Looking for a Normalized TED Spread

This morning, the three-month LIBOR rate was set at 1.41%. The three-month Treasury bill is trading at 0.11%. The Treasury rate is the interest rate the U.S. government can borrow at for the very short term, and the LIBOR rate is the rate banks charge one another for a short-term loan. The U.S. government is (or has been) the best credit in the world, and banks should pay a bit of a premium compared to the government rate. Historically this "spread," or difference between the two interest rates, has been in the neighborhood of 50 basis points, or one-half of 1%.

The spread at 130 basis points is much improved from the huge gap that existed just after the Lehman bankruptcy on Sept. 15 of last year. I'm hopeful that the fear that has gripped the market, causing investors to park money in Treasuries at almost 0% interest, will abate and a more normal interest rate environment will reappear.

Initial claims for unemployment fell sharply and surprisingly on Wednesday by 94,000 compared to the prior week. While very nice to see, most believe it was a fluke number, as continuing claims rose. We'll see soon enough, as this is a weekly report; I fear that we will see a continuation of bad news on the jobs front. But it was a nice respite.

The S&P 500 closed 2008 at 903. The 50-day moving average is around 887 and the 100-day moving average is roughly 1030. I'm hoping that the market can trade between these two marks. I'm not much of a "technician," but when fundamentals are so unknowable, the technical offers a helpful guide.

The European Purchasing Manager Index fell again and to the lowest level since the euro came into existence 10 years ago. I find it hard to be bullish on the euro and bearish on the dollar when it seems to me the European Central Bank will be lowering rates again and there are some signs of normalcy reasserting themselves in the U.S. credit markets.

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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.