. But it is what it is, and the company is hardly in a position to complain. I don't want to be on the wrong side of the Feds.

Unemployment claims were up 32,000 to 493,000. The hurricanes boosted claims by about 50,000, says the government. The four-week moving average moved up to 462,000, a number solidly in the recessionary category.

Durable goods were weaker than expected, but the number comes after three months of increases.

Both Bill Gross of Pimco Asset Management, the premier bond manager in the U.S., and Nancy Lazar of ISI, Ed Hyman's partner and as good an economist as there is, are projecting the unemployment rate to move up to 7%. That really is no surprise. While it would be the highest rate in about 20 years, it is the rate (or more) usually seen during significant slowdowns.

The troublesome thing today is the TED spread, indeed, all credit spreads. The TED spread is the difference between the three-month U.S. Treasury note and the three-month Libor rate (as I said above, that is the London Interbank Offer Rate, sort of Europe's equivalent to the U.S. Treasury). The wider the spread, the more fear there is in the system.

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Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.