Wed 11/16/2011 4:19 PM – European Woes May Spell Trouble for U.S.

While the economic news here is fairly good, the elephant in the room is the European debt markets. I will have much more on this in the newsletter. It has gotten delayed by my fall vacation and my back going out today. I am having trouble sitting today so it is difficult to write. I rarely have back issues but I must have overdone it at the gym, though it didn’t feel like it yesterday.

Spain will try to issue some debt tomorrow and the rate they have to pay will be critical. Spanish yields have been moving up to about 6.4% and that is too high. A new government will likely be elected shortly and it is likely that they will uncover still more dishonesty in reporting economic numbers. That combined with looming austerity measures and an economy on the brink of recession with 50% youth unemployment already likely spells rates for Spain that it cannot pay without European help. It is the 4th largest economy in Europe.

Meanwhile, Italy continues to stagger along and worse is likely in store for it too. It is the 3rd largest economy in Europe (Germany and France are #1 & 2).

Fitch today released a report on US bank holdings of European sovereign debt that said it might worsen bank profitability here, though it termed it “manageable.” That sent the US market that had started out badly, following Europe, recovered to about breakeven and with the Fitch report finished down 1.7%.

Gold and oil were down today, as were most bonds. The dollar was up and is probably the only safe bet as long as European woes persist.