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  • European Bank Woes & the Super Committee

    A recent study from Credit Suisse revealed some alarming information about Europe's largest banks. We already knew that Europe's largest banks are mired in so-called "sovereign debt," that owed them by the various government's of the Eurozone. The Credit Suisse study found that in addition to sovereign debt, most of Europe's largest banks still have billions in toxic assets that were acquired prior to the credit crisis in 2008. Most of these toxic assets are related to real estate/mortgages, CDOs, etc. that were bought prior to the recession and are now presumably worth far less than face value. In short, European banks have done a lousy job of cleaning up their balance sheets and writing off troubled assets.

    Following that discussion, we will revisit the so-called "Super Committee" that is trying to find at least $1.2 trillion in deficit reduction over the next decade. As you might expect, the committee of six Republicans and six Democrats is deadlocked as this is written, and the real deadline is next Monday, November 21 when the committee needs to present its deal to the CBO for scoring. The bottom line: I don't think the Super Committee is going to agree on $1.2 trillion in spending cuts. Read on and I will tell you why.

  • The Optimists’ Case for the Economy

    Over the past few months, I have presented a lot of information discussing why this economic recovery is so weak. As noted last week, new data confirms that this recovery is the weakest since WWII, if not of all time. Yet despite all the recent disappointing data, there are still some prominent economic optimists out there, including The Bank Credit Analyst. These forecasters still believe that the so-called "soft patch" during the first half of this year was the worst of it, and that growth will be better in the second half of this year. I will summarize this more optimistic outlook below.

    Before we get to that, I will review the latest economic reports. There were actually a few bright spots of late, but they were definitely overshadowed by last Friday's very disappointing unemployment report. We end up today by revisiting the debt ceiling debate. Republicans, Democrats and President Obama remain stalemated as this is written. Obama is insisting on $1 trillion in tax increases in return for cutting spending. Republicans are so far holding firm on no tax increases. The government runs out of money just three weeks from today on August 2.

    I am still somewhat optimistic that a debt ceiling agreement will be accomplished before the August 2 deadline for default, but both sides have their heels dug in as this is written. Whatever happens, the next three weeks will be very interesting, and the investment markets could go ballistic if a deal is not reached.