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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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  • 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.

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  • Fed Offers Bailout of European Banks

    Last Thursday we learned that the US Federal Reserve has decided to make unlimited US dollar loans (swaps) to the European Central Bank (ECB) and directly to European money center banks that are in trouble, at least through the end of this year. And what will the Fed get in return as collateral? Eurodollars that are quickly falling in value as of late. So even as our own economy may be falling back into recession, the Fed sees fit to bail out the European banks that are sinking in sovereign debt from the likes of Greece, Ireland and Portugal.

    All eyes are on tomorrow's Fed Open Market Committee policy statement. The Fed is expected to announce its so-called "Operation Twist" strategy that is intended to lower medium and long-term interest rates, which may or may not work. Some people expect the Fed to comment on its latest decision to make unlimited US dollar loans to European banks, but I will be very surprised if they mention a word about it. They're keeping it very quiet (which is another good reason to read my E-Letters and blog postings).

    Speaking of blog postings, I will write about tomorrow's Fed policy decision on my blog before the end of the day tomorrow. Go to www.GaryDHalbert.com and subscribe to read my take on the Fed's announcement.

    Following the Fed discussion, I will bring you the highlights of the latest report on US poverty from the Census Bureau. Poverty is now at an all-time high. Ditto for the number of Americans that depend on food stamps, according to the Department of Agriculture. These two reports are very troubling.

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