The euro crisis is rattling markets and economies around the world. But in the US, it means cheaper loans, lower gas prices and good news for investors.
In Europe, the euro debt crisis is nothing but bad news.
Riots in Greece. Strikes in Spain. Shrinking paychecks. Unemployment rates of 20%. Rising taxes. Cuts to government services. Hard times for as far as the eye can see.
In the U.S.? Sure, the crisis has sent a shiver through the stock market, but it's also responsible for falling interest rates, cheaper mortgages and lower gas prices.
In the medium term, the crisis might even lead to sooner-than-expected turnarounds for emerging stock markets from Brazil to China.
Go figure.Winning and losing The euro debt crisis has sent stocks tumbling from New York to São Paulo to Tokyo on worries -- well-founded worries -- that the crisis will spread from Greece, Spain and Portugal to, first, France, and then to banks as far away as California.
The People's Bank of China isn't talking, but Beijing's foreign-exchange reserves, held increasingly in euros in recent years as China has diversified away from the U.S. dollar, have taken a beating from the 15% decline in the euro. Prices for commodities such as oil and copper have plunged.
But no bad deed goes completely unrewarded. And the euro crisis is actually good news if you're thinking of buying a home in the United States or own a portfolio full of U.S. Treasury bonds.
How to buy Treasury bonds
Further afield, the crisis has fed into a relentless decline in emerging-market stocks. The iShares MSCI Brazil Index ETF (EWZ, news, msgs), for instance, is down about 13% for 2010, and the Shanghai stock market is in a bona fide bear market, with a better than 20% decline from its November 2009 high. But for these markets, the euro debt crisis promises an accelerated end to the decline and a quicker rebound. (For more on China's bear market, see my previous column, "China's dangerous balancing act.")Why bad news is good news What are the magic ingredients that have turned what is unrelievedly bad news for Europe into good news for U.S. homebuyers, U.S. investors and developing-economy stock markets?
Lower interest rates and lower inflation.Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 304, 314, {"configCsid": "MSNmoney", "configName": "player-money-4x3-articles-inline", "player.pg": "MSVNIC", "player.bsbpg": "MSVNI3", "player.vcq": "videoByUuids.aspx?uuids=8622176c-351f-4348-9c6c-63b7cff1b6fb,1cfa0cb2-31d2-40ac-80a7-aee11c6a2212,fea2de51-3cff-4464-9e0e-769e470c43f1,d88ea621-da04-4fc7-8485-e248be6579d0,4b52f046-2ee9-4a6c-9184-99443dba2d42", "player.fr": "iv2_en-us_money_article_Investing-JubaksJournal-inline"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=8622176c-351f-4348-9c6c-63b7cff1b6fb,1cfa0cb2-31d2-40ac-80a7-aee11c6a2212,fea2de51-3cff-4464-9e0e-769e470c43f1,d88ea621-da04-4fc7-8485-e248be6579d0,4b52f046-2ee9-4a6c-9184-99443dba2d42;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');In the United States, the euro debt crisis has worked like this: The euro's pain has been the U.S. dollar's gain. Investors, traders and speculators fleeing a sinking euro have bought dollars and dollar-denominated instruments such as Treasury bonds. That moved the yield on 10-year Treasury bonds, which many mortgage lenders use as a benchmark, down to 3.34% on May 18.
That's a huge turnaround. The yield on 10-year Treasurys had been on a march upward as financial markets prepared for the Federal Reserve to start increasing interest rates and as bond buyers demanded to be paid more to take on the risk of a falling dollar. From 3.14% on May 15, 2009, the yield climbed to 3.94% on April 9, 2010. On some days, it flirted with the psychologically important 4% threshold.
And then, as the euro crisis hit, the yield on Treasurys plunged. In the bond market, where daily changes in yield are normally measured by a few hundredths of a percentage point, the yield on 10-year Treasurys fell by 60-hundredths of a percentage point (0.6) in a little more than a month.
That's a 15% decline in yield. If we were talking about the Dow Jones Industrial Average ($INDU), we'd be shaking our heads over a 1,600-point drop in the index.
The U.S. Treasury market has seen bond buyers go from worrying about interest-rate increases as early as fall 2010 to believing that the Federal Reserve won't make a move until 2011. Bloomberg's regular poll of economists showed that, as of May 10, the median forecast called for a very modest 0.25-percentage-point increase in interest rates to 0.5% by the end of 2010. That's down from the April 29 median forecast of a 0.75% target rate by the year's end.
Why the change? The thinking is that with the euro debt crisis causing growth in the eurozone economies to slow to 1% or less in 2010, the Fed will be extremely reluctant to slow U.S. growth with interest-rate increases and risk stalling the U.S. economic recovery.The reversal in interest rates has rippled out across the U.S. economy.
For example, mortgage rates have fallen almost as fast as Treasury yields. On May 18, the interest rate for 30-year fixed mortgages was 4.70%, down from 4.79% on May 11, according to Zillow Mortgage Marketplace. The interest rate on a 30-year mortgage hadn't been that low since December.
Continued: Good for housingMore from MSN Money and MoneyShow.com Apple sets off war of tech giants
Good ETFs for shorting the euroGulf oil spill's winners and losersJubak on video: What you get for $1 trillionEurotrashed: It's not just GreeceJubak on video: Euro crisis is primarily political1 | 2 | next >
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Lynn X
ReplyReport Abusepeuuu #2Thursday, May 20, 2010 10:31:25 PMThe way of man, there is always some collateral damage.
ReplyReport AbuseXiongnu #3Friday, May 21, 2010 12:15:08 AMJeez, what a cheap US Propaganda...I can't wait to tranfer all my US Cash Holding into a weaker Euro and buy European stocks which will profit from a devalued Euro and bigger demand worldwide. You buy European Quality and not US Crap, made in who knows. Service, Quality is very bad in US. Just look at US Airlines. On a very low service and quaity level. South African Air has a higher standard than American Airlines
http://www.spiegel.de/fotostrecke/fotostrecke-54933-13.html
ReplyReport Abuse1 - 3 of 3PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/JubaksJournal/europes-pain-could-be-your-gain.aspx?','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*That's a huge turnaround. The yield on 10-year Treasurys had been on a march upward as financial markets prepared for the Federal Reserve to start increasing interest rates and as bond buyers demanded to be paid more to take on the risk of a falling dollar. From 3.14% on May 15, 2009, the yield climbed to 3.94% on April 9, 2010. On some days, it flirted with the psychologically important 4% threshold.
And then, as the euro crisis hit, the yield on Treasurys plunged. In the bond market, where daily changes in yield are normally measured by a few hundredths of a percentage point, the yield on 10-year Treasurys fell by 60-hundredths of a percentage point (0.6) in a little more than a month.
That's a 15% decline in yield. If we were talking about the Dow Jones Industrial Average ($INDU), we'd be shaking our heads over a 1,600-point drop in the index.
The U.S. Treasury market has seen bond buyers go from worrying about interest-rate increases as early as fall 2010 to believing that the Federal Reserve won't make a move until 2011. Bloomberg's regular poll of economists showed that, as of May 10, the median forecast called for a very modest 0.25-percentage-point increase in interest rates to 0.5% by the end of 2010. That's down from the April 29 median forecast of a 0.75% target rate by the year's end.
The reversal in interest rates has rippled out across the U.S. economy.
For example, mortgage rates have fallen almost as fast as Treasury yields. On May 18, the interest rate for 30-year fixed mortgages was 4.70%, down from 4.79% on May 11, according to Zillow Mortgage Marketplace. The interest rate on a 30-year mortgage hadn't been that low since December.
Continued: Good for housingMore from MSN Money and MoneyShow.com Apple sets off war of tech giants
1 | 2 | next >
Check out Jim's top stocks for the next 12 months.
Read how to invest with Jubak's showcase portfolio.
Follow the long-term portfolio from Jim's book "The Jubak Picks."
See Jim's new portfolio to help navigate the treacherous interest-rate environment.
Yes I think you are right on the interest rate strategy at the Federal Reserve. The only problem is that by keeping interest rates so low and for so long they are causing many who depended on interest type investments for a living to fall into an uncontrollable downward spiral. These people are loosing all their income and therefore are consuming the principal of their investment. They are cutting back on spending and worrying about what is going to happen to them. Many of these people didn't have a lot saved in the first place and now with no income they are in a lot of difficulty. Yes we need to save the business that borrowed. It is just to bad we have to inflict this kind of damage on others to do it.
Lynn X
The way of man, there is always some collateral damage.
Jeez, what a cheap US Propaganda...I can't wait to tranfer all my US Cash Holding into a weaker Euro and buy European stocks which will profit from a devalued Euro and bigger demand worldwide. You buy European Quality and not US Crap, made in who knows. Service, Quality is very bad in US. Just look at US Airlines. On a very low service and quaity level. South African Air has a higher standard than American Airlines
http://www.spiegel.de/fotostrecke/fotostrecke-54933-13.html
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