Quick bullets:

1)  Some of our cash-reserve contingency, built as the swine flu risk intensified, has been redeployed in US and foreign markets.  Longer-term swine flu risk for the next flu season remains.  The race between the technology of vaccine development and the clock ticking toward autumn is now underway.

2) Bank Stress test data at 5 pm tonight will reveal macro-sector numbers, as well as individual numbers for each of the 19 banks.  Requirements for capital and tangible common equity (TCE) will be established.  Pathways for deficient institutions remain to be seen.  This stress test conceptual process will unfold over the next year and a half.  It is built on assumptions.  By definition, that means it is problematic, not certain.

3) Commercial mortgages and commercial real estate remain among the looming issues.  In this sector, deterioration is intensifying and accelerating to the downside.

4) This Friday will reveal the continued erosion of employment conditions in the US.  This is normally a lagging indicator.  We must remember that falling labor income is doubly dangerous when de-leveraging occurs in a financial market crisis.  Such is the case today.

5) China is rightly concerned regarding impacts coming from quantitative easing (QE) by the world’s major central banks.  We see this concern reflected in market responses that deliver rising interest rates on US Treasury notes and bonds.  This collides with the Federal Reserve's attempt to stimulate residential housing by buying Treasuries to keep the same interest rate lower than it would otherwise be.  The vast majority of the world’s internationally traded debt is denominated in US dollars, euros, British pounds, and Japanese yen.  Those four currencies constitute the bulk of the world's reserves.  Three of the four have zero interest rates because of QE.  The fourth, the European Central Bank, just cut its policy rate to 1%, the lowest in its history.  No one knows the eventual consequences of this global policy posture.  We can only guess.

We’re off to the Atlanta Fed’s conference next week.  As one of the discussants, we will examine the current banking crisis and its aftermath.