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  • U.S. Debt Crisis End-Game Looms in 3-5 Years

    Today, the national debt has mushroomed to almost $16.5 trillion. It has exploded by over 60% just since President Obama took office, when it was at $10 trillion. At the end of 2012, our national debt exceeded 100% of GDP (104%) for the first time since WWII. By the end of Obama’s second term, our national debt will top $20 trillion at the rate it’s growing.

    We all know that at some point, this massive Ponzi scheme will come to an end. The only reason it has gotten to this point is because the US dollar is the world’s “reserve currency” which enables our government to print as much money as it wants. This will end only when foreign buyers of our debt decide to turn off the spigots. The only question is when.

    Last week, one of the most respected research groups in the world predicted that the US likely has only 3-5 years before the wheels fall off and the world is thrust into a major financial crisis, possibly even a depression.

    We’ll talk about all of these things as we go along today. But before we go there, let’s take a brief look at the economy before tomorrow’s advance (first) estimate of 4Q GDP.

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  • Spain & Weak US Economy Dominate Markets

    Stock markets around the world have been pummeled in recent weeks amidst the growing reality that we’re in a global recession, especially in Europe. Fears that the US will also fall into recession have intensified, particularly in light of last week’s very disappointing economic reports.

    At the same time, the European debt crisis has once again raised its ugly head, this time with the spotlight on Spain. Spain’s own Prime Minister has admitted that the country is in a state of emergency, and money is gushing out of Spanish banks. Interest rates have soared once again to levels that led to the European Central Bank’s €1 trillion bailout package late last year and early this year.

    Last week, the yield on Spain’s 10-year bonds spiked to 6.7%, a whopping premium of more than 5.5% above the yield on the 10-year German bund at the time. Meanwhile, short-term rates in Germany fell to zero as new money seeks a safe haven there and in the US where 10-year Treasury-note yields fell to a post-war record low of 1.45% last Friday.

    Spain is facing a full-fledged banking crisis and knows it. Yet Spain's leaders do not want a bailout and the accompanying loss of sovereignty. They see that such bailouts in Ireland and Portugal have not gone well. Still, Spain is running out of money fast, and the country is largely shot out of the credit markets. How this plays out is uncertain, but it won't be pretty.

    Following that discussion, I will address the fact that consumer confidence is dropping like a stone in the US. This has prompted new hopes that the Fed will unleash QE3. We will know soon enough as the next Fed policy meeting is June 19-20.

    We end up today with a suggestion on my part that the current swoon in stocks is a BUYING OPPORTUNITY. No one knows where the bottom is, of course, but consider this. If the Supreme Court renders Obamacare unconstitutional later this month, and I think it will, we could see a MONSTER RALLY in stocks. The High Court's decision is scheduled to be announced on June 25. This is why I think you need to be getting back in the market now, while it's down. And I offer two excellent suggestions on just how to do that at the end.

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  • Greece Poised to Default & Exit the Euro

    Greece is coming dangerously close to defaulting on its debt, especially if the next round of bailout loans doesn't happen. Those loans are predicated on Greece continuing its austerity programs to balance its budget. Greece will hold its next national elections on June 17, and the party that is expected to win vows to roll back the austerity measures mandated by the EU and the ECB. At the least, it looks like we're headed for fireworks just ahead.

    The burning question: Is there any way that Greece can default on its debt and withdraw from the euro without causing a global financial crisis. Some believe there is. Today, I present such a plan that was suggested by Nouriel Roubini last Friday. But I will also tell you that I don't believe that the EU, especially Germany, will go along with Roubini's plan. Germany's Chancellor Andrea Merkel reportedly made that clear to President Obama last Saturday in a private meeting following the G-8 summit in Chicago.

    No one knows what will happen with Greece just ahead, but a debt default and an exit from the EU and the euro are now quite likely later this year. This is even more of a threat if the Left Coalition in Greece wins the elections on June 17. Obviously, this is having a very negative effect of the stock markets, making it all the more important to have investment professionals on your team.

    On Thursday we are hosting our latest online WEBINAR featuring Yacktman Capital Group, the latest money manager to make it onto our recommended list. The Webinar will be this Thursday at 1:00 p.m. Eastern Time. Yacktman's founder, Brian Yacktman, will talk about his successful "value-investing" strategy and how it works. There will be time for questions from audience members. With the recent decline in the stock market, now may be an excellent time to consider putting some money with Yacktman Capital Group.

    You can attend the free Webinar on Thursday at 1:00 p.m. Eastern by CLICKING HERE. I hope you'll join us!

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  • Buy Low, Sell High - Any Questions?

    There's no doubt about it, investors are scared. After soaring upward in the first quarter of 2012, the S&P 500 Index has now plunged based on worries about the US recovery as well as continued Eurozone woes. Many investors are paralyzed on the sidelines while others are seeing their buy-and-hold portfolios look more like a roller coaster than an investment portfolio.

    However, there is an investment strategy that has the potential to take the market's lemons and make lemonade. Renown investor, Warren Buffett, follows a value-style investment strategy and has done so successfully for many years. For such investors, market uncertainty can actually mean opportunity to scoop up the stocks of good companies at discounted prices.

    This week, I'm going to review value investing and how it can bring some stability and growth potential to a portfolio. After that, I'll introduce you to Yacktman Capital Group, a value-style money manager right in our backyard here in Austin. Yacktman has improved upon Buffett's approach to value investing and we are excited to offer this emerging manager to our clients. If you are out of the market or heavily invested in buy-and-hold strategies, you owe it to yourself to check out Yacktman's Concentrated Composite Strategy.

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  • European Debt Crisis Never Went Away

    Since December, the European Central Bank has loaned over 1 trillion euros to banks in southern Europe. These were three-year loans with an interest rate of only 1%. The banks used most of this money to buy up sovereign bonds of their home countries. This served to drive down bond yields around the region, and most observers assumed that the European debt crisis had been solved - at least for a while.

    Yet over the last few weeks, the unexpected has happened: bond rates in countries like Spain and Italy have started to rise again to dangerously high levels. Ten-year Spanish bond yields climbed to the highest level since the ECB started allocating three-year loans in December. Yields rose above 6% last Friday and yesterday, which sparked new concerns that Spain may need yet another ECB bailout. Making matters worse, Spain's economy slipped back into recession in the 1Q.

    Interest rates are also rising in Italy, and its economy appears to have dipped into a recession as well. All of this news has accelerated concerns that the financial crisis in Europe is back. Yet I argue today that the debt crisis never went away! Don't be surprised if this problem returns to center stage over the weeks just ahead, and if it does, this will not be good news for equity markets around the world.

    While US stocks are enjoying a very strong day today, there's a critical government bond auction in Spain on Thursday; Italy has a big bond auction on April 27; and Spain has another large bond auction on May 3. If interest rates continue to rise and/or if Spain and Italy have trouble finding enough buyers, this will be bad news. That's our topic for today.

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  • European Debt Crisis - Is This Really The End?

    I have written a great deal about the European debt crisis over the last several months. Today I thought I would give you the latest analysis of the crisis from The Economist, the widely respected, London-based forecasting giant. I've been reading the Economist for almost 30 years, and I think you'll find their latest views on the European crisis interesting (if not scary).

    Following the analysis from The Economist, we take a look at how some of the world's largest banks are preparing for what could be the end of the euro. While most large European banks are in denial about the possible end of the euro, other large banks around the world are scrambling to reduce their exposure. I have also linked to a very good article on this very subject at the end of today's E-Letter.

    Next, now that the Super Committee has failed, the automatic spending cuts of $1.2 trillion over a decade are set to kick in starting in January 2013. The media is warning that such draconian cuts will devastate the Defense Department. Well guess what? $1.2 trillion over 10 years is only $120 billion a year. The federal budget is projected to increase by more than $120 billion a year over the next decade. In that case, there will be no net new spending cuts, just a slowing of the rate of increase. That's the dirty little secret the media is not telling us!

    Finally, if this extremely volatile stock market has rattled your nerves, I have a suggestion for you. I suggest that you consider investing with Metropolitan Capital Strategies, one of my favorite professional money managers. Metropolitan has the option of going 100% to cash (money market) in extremely volatile times such as we see today. We are hosting a free live WEBINAR with Metropolitan Capital Strategies this Thursday, December 1 at 2:00 EST.  I highly recommend that you join us!

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  • Greek Soap Opera Continues to Roil Markets

    While Greece is but a small country, its debt crisis continues to influence financial markets around the world on an almost daily basis. It is not unusual for news from Greece to send the global stock markets up or down 2-3% in a single day. Events in Greece are unfolding daily, including the resignation of its Prime Minister, George Papandreou, just last Sunday. As this is written, a new coalition government is being formed in Greece to pave the way for the latest €130 billion ($180 billion) bailout package agreed to by European leaders late last month.

    In addition to Greece's troubles, the European debt crisis is spreading to other Eurozone countries. Italy appears to be the next domino to fall, and Spain may not be far behind. Italy has the eighth largest economy in the world based on GDP and the fourth largest in Europe. If Italy has to be bailed out, it would likely spark another global financial crisis that could make 2008 look tame. The latest G-20 summit in France failed to do anything to avert another financial crisis in Europe. Surprise, surprise!

    Given the deteriorating situation in Europe, expect stock market volatility to remain very high in the months ahead. Investors are scared by the events unfolding in Greece and the rest of Europe and are herding out of stocks and equity mutual funds in droves. I can't say that I blame them. Near the end of today's letter, I offer some advice on what these investors on the sidelines should consider doing with their money that is no longer invested in the stock markets.

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  • European Debt Crisis Revisited - Implications For the US

    Today we take a fresh look at the European debt crisis which is worsening. Just over a month ago, EU leaders agreed on a second bailout loan for Greece to keep it from defaulting. That bailout loan had to be approved by all EU member nations, and several have refused to do so unless Greece can put up collateral. This has caused the bailout agreement to unravel and Germany's Chancellor Andrea Merkel is frantically trying to put it back together. If she fails, we could get another serious shock to the equity markets in the US.

    Meanwhile, the European Central Bank began buying huge chunks of government bonds from Italy and Spain to keep their credit markets functioning. Some argue that the ECB is not authorized to make such purchases but it is doing so anyway. It remains to be seen just how long the ECB can continue this large-scale quantitative easing. In any event, the European debt crisis is worsening, and I continue to believe that it will have more negative consequences for our markets here.

    A new CNN poll found that Americans' confidence in Congress is at a new low. For the first time ever, a majority of Americans want the bums in Washington voted out of office -- including their own Representatives in Congress. In past polls a majority wanted some members of Congress kicked out, but not their own Representatives. You'll find this story very interesting. Finally, I leave you today with a very good article written by Tony Blankley who offers President Obama some advice for his major speech on Thursday night.

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  • Who’s Worse Off - America or Europe?

    We touch on several topics in today's letter, but the main theme is the question of who is worse off financially speaking, the US or Europe. I have written extensively about the growing European debt crisis in recent weeks, which I considered much more important than the debt ceiling circus that played out in Washington in July. It is now obvious to even the man on the street that there is a debt crisis in Europe, of late including even Spain and Italy, with rumors swirling about France as well. A real solution is not yet in sight.

    Yet the US has plenty of debt problems of its own, with a national debt of $14.4 trillion, by far the largest of any nation on the planet and a president who thinks that trillion-dollar annual budget deficits are no big deal. Thus, it is only natural for observers to ask which is in worse shape - Europe or America? I will give you my thoughts on the question as we go along today. In a nutshell, Europe is worse off today, but the US is not far behind and is gaining ground at warp speed, sadly.

    Following that discussion, we will explore whether or not Ben Bernanke and the Fed are cooking up another round of quantitative easing (QE3), and if they are, when we might first hear about it. Think August 26 - I'll tell you why below. Next, I will give you my thoughts on gold, and specifically why I don't think most gold buyers today have any idea how much risk they are taking. I trust that my readers are not jumping into gold at today's nosebleed levels, but I will tell you why that might not be a good idea in any event.

    Lastly, we revisit the issue of Standard & Poor's recent downgrade of US debt from AAA to AA+ when none of the other credit rating agencies felt so inclined. Could there have been some political motivation behind the S&P's unilateral move? Surely not - wink, wink. Did the S&P mean to send a message to Congress about cutting spending? Maybe. Or was the S&P just trying to salvage its tarnished reputation after rating subprime mortgages AAA in the years leading up to the financial crisis? It should be an interesting discussion.

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  • The European Debt Crisis is Spreading

    The debt crisis in Europe is intensifying with Italy and Spain falling into the mix, as I predicted in my July 19 E-Letter. You may recall that the European Union formed a bailout fund in June 2010, but as I will point out today, that fund is nowhere large enough to handle this crisis. Now even the European Central Bank has pledged to buy bonds from Italy and Spain, as well as the other PIIGS, but the ECB is also too small to vacuum up all of the troubled debt in Europe.

    In my July 19 letter, I wrote the following warning: "If this [Greek default] happens, I would expect the US stock markets to plunge again, perhaps as they did in 2008. And this could happen at any time." While I don't have a crystal ball, I had a strong sense that the markets and the investment public were all too focused on the debt ceiling battle and not on the deepening credit crisis in Europe. Unfortunately, my warning was right on the money.

    Equity markets around the world started falling severely last week, and yesterday's action saw the Dow Jones plunge by 635 points in what was one of the worst market days in history. Investors are selling stocks and equity mutual funds with abandon and are herding into Treasury funds and gold. This may prove to be a bad move since interest rates can only go so low, and gold has a long history of falling off a cliff whenever it turns down.

    The US stock markets moved higher this morning. The Federal Reserve met today and did NOT announce a new round of QE3 as was widely expected. As a result the stock markets all reversed sharply lower for a time. But as traders read that the Fed plans to keep short-term interest rates near zero until mid-2013, the markets reversed again to close sharply higher this afternoon. The wild market ride continues!

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  • Subprime Mortgage Crisis #2 in the Making?

    In May 2009, President Obama created the “Financial Crisis Inquiry Commission” (FCIC) to investigate the causes of the financial crisis of 2007-2009. Basically, the FCIC put the blame for the financial crisis on lax regulation, greed on Wall Street, faulty risk management at banks and other financial firms and on households for taking on too much debt.

    The FCIC’s Democratic majority placed the blame for the financial crisis on the private sector and dismissed the idea that government housing policy could have been responsible. The report went so far as to suggest that Fannie Mae and Freddie Mac, and the politicians that oversaw them, were not the cause of the financial crisis.

    I strongly disagreed in my May 18, 2010 E-Letter and now a new book on the subject comes to the same conclusions that I did. Now Fannie and Freddie and the politicians responsible are back in the news again.That’s good!

    What is not good is the recently reported fact that the government is once again pressuring regional and community banks to make mortgage loans to low income families that can’t afford them. This could be the making of subprime loan crisis #2. You need to know about this, and I will give you the details as we go along.

    To round-out today’s letter, I will show how the so-called government “Agency Debt” – that which is supposedly not backed by the full faith and credit of the government – really is guaranteed by the government. Agency Debt has exploded over the last 25-30 years, yet it is not included in our official national debt. You need to know about this as well.

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  • CBO: U.S. Debt Crisis On The Horizon

    Introduction

    The non-partisan Congressional Budget Office (“CBO”) released a very troubling new report in the last week of July. The new report is entitled “Federal Debt and the Risk of a Fiscal Crisis” and warns that we will face financial calamity if we do not get our massive budget deficits under control.

    The CBO report points out that the national debt, which was 36% of the gross domestic product three years ago, is now projected to be 62% of GDP at the end of fiscal year 2010 on September 30. And it continues to ratchet up every year thereafter, even in the CBO’s “baseline” (more conservative) projections.

    The CBO specifically warns that our out-of-control deficits could lead to the ultimate debt crisis when buyers of Treasury securities lose faith in the government’s promise not to default on these most trusted financial instruments. No kidding!

    I have been writing about the perils of increasing our national debt year after year since back in the 1980s when I criticized President Ronald Reagan for doing so, and every president since him. The concern was that in 20-30 years, the ultimate debt crisis would come. Guess what: it’s now been 20-30 years, and even the CBO now warns that the day of reckoning is on the horizon.

    This week, I’ll summarize the latest CBO report. After reading about it, you need to think seriously about how you will protect your assets when the day comes where US Treasury securities are no longer trusted – think sharply higher interest rates! This will be a continuing theme in the weeks and months ahead.

    But before we jump into the latest troubling CBO report, let’s take a quick look at the latest economic reports, most of which have not been favorable. It has been several weeks since I wrote about the economy specifically, so let’s get caught up.

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  • Market Mayhem & Credit Fears - What's Next?

    Market Mayhem & Credit Fears - What's Next? IN THIS ISSUE: 1. The Economy - The News Is Not All Bad 2. Consumer Spending Remains Firm For Now 3. Housing & Subprime - More Bad News 4. Should The Government Come To The Rescue? 5. The Fed Needs...