In a reality almost no one anticipated, some borrowers in Europe are actually receiving (not paying) interest on their mortgage loans. This and other peculiarities make for very interesting and challenging times for investors. Check out these 7 timely matters that are impacting your investments today:
1. Tumbling European interest rates leave some banks owing money to borrowers: I know what you’re thinking but it’s actually true. European Central Bank stimulus helped push interest rates to negative territory and some mortgage borrowers with floating rate loans are being paid to borrow. “I’m going to frame my bank statement, which shows that Bankinter is paying me interest on my mortgage. That’s financial history!” said a Madrid customer as reported by The Wall Street Journal.
2. We’re approaching 4-years since a market correction: Sure it feels good that on March 9th of this year we entered the seventh year of this bull market but it’s not necessarily healthy. Corrections, defined as a drop of 10% or more, occur often in normal bull markets though the S&P 500 hasn’t experienced one since the summer of 2011.
3. From “PIIGS” to Darlings: Not long ago investors referred to Portugal, Ireland, Italy, Greece and Spain as the “PIIGS” of the Eurozone. Now many European government bonds are in high demand. So much so that Spain and Italy’s 10-year bonds currently pay about a half percentage point less in interest compared to the U.S. 10-year.
4. Treasury rates keep falling: For the third consecutive year, investors seemed convinced that yields on the 10-year bond would rise and for the third consecutive year, these projections proved wrong (so far).
5. Lower gas prices are net positive though produce pain for some: The plunge in oil prices has led to consumers paying nearly 50% less at the pump…more than $1,000 a year in savings for the average driver. While extra disposable income can bolster consumer spending (think shopping, restaurants and vacations), energy companies announced plans to lay off more than 100,000 workers since crude prices began tumbling last year. “It’s really good for the (average) consumer…but not all sides are benefiting from low oil prices,” says Dan O’Neil portfolio manager with American Funds.
6. The strong dollar is hurting earnings: Many companies are citing “currency headwinds” as contributing to poor earnings this year though the surging U.S. dollar is creating both winners and losers. History shows it’s difficult, if not impossible, to continuously predict currency moves and some experts argue that over the long-term, currency moves have a net neutral impact.
7. “The riskiest moment is when you are right”: This quote from the late Peter Bernstein could be the most impactful principle on your portfolio in the coming months. Think about it…investors who are right build confidence and sometimes a whole lot of confidence at just the wrong time. Consider people who made easy money in tech stocks in 1999 and then “loaded up” in early 2000 only to see the NASDAQ crash later that year. Or those who earlier this decade rode gold from $1,400 to $1,900 certain it was on its way to $5,000 (it’s currently trading around $1,200). Making a lot of money on an investment can actually cloud an investor’s judgment.
Investors face many challenges and there are no easy answers. Quite candidly I can’t recall a time when it was more important for investors to be thoughtfully diversified.
For more information on these and related topics, please contact any of the professionals at DiMeo Schneider & Associates, L.L.C.
