| MARKET ROUNDUP | |
| 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.
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| 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.
• Shares of Gap (GPS, Weiss Ratings: A-) got pummeled after the clothing retailer said its CEO Glenn Murphy is retiring. The firm also reported disappointing sales and margin guidance.
• 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.
• The Ebola virus tragically claimed the life of Thomas Eric Duncan in Dallas yesterday, and reports suggest a Spanish nurse who contracted the disease is struggling as well.
• 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,
Mike Larson
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!
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 21 comments }
This may be the “strongest economic growth in several years,” but that is scraping the bottom of the barrel. There is no growth in wages as so much of the job growth is part time workers. Thank you Obamacare! Our economy is a mess! Yes, Europe is worse, but we are following along in their footsteps thanks to BHO’s taxes and regulations.
Gold up $87! Maybe the socialists in the Euro Countries are buying?
I was just reading your article and the comments on loans and have some insight on why the loans are hard to get approved.
The banks get their money at 0% from fed and buy equities that pay more than your 2% loan – obviously they don’t want to loan unless they are legally bound because they can make more buying equities.
That is as simple ( maybe not exactly correct ) as it gets.
I guess I’m a little slow on this EuroGlut thing and our markets. If so much money continues to pour into our markets, what is the dynamic causing the huge down days? Is it just profit taking or something else?
The Euroglut is a no-brainer.
Europe somehow got the idea that volcanic eruptions, meteor impacts, continental drift, and other established causes of climate change…don’t cause climate change.
And then decided that fossil fuel combustion is the only possible cause of climate change.
This is the sort of laughable junk science we might expect, from some toothless American doofus who insists the world is exactly 6,018 years old, give or take a week or two, and dinosaur bones are a hoax made up by Unbelievers.
The reality is that recorded history is about 5,000 years old, and most of the history that left a fossil record behind, predates the human use of fire.
Geologic history is packed with cataclysmic events that significantly altered Earth’s climate for many centuries. Scientists used to discuss them in detail. Yet, ever since there got to be research money available, to demonstrate the possible necessity of a forced abandonment of fossil fuels to “prevent” climate change, a lot of scientists forgot their original theory, that fossil fuels came from dead organisms, and now posit that the Earth has never seen an atmosphere with all that carbon in it. (Despite the fact, that the same scientific theories about the dead-dinosaur-origin of fossil fuels, explicitly states that the carbon came from Earth’s atmosphere.) Amazing, the power of money to change a mind!
Europe’s dilemma is that it has committed itself to reduce fossil fuel consumption on a schedule.
Its leaders, when they wrote the schedule, presumed that renewable energy would displace fossil fuels.
What actually happened, is that the price of the capital that’s needed, to construct the machines that harvest the renewable energy and feed it to European factories and mills, is higher, than the cost of shutting the factories and mills, and leaving the workers out in the cold.
Manufacturing is exiting Europe for China and India, because neither China nor India particularly trust the climate change predictions and the proposed solutions, that have been coming out of various universities.
If one reads the writers who rant about climate change, one often stumbles over advertising on the virtues of Off Grid Living. Generate your own electricity from sunlight and do the Earth a favor, goes the refrain. But what’s absent from these promotions, is any discussion of how manufactured goods can continue to be manufactured, without energy to power the machines in the factories.
If Europe continues to force factories to move to places like China, where it is legal to run them on fossil fuels, Europe will have no factories left.
Nor any factory jobs.
At which point, Europe could try prohibiting the import of goods made in Chinese factories, but there would be no European factories to make the products.
And Europe will have legislated itself back into the Stone Age.
I think, that long before Europe winds up back in the Stone Age, Europeans will re-think climate change policy. The hard reality is that prohibition of fossil fuel use, is making Europe poorer, and less-able to build what it needs, to make use of renewable energy. But, the workings of political systems are complex. Europeans may need to be told, thousands of times, that their climate-change policy risks nuclear war (which would be disastrous for the climate) and should be modified. And then, will only change grudgingly and slowly.
Until significant dissent on the taboo subject of climate change theory, begins appearing in mainstream media organs of Europe, there’s a slim chance of such change happening, and Europe will continue to impoverish itself, just as regularly as clockwork.
The easiest way to meet carbon emission guidelines, in Europe, is to close factories and fire workers. Eurozone unemployment will rise, parallel with the decline in oil imports, in lock step, and I will continue to profit from it, all the while explicitly telling Europe how to stop me from making money on their impoverishment, by simply re-thinking their carbon policy. And I expect nobody to believe me, while they make me rich by continuing the failed policy in force.
The banksters know that there are distortions in the asset markets. They do not want to be the bag man.
HI
so the Europeans are putting THEIR money into the US – it is still their money
means it is ‘hot money’ like the foreign money put into Thailand and other doubtful places way back when
What happens when the Europeans decide they want their money back?
obvious
enjoy while it lasts
john sloan
I read that a European pol said we know what we have to do, we just don’t know how we’ll get re-elected.
That’s a good one. And so typical with these narcissistic pols that think THEY are the world’s saviors and when they have finished telling others what they have to do, everything will be nirvana.
Reality Check: Every community has a grave yard full of people…………people that were indispensable in their life time.
Interesting. However, if it’s not bad enough that the Fed has produced more Monopoly Money than one could have ever conceived of, now we have Europe’s Monopoly Money adding to the frivolity. And what might this mean ~ well I believe that if we thought that stocks were already being irrationally priced up, and if we thought that this all was inflating the bubble, well then we haven’t seen anything yet. This just could be the perfect storm . . . stock prices being super-levitated into the stratosphere and then, when the reality hits that The Emperor Has No Clothes [ The Currency ( The Dollar or The Euro ) Has No Value ], all will finally be enLIGHTened by the incredible bright streak across the sky caused by the falling Market as it burns up while re-entering the Earth’s the atmosphere !
the banksters have colluded and taken advantage of the celestial timing of the markets to supercharge the “third world” economy downturns and have now let go to target the last remaining strong economy left. It’s the last bubble of this decade and 2008 will look like a blip on the charts by the time they are done
Your market board shows gold a +87 yesterday, how can that be?
Mistake: should be +$18.40 — Editor.
There are too many variables to make predictions about any asset class at the moment, even the likes of Peter Schiff, who called the real estate bust in late 2005, can’t get it right this time. Forecasting dramatic interest rate increases in Jan 2015 is premature, the Fed can easily return to QE if there are any signs of economic turmoil. However, the day of reckoning will come one way or another, but calling it is impossible wtih all the economic and political chaos we have right now.
You show a picture of Angela Merkel looking dour.
She has been the most popular chancellor in years. She should have quit on the last go around. After this collapse is over……..she will be the goat.
The mentality of Europeans is hopeless. Everything comes from mother Government. The ideal job in Spain, for instance, is to become a funcionario, that is, to work for the government. Corruption in politics is rife. No one is working. Unemployment is treated like a paid vacation. I don’t see a future here until an entire mindset changes. And I forgot to mention a thriving contraband and black market!
Dear Mike: Europe us and the rest of the world have to come to grips with the fact that the monetary authorities cannot solve the structural problems that governments have created in their economies. Issues such as high taxes, excessive regulations must be solved by the executive and legislative branches of governments. Our Federal government is too big and must be brought into compliance with the constitution. Europe has socialized medicine which require high taxes to fund it. They should consider privatizing medicine and reducing their taxes! What the world needs is to go back on the classical gold standard. From 1870 to 1914, the world in which we live was at peace! Every country with the exception of China was on the gold standard. Every country defined its currency as a weight in gold. All international transactions were done in gold. Gold is neither friend or foe. Gold is neutral! It keeps us disciplined and honest! During this period our economy grw 4 to 4.5% on average. The price level varied between 2 to 2.5%. Prices varied due to the economic law of supply and demand, not money printing. Regards, Robert Calabro.
If the price of gold goes high enough, some group of nuclear scientists will figure out how to synthesize it in a reactor. Probably in Russia or Ukraine. Or American entrepreneurs will destroy our western landscapes processing millions of tons of dirt and rocks to extract ounces of gold. Better to let sleeping dawgs lie, or, it would be impossible to get the whole world to go along with it, don’t you think?
Looks like something just hit the fan folks,but now there is such things as inverse ETFs a few years ago nobody had even heard of such things,what I like doing ie.Buy DTO and UCO I know your be a loser on one of themBUT when the tide turns sell one of them and double up on the loser.It works for me.But make sure the tide has turned,who knows that
Sorry I got cut off,Who knows that,Watch your 10,20,50 ema
It is not likely that the countries in the Euro zone will be able to get things together. This is due to their strongly divergent attitudes and policies affecting their respective economies. On one hand the fiscally responsible nations: Austria, Finland, Germany, Netherlands, (and now Belgium) are affected negatively by the policies of the ECB that is trying to support the financially troubled Mediterrainen countries. Now Germany itself is on the verge of recession and can no longer provide the necessary support to other countries. I believe that the well meaning but economically foolish experiment with the Euro will have to end. The US cannot stand by and watch the dollar appreciate for an extended time. We may be seeing a new “world currency” appear in the next few years.
Hi!, Mr. Larson, Dr. Weiss & Staff Et Al:
Wasn’t it Barnum and Baily who promoted that there’s a sucker born every second? Well, it would seem to me that as this world has reorganized itself around fiat, paper money instead of specie gold and silver coins etc., everyone has been suckered into that fiat paper money system and what’s even more amazing to me is that we the people suckers put up with the blowback of ludicrous consequences unlimited including someone’s assessment (not Larry Edelson’s) that the present war cycles (Larry’s terminology) will last until at least 2024; not 2020 ! As some are saying that history doesn’t exactly repeat itself most mostly rhymes, another saying by whomsoever is: “fool me once that’s your fault but fool me twice that’s my fault !” The problem with the last statement is that we have been fooled more multiple times than twice and still can’t get it right. Amazing to me too is that OUR Forefathers in founding the Unites States (now a dead duck) planned to organize their more astute Republic (no Democracy intended) around the idea of every US citizen having possession of specie, gold and silver coins, as specifically specified in Article 1; Section 10 of their Constitution which Doug Casey now calls a DEAD LETTER ! So, knowing how big a sucker we all are including yours truly, I’m sure all that flight capital being discussed that’s influencing the DOW INDUSTRIALS etc. upwards sure doesn’t consist of any specie gold and silver anything but instead exactly resembles the same fiat sensations with which all suckers find as their ultimate sense of security ! Wasn’t it John Exeter who once famously said: “There is a giant contest going on in this world between paper, I OWE YOU NOTHINING, money and GOLD money and GOLD MONEY will win this contest in a bigger and better way than anyone ever imagined?” Anyone interested can find Mr. Exeter’s Inverted Pyramid, by looking it up on the internet whenever they want and see how well he has outlined what today resembles the upper pyramid of paper debts worldwide resting upon an apex of GOLD at the bottom into which all the paper above he projected will try to fit into the small gold apex bottom. How close is the world to that phenomenon today readers? When that future potential unfolds what price for gold will suckers be asked to pay or will the gold be unavailable at any price? My mentor purchased gold off of commercial gold dredgers near me for $11 per troy oz. Can anyone reading this beat that price? How did he accomplish that price? He sure did it by refusing to be a sucker that’s for certain didn’t he?
RUSS SMITH, CA. (One Of Our Broke, Fiat Money States)
resmith1942@gmail.com