This week I want to address a question brought to me from a long time client Ronnie Beale. Ronnie was asking about the recent volatility that was caused by the banking problems in Italy and was this a concern to the US economy and markets. He rightly surmised that it was not but wanted my point of view.
What I explained to Ronnie that I believe the banking problems in Italy, Spain, Argentina, Turkey, Portugal and Brazil is actually a positive for the US. Cramer also pointed out the same thing. Weakness in foreign banks is positive because it is deflationary and this will keep the FED from aggressively raising rates. This means US corporations can continue to borrow at historical low rates to fuel expansion and growth. The US consumer san continue to purchase on debt and use low interests rate credit card to consume.
Rising rates is a two edged sword for banks. On one side banks do make more money if rates are not raised too aggressively and on the other side it slows down demand for debt. Raising rates means less people can afford to buy hoses but id rates raise more slowly allowing wages to inflate as well then a little inflation can be a good thing.
The other reason the EU banking problem is not a US problem is because our banks are very healthy and not as linked to EU bank as they were in the 2011 EU banking crisis.
Money never stops moving. When banks in the EU have problems it causes the EU stock markets to sell off. That money moves somewhere and typically safe money will move right here to the US as we have seen today after the dumb money sell off from yesterday.
At this point this is not a major concern to the US economy or markets.
I will be out of town the last two days of this week so I’m getting “The Bottom Line” out early this week.
Have a great weekend.
Your Boring Money Manager,
Mowery Capital Management
We manage risks first
Then we buy quality
And only then do we seek to provide a reasonable return
At the time of this writing:
Dow Jones 24,667.17
S&P 500 2,723.73
Two Year Treasury Yield 2.38%
Ten Year Treasury Yield 2.89%
Thirty Year Treasury Yield 3.08%
I would really like to hear from YOU. If there is any topic or issue you would like me to comment or have any question I can research and answer please email me at firstname.lastname@example.org and I will include it in the Bottom Line. I will keep your name confidential.
Sources: The Capital Group. Zacks, Seeking Alpha, CNBC, CNBC guest and contributors, Jim Cramer, Wall Street Journal, Investor’s Business Daily, and Financial Times. Special thanks to Wikipedia and MarketWatch for historical facts. If I have inadvertently missed any other sources please accept my apologies. No assurance can be made that profits will be achieved or that substantial losses will not be incurred in connection with any investment. All investments involve varying degrees of risk including loss of capital. This information should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any individual investment or strategy. PAST PERFORMANCE IS NO GUARR ANTEE OR INDICATION OF FUTURE RESULTS