Here’s what I said just a couple of days ago:
What’s happening is that banks are saying the economy is now relatively calm. They can therefore lower the provisions they take to account for future losses on their existing loan books. But, this is an accounting estimate of the future losses for present loans that banks must undertake to comply with accrual accounting standards…
I think banks are certainly better capitalized than a few years ago but I also believe we are seeing under-provisioning. Time will tell if I am right.
With that in mind, listen to what Jeffrey Gundlach has to say about subprime bonds — yes subprime. Hint: he thinks banks will have to take more credit writedowns.
Just for extra measure, below are the follow-on videos with his thoughts on other subjects: the treasury rally, housing, energy, etc. Note, he doesn’t see Treasuries rallying any further here unless we get “serious economic weakness”. I agree. That doesn’t mean it won’t happen though, especially given the likelihood of US austerity which sucks demand out of the economy. The question on Treasuries is risk/reward. Economic data will be very instructive of where this is headed; It could be just a rough patch or something more severe.