Evidence Investing

From here and there on Bloomburg:

“Whether the markets completely unravel depends on whether politicians can stabilize the peripheral government market,” said James Gledhill, who helps manage about 58 billion pounds ($85 billion) as head of fixed income at Henderson Global Investors Ltd. in London. “The tail risk is the stress on banks which stops them from lending to corporates and feeds through to become a real economy problem.”

When anything is in the hands of politicians, I'm scared.

“At the moment, it feels worse than 2008,” said Geraud Charpin, a fund manager at BlueBay Asset Management in London. “There is no buyer of risk in the market.”

Sounds like he's scard too.

“There is a concern the market may be ceasing to function, with government bond liquidity drying up completely as everyone looks to sell,” said Mark Austen, managing director at the Association for Financial Markets in Europe.

Lets look at the TED Spread:

The TED, or Treasury Eurodollar, spread is calculated by subtracting the interest rate on treasury bills from the three-month dollar LIBOR.

The treasury bill rate is the interest rate paid by the U.S. treasury - often used to represent "risk-free" lending (on the assumption that U.S. government is always good for it), while the LIBOR is the rate at which banks lend to each other. Therefore, the difference in the two rates represents the "risk premium" of lending to a bank instead of to the U.S. government. At its lowest, the TED spread can be as low as 20 basis points, as it was in early 2007. A TED spread this low occurs when banks are seen as strong and in good financial health; the risk of default or banktruptcy is low, and therefore other banks are willing to lend them money at nearly the risk-free interest rates paid by the U.S. government. By contrast, the Ted spread stood at 330 basis points in early October 2008, after a series of bankruptcies by banks and other financial insitutions that occured as part of the 2008 Financial Crisis. On October 10th, the TED spread hit a new record of 460 basis points, reflecting a breakdown in interbank lending.
 
In short, when the TED is up, we are in or heading to a credit crunch...

Here's the chart of TED.  Not bad yet, but we are seeing a significant up-tick.