|Dow||-334.97 to 16,659.25|
|S&P 500||-40.68 to 1,928.21|
|Nasdaq||-90.25 to 4,378.34|
|10-YR Yield||-0.03 to 2.327%|
|Gold||+18.40 to $1,224.40|
|Crude Oil||-$2.05 to $85.26|
Another day, another explosion in volatility! This time, it was a decline of around 300 points in the Dow Industrials … 24 hours after an almost-300 point surge. What’s going on?
Well, I read a ton of research every day. And one of the most interesting concepts that could explain some of what’s going on is the “Euroglut.”
Never heard of it? Don’t feel bad. It’s a relatively new concept — but it’s one that means a heck of a lot to your wealth! So let me get you up to speed.
First, as you know from my writings, the European economy is stinking up the joint. Production, exports, orders, employment, GDP — all the indicators show many countries either in recession or on the borderline of one.
Second, investors are fleeing the euro zone and the euro currency as a result. They’re moving their money AWAY from slow-growth, low-opportunity domestic markets and TOWARD higher-growth, higher-opportunity foreign ones. The U.S. has been a key destination.
The Euroglut research attempts to quantify just how much dough we’re talking about. A key report from Deutsche Bank suggests Europe is generating current account surpluses at a rate of $400 billion per year.
That’s even more than China generated back in the early-to-mid-2000s. In fact, it’s the largest pool of excess capital and savings ever generated anywhere in history. And since the investment opportunities at home in Europe are so unattractive, the stewards of that huge capital pool are flooding the global markets looking for places to stash it.
|The European economy is stinking up the joint.|
So what does that mean to you?
Well, have you noticed that U.S. stocks are far outperforming European ones? Or how our stock markets seem to bounce back quickly in the face of geopolitical threats and short-term crises? Or how long-term U.S. interest rates remain relatively low, despite the strongest domestic economic performance in several years? Or how trophy real estate prices are soaring in places like Manhattan and Miami?
Superficially, those things don’t seem to make a lot of sense. But if you view them through the lens of the Euroglut, they start to make a ton of it.
Say what you will about the need for better growth here, better fiscal policies out of Washington, and so on, the U.S. is clearly in better shape than Europe and other foreign economies in Asia and Latin America. Ergo, huge capital flows are headed our way and overwhelming other market fundamentals and technical indicators.
|“Have you noticed that U.S. stocks are far outperforming European ones?”|
That doesn’t make us “correction-proof” or even “crash-proof.” If investors get scared like they did over the past few weeks, enough selling can materialize to knock prices down. That’s one reason I’ve been recommending investors take some profits off the table and cut some dead portfolio weight.
But it IS why those short-term stock market dips don’t seem to last long … why we’re seeing lower interest rates than we “should” here … and why the euro currency has been heading relentlessly lower since the late spring. So invest accordingly by riding these trends. But at the same time, stay alert to the possibility that all good things — even those powered by a massive Euroglut — do eventually come to an end!
Now, let me pick your brain. What do you think about the trials and tribulations that Europe is going through? Can officials over there get things together? Or is money going to keep flowing OUT of Europe and IN to our markets and our economy? Does the Euroglut sound like a positive or negative to you — and why? Hop on down to the Money and Markets comment section here to add your observations.
|Our Readers Speak|
Boy did my column on the difficulty of getting a mortgage strike a nerve! Several of you reported problems getting financing for various and sundry technicalities, even as most loans were common sense “no brainers.”
Reader Jim W. said the issue with Ben Bernanke is that he is basically now a self-employed borrower, and has to document that he has the ability to pay. The difference between now and in the past, when he would likely have been approved without a problem?
“Excellent credit and large deposit reserves could get the loan approved without verifying the income. We used to call these ‘make sense’ loans. If the borrower had excellent credit and lots of money it made sense to approve their mortgage. These loans are gone today.”
Reader Bill S. echoed that sentiment, adding the following comments: “Talking with a mortgage broker who told me all of the things you discussed. The ‘make sense’ loans or ‘no brainers’ as he called it are virtually gone because ‘common sense’ is not part of the underwriting equation.
“Example: Current mortgage = $1,000/ month, want to refi to pay off a credit card that one is currently paying $500/month. Refinancing would allow credit card to be paid off and new mortgage payment = $1,050/ month, giving homeowner additional $450/month cash flow. Nothing changed since original mortgage seven years ago, income, good credit, etc.
“Loan status: Denied! Reason: Doesn’t meet guidelines! Sure glad Fannie and Freddie got bailed out!”
Reader Shawn added his own story of frustration, saying: “I am experiencing the same very tight restrictions and have been trying to get a mortgage to build our retirement home. We have been working on this for about five months now and the questions still are coming.
“We have credit scores in the high 700 range and that doesn’t seem to matter a lot. What is the biggest hang up with the mortgage company is that my income changed of course when I retired. They want to count my pension, but do not want to count any of my investment income since it has been less than a year.
“With high-6 figures invested, it is almost a moot point to the mortgage company. It is amazing but it is the new reality. I was just saying today, I wonder how new home buyers get approved these days. I guess they don’t.”
But if you REALLY want an absurd example of today’s lending industry, check out this story from Reader David: “We just moved to a new house a few miles from our previous home. Since we had purchased an investment property just a few years ago, I was familiar with all of the new mortgage hoops. We made sure the income and source of funds were documented, etc.
“What tripped us up? The last minute credit check revealed that we had set up a new Verizon account which had to be documented. Turns out because we turned on the phone at the new house a week before we moved in, this showed up as a new account. Other than that, no problem! Of course with 800+ credit, 20 percent down, 18+ years at current job, previous paid up mortgage, no debt, it should have been a no brainer.”
And there you have it folks! Government regulation and “fighting the last war” oversight in housing and banking at its finest. Don’t get me wrong. I don’t want a return to the lending standards of the early 2000s. I railed against the kind of stupidity going on at the time, and castigated the Fed for ignoring it.
But the fact is, not every loan is going to fit into a perfect box. Common sense should play a bigger role in lending. Denying or delaying someone with a ton of cash, a great credit score, and a solid job — just because they got a new phone! — is ridiculous.
Please do continue to share your thoughts and observations when you have a chance. Here’s the link.
|Other Developments of the Day|
• The start of corporate earnings season is upon us, and two big name companies had fairly good news to share. Pepsico (PEP, Weiss Ratings: A-) and Alcoa (AA, Weiss Ratings: C-) both weighed in, reporting better-than-expected sales and earnings trends.
• The job market continues to chug along in this country. Initial claims fell 1,000 to 287,000 in the most recent week. The four-week moving average that’s used to gauge longer-term trends also sank, dropping to the lowest level in more than eight-and-a-half years.
• Fascinating story here about how the world’s best poker player took advantage of small flaws in dealer behavior and card appearance to take a London casino for more than $12 million. Unfortunately, Phil Ivey just lost all that money in court because the casino successfully argued that his behavior constituted cheating at the game of Punto Banco.
• Apparently, if you can believe it, the energy drink Red Bull doesn’t actually “give you wings” like the marketing slogan said. Who knew? But thanks to the wonderful class action lawsuit system we have, anyone who purchased a Red Bull between 2002 and earlier this month can now get $10.
• What proof do you have to submit that you purchased Red Bull — perhaps with the intention of joining a flock of birds who were flying south for the winter? None! Just go online and grab your share!
Until next time,
P.S. TOMORROW is the deadline for the Introductory Membership Period in Martin’s Ultimate Portfolio! The plain truth is, he is so confident in this strategy that not only has he agreed to be the editor of this unique service, but he is also investing his own, personal money in its recommendations!
Until TOMORROW, October 10 — you can still save $1,103 on one year or $2,603 on two years. Click here for more details!