Economy Slows in First Quarter; Weaker Jobs Growth Likely

2. Most major U.S. banks are healing, as witnessed by the Fed's recent stress tests. Even Citibank(C) is likely in better shape than the Fed estimated -- it over weighted the risks associated with Citibank's large overseas loan portfolio, and failed to recognize the value of international diversification. The securitization market is showing some life, and regional and small banks are realigning around business lending as new federal regulations make conventional home mortgages too difficult to write.

After buying up smaller banks that can't cope with new, tougher regulations, Wall Street banks control more than 60% of deposits nationally, and are driving down CD rates (essentially exploiting monopoly positions as they acquire banks in regional markets). Seniors are losing a lot of purchasing power, and Wall Street banks are less interested in making loans to Main Street businesses than were the regional banks they absorbed.

3. Oil prices appear to have plateaued, and the Obama Administration, its election year rhetoric notwithstanding, continues to stall, slow and stop U.S. oil and gas projects at every turn. That affects the economy much like a negative stimulus package -- petroleum projects use the same kinds of stuff (steel, cement, construction workers) as building roads and buildings.

4. The EU is in recession and remains in deep trouble -- fixes for Greece, Portugal and Ireland are inadequate and eventually will need to be reworked. Spain is teetering on crisis -- a failure of its government to meet budget targets or a further spike in unemployment, already above 20%, could set off contagion affecting Italy.

European banks are highly stressed. Those have not used the grace afforded by easy credit from the European Central Banks to properly add to capital and rework loan portfolios. Rather, they have often adopted gimmicks to paint up bad loans or move those into offshore vehicles -- all reminiscent of tactics employed by U.S. major backs when mortgage back securities became problematic before the financial crisis.

5. U.S. higher education loans -- now more than $1 trillion-- are a ticking bomb. Undergraduates are borrowing too much against future incomes, and many graduate students are borrowing to obtain degrees that will not markedly improve their circumstances.

Most education loans are not dischargeable through bankruptcy, and big debt coupled with disappointing pay will become an increasing drag on consumer spending for the next decade.