Macro Events in Europe

Macro Update and Commentary:

If you haven’t noticed, the yield on the 10 Year Treasury has remained firmly below 2%, which has mortgage and refi rates at record lows as well.  Most people that had the capability to refinance in recent years probably have already, but for those that haven’t, it probably won’t get any better than this.  What’s driving the Treasury yields so low?

Greece – Comments out of the new Greek candidate and a new election looming make one wonder if Greece’s situation will ever be sustainable or if the EU will continually kick the can down the road, hoping to indefinitely stave off recognition of losses by banks holding Greek debt.  If put to the people, they won’t vote for austerity, yet they want to remain in the Euro.  They can’t have it both ways.

France – Hollande’s win in France is viewed as a step in the wrong direction as well in terms of the business environment and austerity measures.  Many are now proclaiming that austerity measures have doomed Europe into permanent recession since they can’t grow while cutting spending, but what is the alternative?  To continue to spend and send interest rates to an unsustainable level where no countries (save for Germany and other northern Europe economies) can roll their debt?  It will take a mix of reigning in spending and smart policy moves (in a coordinated fashion) to save Europe, but it remains to be seen if the currency can remain intact with all the current member states.

These fears are all pushing capital into the US dollar, further driving rates down.  How long it can last is anyone’s guess.  If stock and bond volatility is too much to handle, then, there’s the mattress or you could apply for a current account.  Gold is no longer performing well, especially in dollar terms (as it appreciates in USD denomination).  In the US, it’s an election year, so on one hand, there will likely be all kinds of giveaways from a lame duck session of Congress which may be good for stocks, but conversely, an Obama win and the onset of onerous healthcare reform provisions would probably not be a positive for equities in 2013 which may precipitate a late-year selloff.  I make no predictions, but just warn to manage your risk and consider your time horizon when setting your asset allocation!