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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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  • Is The Economic Recovery Stalling?

    Economic reports in recent weeks have been disappointing overall, and there are growing concerns that the economic recovery may be slowing following 3% GDP growth in the 4Q of last year. Thus, all eyes will be focused on this Friday’s first report on 1Q GDP. Only a month or so ago, some worried that the 1Q GDP number could come in below 2% due to the slowdown in inventory rebuilding this year. But as you’ll read below, most pre-report estimates for 1Q GDP are north of 2%.

    Whatever the GDP number is on Friday, there is a feeling that the economic recovery is stalling a bit. Some of the same spoilers that interrupted the recovery in 2010 and 2011 have emerged again this year, raising fears that the winter’s economic strength might dissipate in the spring and summer.

    In addition, the Fed Open Market Committee is meeting today and tomorrow. Since we won’t see the policy statement from the meeting until tomorrow, we can only speculate as to whether the Fed discussed any new stimulus at this meeting. I still don't believe that QE3 is off the table. I’ll give you my thoughts below.

    Finally, a record 5.4 million workers and their dependents have signed up to collect federal disability checks since President Obama took office. Many unemployed apply for disability benefits as soon as their unemployment benefits run out. There are now a record 10.8 million Americans on disability. This is a real travesty on so many levels!

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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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  • Why Greece Matters to You and Me

    The sovereign debt crisis in Greece is rapidly spreading to much of the rest of Europe. In addition to Greece, Portugal, Spain and Ireland, Italy is now in question. Italy has the third largest bond market on earth behind the US and Japan. Today I bring you a sobering assessment of the European debt crisis from our old friends at Stratfor.com, which is one of the most alarming analyses I have ever read from them. I also bring you an even more alarming evaluation from GaveKal Research, a leading forecaster based in Hong Kong.

    The bottom line is that another global financial crisis may be just around the corner, in weeks or months, and I believe this could spark the next major bear market in the US and global stock markets. I suggest you read today's E-Letter very carefully and begin to think about what you need to do to protect your investment portfolio and your retirement nestegg. Time may be very short as events in Europe are unfolding very rapidly, and no one knows for sure what will happen next. This may be one of the most timely E-Letters I have ever written.

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