I'm back from a brief vacation, and my favorite credit indicator says it's getting safer to jump back into the market.

The TED Spread, as I've written before, is the market's best measure of constipation in the financial system. It measures the spread between 3-month term Treasuries and 3-month LIBOR; in other words, the difference between the rate that banks can borrow money and the rate at which they are willing to lend. The wider the spread, the less willing banks are to lend, and the less faith they have in the financial system.

The TED spread is typically very small, historically less than 1%. For most of 2008, it trended between 1%-2%, reflecting heightened caution but no outright panic.

But in September, it went insane. As Lehman Brothers failed, and then AIG kerplonked, the TED spread jumped from 1.04% on September 4 to 4.63% on October 10, a historical high. Not surprisingly, October 10 was the day the S&P 500 bottomed, at 899.

Since, then the TED spread has fallen straight down, from 4.63% on October 10 to 2.98% on October 20. The market has been up and down, but is certainly up from its bottom.

You can see a chart of it here: http://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP:IND

This still strikes me as the most important measure in the market right now; more important than the VIX, which has been on the front page of just about every newspaper I open.

As the TED spread narrows, it means the financial system is opening back up and money is starting to flow again. And the sooner that happens, the shallower the downturn will be, and the sooner (it seems to me) stocks will recover.