Leuchtkafer Letter to IOSCO on HFT

A rather technical but informative deep dive on HFT.

Leuchtkafer Letter to IOSCO on HFT
THE BIG PICTURE | AUGUST 25, 2011
http://pulse.me/s/1lmxC

_Joseph Saluzzi (jsaluzzi-at-ThemisTrading.com) and Sal L. Arnuk (sarnuk-at- ThemisTrading… Read more

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Charting The Deterioration Of Bank Self-Assessed Counterparty Risk Through 3 Month USD Libor

Charting The Deterioration Of Bank Self-Assessed Counterparty Risk Through 3 Month USD Libor
ZEROHEDGE | AUGUST 25, 2011
http://tinyurl.com/3l279ts

3 Month USD libor for various BBA-reporting banks

When it comes to counterparty risk, one can look at CDS, for an indication of how the market view a given bank’s counterparty … Read more

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Y’Obama, Consider This

Lower the corporate tax rate across the board to 15%. What we need in this country are jobs. Lowering corporate taxes will reinvigorate domestic investment by US and foreign companies. Make America THE place to do business again. We have a great labor pool, excellent infrastructure and amazing technology. We do not have cheap labor, but we can make up for that by lowering corporate taxes. It will also encourage companies to create domestic profits which encourages hiring, and domestic investment.

Raise the marginal income tax rates at the following breakpoints. Above 1mm AGI tax at 40%. Above 5mm tax at 45%. Above 10mm tax at 50%. And above 25mm consider significantly higher rates. Back in the 1970’s the highest tax bracket was 90%. We don’t need higher tax rates just to prove a point, we need higher tax rates to discourage excess savings. A family in New York earning 500k is most likely spending the majority of that income to pay for lifestyle. The “problem” occurs when the folks making 10mm only spend 1mm and then save the rest. That excess money is not allowed to affect velocity and does not work it’s way back through the system, likely never being taxed again at least not meaningfully. Don’t worry, the people generating income from legitimate business will be offsetting those taxes if they leave it in the company which would only need to pay 15%. We need to reconfigure our economy from consumption to production. If you make it cheaper to produce than to consume you will do just that.

Focus on energy security, energy independence, and energy safety. Let’s create energy infrastructure that will reduce our dependence on foreign imports (which underpins out trade deficits). We have abundant natural gas resources, and the capability to build global preeminent alternative energy and transportation industries. Turning-points for the American economy have always centered around paradigm shifts. Whether the automobile, the space race, computing telecommunications, or the internet. Energy infrastructure is the next great shift. The race for cheap, clean energy will allow globalized economies to keep their boarders open, reducing the spread of protectionism, AND it will create new domestic industries, keeping dollars home, and creating a renewed sense of American ingenuity. At the moment the Chinese are laughing at us. We can turn them on their heads by lowering corporate taxes and creating cheaper and cleaner energy sources which are a growing problem for Chinese industrial companies. Let’s build so much sustainable energy infrastructure that great global companies have to have operations in the US.

Phase out Social Security payments to individuals whose net worth and/or income exceeds a level whereby their social safety-net payments are laughable. There are retired Americans living off savings or income that exceeds their social security check by 100’s of percent, if not 1,000’s. These people always poke fun at the fact that the country is in dire straights and they are getting a check for a couple of hundred bucks. They don’t need it and most don’t want it. This is a unique country that gives people tremendous opportunity. We should all have to pay into the system. However, those who succeed certainly don’t need to take from it, as they effectively already did.

Allow private insurance for the same pool of people noted above. These people have two options in retirement. They can use Medicare or they can pay out of pocket. Do you know what they do? They use Medicare when it’s convenient and they pay out of pocket when it’s important. This creates a useless burden in what is supposed to be a social safety net and stifles innovation in both the insurance and medical technology fields. Wealthy retirees would gladly buy private insurance if they could. With lifespans increasing, particularly for this demographic, I am certain that an insurance business would develop. In addition, with more demand for private insurance and a higher quality of care from a wider pool of people (presumption is that private insurance will make private healthcare more accessible to lower wealth bands, increasing the size of participants), there would be greater demand for expensive new technologies. The wealthy are usually the Guinea Pigs for medical advancements and they can afford the higher prices required to bring new solutions to market. Let’s put to bed concerns over a split system. A split system will benefit everyone in the long run. Besides if we lower corporate taxes we will have more entrepreneurs who are paying into the system and not taking out.

Look for easy and smart ways to improve the quality of life for working people without onerously attacking the wealthy. One idea I’ve been begging for in New York City is an automobile, gas and/or garage tax that is specifically earmarked for the MTA. I could not think of a better way to reduce traffic and encourage ridership than to make drivers pay for the publics commute. $100 month to go to and from a low paying job is a large tax on the working class in New York. I am certain there are other ways to do this throughout the country not necessarily all geared towards transport. But we can look at taxing the behavior we would like to eliminate and subsidizing the behaviors that create sustainable growth.

Don’t unilaterally attack big oil. Just incentivize them to finally figure out that they are in the energy business. If you are going to raise taxes on carbon, at least give them a chance to earn it back in alternative energy solutions.

Tie the marginal tax increases above to specific areas. For instance. Take all the taxes raised by the increase for people earning more than 10mm and earmark it towards education. No one wants to pay more taxes, that will always create a fight. If you tie it to a program, however, you undermine their defensiveness. In addition anyone making that kind of money did not do it without the help of well educated individuals. Philanthropy in this country is astounding, but individual pet projects have not solved our biggest social problems. We need government for that, one way or another and without two party politics.

The list goes on, but Mr. Obama, we elected you as our spirited pragmatist, not as a dogmatic fool. The guy who preceded you won and lost on dogma. Our country is full of hubris, and so lacking in practical reality. If we are to avoid the fate of Rome we are going to need to think and act differently.

Bond Market is Pricing a Recession, 10-Year Treasury Breaks 2% Yield Intraday

Two charts below show a rather alarming and decisive signal from the bond market.  The signal is the stock market is about to crash.  Today the 10-Year Treasury Yield broke 2%.  This follows a 5-Year note below 1% and the 1-Year note below 20 basis points.  Bond holders are not being rewarded much in nominal terms, which generally indicates that deflation is on its way.  The only thing I cannot reconcile is the recent strong performance in TIPs, or Treasury Inflation Protected Securities.  That said the bond market is pricing in a recession, and last time this happened, it took about 6 months for the equity markets to bottom.  Since we are going into an election year next year, which is traditionally bad for markets, and since the world is totally upside down anyway, odds of this being a dramatically terrible selloff in equities is quite high.

A saving grace could be how cheap it is to short US Treasuries.  One would think the carry trade would support asset prices, but we are not seeing that.  Although anecdotally one could guess the strength in the 10-Year and the 30-Year is being supported by a long-short treasury trade. where traders are short the front of the curve and long the mid and long ends, picking up a fairly risk free spread.  When Ben Bernanke committed to keeping short term rates low for two years, he effectively gave carte blanche for the market to arb the spread between the short and and the long end.  I suppose when risk assets get cheap enough, we will see a dramatic selloff on the long bond, as people run back into equity and credit risk.

There may be no better time in our lifetimes to refinance or take out a mortgage!

Bloomberg: 10-Year Treasury Yields vs S&P 500 Index, August 18, 2011

Bloomberg: 10-Year Treasury Intraday Yields, August 18, 2011

Death Crosses?

Many pundits have been in “buying” mode, flapping on about looking for the right time to buy.  I am beginning to wonder if anyone has studied to correlation between market performance and television pundits commentaries.  All this talk of equities being cheap, no double dip, and yada, yada, yada, but I have not heard anyone mention that one of the single worst technical indicators is rearing its ugly head.

Take a look at four major index charts below, each with moving averages.  A death cross in technical talk is when a shorter moving average line crosses a longer moving average line.  The most common comparison are the 50 and 200 day moving averages.  When the 50 day moving average falls below the 200 day, it typically hints that a bull market is coming to an end, as the buyers of equities no longer wish to pay ever higher prices for the stocks in the index.  In the charts below the green line is the 50 day SMA (simple moving average), and the yellow line is the 200 day.  The purple line is the 10 day which is not as relevant here.

Looks like the S&P and the Nasdaq have already printed a “death cross”.  The Dow Transports are just about to as well.  The only index not “confirming” a major fall is imminent is the Dow.  I don’t know man, I’m not totally religious on this crap, but 3/4 is fairly hard to ignore.  My advice is to read that last post, the white paper about tail risk hedging.  This looks like its about to get really ugly soon.

*Note, however, this signal showed up last summer, during the first European Sovereign crisis, and the “death cross” that occurred did not confirm an end to the bull market.  One could easily argue, however, that today the world and world markets are on far softer footing than they were a year ago.  I would heed these signs.

Bloomberg Chart: S&P 500 Index with Moving Averages "Death Cross", August 17, 2011

Bloomberg Chart: Nasdaq Index with Moving Averages "Death Cross", August 17, 2011

Bloomberg Chart: Dow Jones Transportation Index with Moving Averages "Death Cross", August 17, 2011

Bloomberg Chart: Dow Jones Industrial Index with Moving Averages "Death Cross", August 17, 2011

In other news, the TED Spread is finally starting to widen.  The TED spread is generally accepted as one measure of risk in the banking system. I imagine this may continue as we approach the end of the short selling ban in Europe in a week or so.  My guess is when markets are free to be shorted, banks may rethink their willingness to take overnight risk with one another.

Bloomberg Chart: TED1 - 1-Month TED Spread as of August 17, 2011

Bloomberg Chart: TED1 - 3-Month TED Spread as of August 17, 2011

Updates and Omens

Update on Bank Risk: Looks like Bank CDS narrowed today, however the 3 month TED spread has broken its recent resistance.  Mixed signal, but I’d lean on the widening TED as the dominant indicator.

Bloomberg: BANK - Bank CDS Spreads as of August 15, 2011 (1 of 2)

Bloomberg: BANK - Bank CDS Spreads as of August 15, 2011 (2 of 2)

Bloomberg: TED3 - TED Spread, 3-Month Libor, August 15, 2011

All this on a day where the 3-month T-Bill closed yielding zero percent.  Last time any T-Bills yielded zero percent was just before the most recent bout of stock market bi polar disorder.

Bloomberg: BTMM - Money Market Rates, August 15, 2011

Bloomberg: 3-Month T-Bill Market Rates, August 15, 2011

Oh, and did anyone catch the spazdic Repo rate print at the time of the debt ceiling issue?  Showing the overnight and the 1-week Repo rates below, but all tenors had the same event.

Bloomberg: Overnight Repo Rates, August 15, 2011

Bloomberg: 1-Week Repo Rates, August 15, 2011

In other news, anyone notice that the US is back to the number two safest sovereign credit.  The rest of the world must be really upside down if we are the most sober drunk people in the room.  Note, however, that the party probably won’t last long as the cost of insuring the US’s debt has been steadily rising since it fell post Lehman.

Bloomberg: SOVR - Sovereign CDS Spreads, August 15, 2011 (1 of 3)

Bloomberg: SOVR - Sovereign CDS Spreads, August 15, 2011 (2 of 3)

Bloomberg: SOVR - Sovereign CDS Spreads, August 15, 2011 (3 of 3)

Bloomberg: US 5-Year CDS Rates, August 15, 2011

Lastly, it occurred to me to spend a few moments looking at the US Dollar Index, DXY.  I wanted to see if recent stock market performance was in part attributable the the known current inverse relationship to the USD.  This quickly inspired me to take a look back at the DXY chart, as far as I could go.  A few things stood out.  The last two times the dollar rallied considerably were 1. during the late 1990’s when the US began actually running a budget surplus, and rates were at the top of the cycle. and 2. at the peak of the crisis in 2008/2009 after Lehman’s collapse and liquidity crisis.  Additionally, the dollar rallied last year at the onset of the Eurozone Debt Crisis 1.0.

Bloomberg: DXY US Dollar Index 1995-2011, August 15, 2011

Bloomberg: DXY US Dollar Index 1967-2011, August 15, 2011

It is of interest to note that the most recent bout of risk avoidance did not dent the prevailing dollar weakness, and has not caused a dollar rally, like in 2010 or 2008.  Despite the flows into Treasury Bills over the last few weeks, historic low rates have managed to help keep the dollar massively weak, relative to other global currencies.

Additionally, something else stood out.  The dollar seems to have maintained three prior strength/weakness cycles, peaking in 1969, 1985, and 2001 respectively as illustrated in the chart above.  The rhythm to this cycle has been about 15.5 years.  If this cycle continues, we would be due for a major dollar rally circa late 2016.  It is of interest to note is that the policy decisions in the US best suited to reign in our debt problem today, cost cutting or tax increases (or both), will likely have strong dollar consequences.  What is also of interest to note is that 2016 will bookend the next election cycle.

Bloomberg: DXY US Dollar Index vs S&P 500 Price Performance 1997-2011, August 15, 2011

Lastly, the chart above illustrates the US Dollar Index plotted versus the S&P 500 over the last 14 years.  The chart represents a spread between the DXY and the SPX.  In 2002 the market bottomed into a weakening dollar, having come off of strength in the late 1990’s due to sound balance sheet management under Clinton.  The 2008 market bottomed into a strengthening dollar (but relatively weaker than in 2002), due to prolific balance sheet expansion under George Bush to fight two wars and to launch TARP. This cycle has been a 7 year cycle.  (I did not post a longer series because the nominal price of the S&P obfuscates the spread data with the S&P at lower prices, and I was not sure how to create a log normal series.)  Nonetheless, the 7 year cycle also  culminates in the 2016 time frame, if this were to repeat again.  If these cycles collide, we could have a fairly draconian market plunge, with massive dollar strength weakening the economy at precisely the time the next major recession hits.

There may be a reason the 5-year treasury is yielding 1% these days.  Its probably because we are headed for massive deflation.

Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009 Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009

Interesting paper floating around. This paper provides a statistical analysis around the relationship between austerity and anarchy.  Judging by an earlier post I wrote Prodemocracy Revolution in Greenwich Village this paper made me realize that revolutions can be inspired by one large unexpected bill for neglect.

Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009 Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009

Figure 1: Frequency of incidents and the scale of expenditure cuts

Libor explained: the real cost of money or just a fix?

So, just after I posted the last entry, titled If We Are On A Precipice, the Banks Will Be the First To Go, Again, it occurred to me to just double check that I am not the first person to think of this, as I am hardly the smartest person in the room.  And of course, just this April there was an explosion of articles around an investigation into Libor collusion by a number of big banks.

The article below, by Jamie Dunkley and Harry Wilson from The Telegraph, goes on to explain how Libor is set each day.  One topic it seems to ignore is an analysis of the number of banks setting Libor before 2008 and the number of banks setting Libor today.  If you are willing to consider my unsubstantiated conspiracy theory, my best guess is there are far fewer players, with much better means to collaborate in setting Libor.  After all if a few college kids can help overthrow a government in the Middle East using Facebook, its not that extreme to think a few bankers could BBM each other to hide the panic they all feel.  Afterall its now a serious game of poker, but if one man folds, they all must fold together, game over.  If I am right, which I hope I am not, we will not get a waring shot from the TED spread this time, and the only way we will know that the banks are about to become insolvent is when they all fail simultaneously.  Could this be why the 2-year treasury is paying 20 basis points, and the 5-year is paying about 1%? For the answer, see: Occam’s Razor.

By Jamie Dunkley, and Harry Wilson
6:06AM GMT 17 Mar 2011

It is the monetary policy committee you have probably never heard of – a group of bank treasurers and officials from the British Banking Association that set interest rates for trillions of pounds worth of international lending each working day.

The Libor setting process used to involve a daily telephone call between participating banks and the BBA. But, this has become more advanced as technology has improved.

At 7am every morning a cycle begins that ends four and a half hours later with the calculation of the London Interbank Offered Rate, or Libor as it is more commonly known. Libor is the average rate at which a bank can obtain unsecured lending and is produced in ten currencies with 15 different maturities quoted for each, ranging from overnight to 12 months.

Across the City, treasurers at more than 15 major banks sit glued to their screens monitoring the money markets and working out how much working capital their institution needs to meet the billions of pounds of liabilities on their balance sheets.

As the banks’ financial positions are assessed, so-called “ladder reports” are compiled, setting out how much each needs to borrow. At each contributing bank they must answer one simple question: “At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?”

The Libor setting process used to involve a daily telephone call between participating banks and the BBA. But, this has become more advanced as technology has improved.

These days, responsibility for each bank’s submission is still in the hands of the treasurer, or head of asset and liability management, although the transfer of data now involves the use of a secure computer system managed by data and information company Thomson Reuters.

Banks submit their figures through the protected system, which immediately discards the four highest and four lowest figures – using an average of the remaining numbers to calculate Libor.

Once calculated, the number is broadcast on the Thomson Reuters system and through other information systems such as Bloomberg, with each individual banks’ submission published simultaneously enabling market participants to challenge figures if they do not think they reflect the actual rate being offered.

BBA Libor was established in 1984 as demand grew for an accurate measure of the rate at which banks would lend money to each other. This became more important as London’s status as an international financial centre grew and is now the basis for everything from how much a small UK business can borrow at to US residential mortgages costs.

But critics argue Libor has become a meaningless measure of borrowing costs since the onset of financial crisis as the interbank lending rates remain artificially low due to the hundreds of billions of pounds of central bank support that have kept them open.

“You effectively have people making up the numbers, because there aren’t thousands of trades for them to look at to get a handle on what the number should be,” said one London-based banker.

At the same time, Libor’s importance has been undermined by other measures of lending costs, namely Eonia and Sonia, which track overnight swap rates and are based entirely on the actively traded market for interest rate swaps.

Supporters point out that Eonia and Sonia barely flickered when Lehman Brothers filed for bankruptcy in mid-September, having priced in for several months the funding problems of the banking sector. By contrast, Libor spiked before plummeting as central banks flooded the financial system with money.

News that UBS and other banks are under investigation for alleged manipulation of Libor has been met with surprise by some traders.

“This is the ultimate credit market. The sheer size of the market is beyond the manipulation of any one bank and to be effective would require the collusion of every participant, in which case you’d be looking at something rather more serious than just trying fix Libor,” he said.

If We Are On A Precipice, the Banks Will Be the First To Go… Again

Good article from Jonathan Weil from Bloomberg tonight.  How can you expect to solve the crisis without considering the banking system stresses.  Every day for the last few weeks, as I have noted recently the cost to insure bonds of major money center banks has been steadily rising.  While the overnight lending rate has remained steady and low, signaling “all is well here”, the concentration of counterparties may infact make collusion easier, masking the stresses in the system today.  In simpler terms, LIBOR is the rate banks use to lend to one another to shore up their balance sheets over night.  In a world with fewer larger banks, with more at stake individually, it would not be far fetched to presume that they may be colluding to fix LIBOR to disguise the real risks they each face, since in essence they are all now subject to the exact same forces, on a global scale.

In the case of Bank of America, the cost to insure their bonds via Credit Default Swaps have expressly blown out almost to the highest levels seen in 2008.  Today we have less banks, with more concentration, and more inter-connectivity.  The amount of concentration inherently makes the system less stable than it was in 2008.  Consider an internet with fewer servers, and more data running through them than before.  At some point, you can have too few banks (or servers) to the point where the entire system (network) ceases to function, if one node in the network ceases to function.  One of the tail risks today is the possible insolvency of the banking system.  However in this version 2.0 of a global banking crisis, there is only one end in the choose your own adventure.  They will be to big to save because governments are now out of liquidity.

By Jonathan Weil Aug 10, 2011 8:00 PM ET

Weil: Is There Enough Money to Save the Banks?

Illustration by Mark Owens

Forget free-market fundamentals. What matters most to the capital markets now is whether the governments of the U.S. and westernEurope have the will and the wherewithal to save the global financial system from disaster yet again.

A healthy climate for the efficient allocation of capital, this is not.

By pledging to keep its benchmark interest rate near zero through at least mid-2013, the Federal Reserve succeeded (for a couple of hours) in propping up U.S. stock markets after two days of gut-wrenching declines, especially in financial stocks. The news came a day after theEuropean Central Bank embraced the role of savior by buying sovereign debt of Italy and Spain, sending yields on those countries’ bonds plunging and offering respite to financial institutions that hold them.

The notion that the world’s governments won’t permit an economic meltdown seemed to be operative, less than two weeks after the U.S. Congress threatened to torch the nation’s full faith and credit. Then yesterday the equities markets fell out of bed again. The open question is how long investor confidence in the policy makers’ powers can last.

This has added relevance in light of one of the developments that sent Bank of America Corp. (BAC)’s stock down 20 percent Aug. 8 — the news that American International Group Inc. (AIG)had accused the company of securities fraud in a lawsuit seeking more than $10 billion. Naturally the question arises: Didn’t AIG consult with anyone at the Treasury Department, which owns 76.7 percent of AIG, about whether to fire this market- sinking torpedo at a too-big-to-fail bank so soon after Standard & Poor’s downgraded the U.S. credit rating?

Bailouts at War

It would seem not. A Treasury spokesman, Mark Paustenbach, said: “As per our stated principles, Treasury does not interfere with the day-to-day management of the company.” Just when you think the government might have matters under control, we find out it can’t even keep a bailed-out company it controls from trying to blow up Bank of America, which itself needed federal bailout money to stay afloat.

One thing that’s certain is that investors aren’t feeling very good about large financial institutions’ balance sheets. As of yesterday, there were 186 U.S.-based financial-services companies trading for less than 60 percent of their book value, or common shareholder equity, including Bank of America, Citigroup Inc. (C), Morgan Stanley (MS), AIG and SunTrust Banks Inc. (STI) Together they had a stock-market value of $300.5 billion, compared with $686.4 billion of book value, according to data compiled by Bloomberg.

Broken Cycle

When I ran the same stock screen for a June 2008 column, a few months before the financial crisis reached full flower, it turned up 168 companies with a combined $120.3 billion market value and a book value of $270.3 billion. The way the credit crunch was playing out then, market declines were begetting writedowns, leading to more market declines and then more writedowns. A year later the cycle broke, thanks to unprecedented government intervention. The largest U.S. banks were reporting quarterly profits again.

Like a Slinky walking down a flight of stairs, though, all it may take is the slightest push for inertial energy to set the writedown cycle in motion again. For instance: Bank of America, at 33 percent of book value, finished yesterday with a $68.6 billion market capitalization. That’s less than the $71.1 billion of goodwill on its June 30 balance sheet. (Goodwill, which isn’t a saleable asset, is the ledger entry a company records when it pays a premium price to buy another).

You Gotta Believe

So, Bank of America would have us believe the goodwill by itself was more valuable than what the market says the entire company is now worth. Investors don’t buy that. They see a company that needs to raise fresh capital, judging by the discount to book value, in spite of the company’s claims it doesn’t need to. The more the stock price falls, the more shares Bank of America would need to issue to appease the markets, leading to fears of even more share dilution.

The same story is playing out in Europe, driven by the sovereign-debt crisis. The 32 companies in the Euro Stoxx Banks Index yesterday had a stock-market value of 313.2 billion euros ($444 billion) and a combined book value of 620.5 billion euros. France’s Credit Agricole SA (ACA), the index’s third-largest bank by assets, trades for just 34 percent of book.

Two years ago the central planners convinced investors that the biggest surviving financial institutions would be able to earn their way back to health, in part through low interest rates and taxpayer support. The pressing question soon may be whether there is enough money on the planet to save the system as we know it, and if so, how much longer it will be before a crisis comes along that finally swamps the ability of governments to contain it.

One-hit wonders such as Fed-induced stock-market rallies can induce euphoria momentarily. They don’t fix the big problem.

(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)

To contact the writer of this article: Jonathan Weil in New York at jweil6@bloomberg.net.

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net.

Keep an Eye on Bank Risk

I’ve been watching the systemic risk rising in the banking sector as denoted by the 5 year CDS prices in Bloomberg.  At first the elevations were slow and steady, and somewhat understandable in the wake of the European Crisis and the looming Debt Ceiling decision.  However, since last Friday, something unnerving is happening.  The cost of credit insurance for major money center banks is beginning to spike.  The good news is in most cases the spike is well below the fear levels promoted by the failure of Lehman Brothers.  However there is one US Bank that seems to be on the precipice of something much more dramatic than its peers.  Consider the most recent CDS price rankings from Bloomberg today, and take a look at the charts of some of the samples below.  I chose the 5 year charts to put the recent risk in perspective.  To be clear, I have not left of the others to warp the perspective, its just that only one really stands out at this moment in time, and it has fallen to the latter part of the list below.

We all know that one bank cannot be stressed and not create more stress for other banks.  This is certainly something to keep an eye on.  And financials are certainly one area to step over if you are picking through weeds for bargains.

BANK from Bloomberg 8.9.11

BANK (Cont'd) from Bloomberg 8.9.11

BANK BAC CDS (5-Year) from Bloomberg 8.9.11

BANK JPM CDS (5-Year) from Bloomberg 8.9.11

BANK WFC CDS (5-Year) from Bloomberg 8.9.11

BANK UBS CDS (5-Year) from Bloomberg 8.9.11