This will either be intuitively obvious, or it won’t make sense at all. The combination of higher inflation and the FED maintaining zero interest rate policy has pushed real interest rates down to -5.4%, the lowest central bank interest rate in the world. Think about that for a minute. When you borrow money today at pretty low rates, if the money you pay the loan back with is worth less than the money you borrowed, you have a gain from borrowing the money. It appears that you have an extra incentive to borrow money.

We’re hearing stories of clients refinancing their homes (yet again!) at incredibly low rates. Last week a client talked about obtaining a 2.25% 30-year fixed rate mortgage. As the client stated (and I agree with him) the odds are extremely high that he’ll be paying back his loan with dollars that are (relatively at least) depreciating in value. Or, if you choose to look at it this way — one could likely be profiting from the loan.

This isn’t the way finances are supposed to work. I remember in the runup to the housing crisis of about ten years ago we had the same situation. It appeared that one could profit from a loan. Have a look at the chart here, courtesy of Charlie Biello.

As I said these are strange times, and an expectation of profit on a loan is not a normal circumstance, but then these are certainly not ‘normal’ times.

Ron’s Market Minute – Is This the Peak?

This week started out by following the prior Friday’s drop in …. Well pretty much everything.

We had rather surprisingly good reports on retail sales, yet all stocks – large, med, small, technology, banks, and cyclicals fell. Even growth went down. The traditional safe havens – healthcare, utilities and consumer staples were not looking good either. There was no ‘safe space’.

Lately the markets have tended to either lean toward the ‘reopening’ stocks or the ‘steady growth’ guys.  Usually, one or the other looks pretty decent. But Friday and Monday were ugly for both. 

So as we often state, one can never be sure WHY things happen as they do, the worry appeared to be that we’d seen the peak in… everything?

What had peaked? How about GDP growth, Fiscal Stimulus, Monetary stimulus, Housing prices, used car prices, Employment growth, Corporate profits – and I’ve probably missed a few things. So, some of the headlines blared that there was only one way to go from here, and that was DOWN!

True or not, traders seemed to read those projections and apparently abruptly(!) changed their ideas for the trend in both stocks and bonds. There were some pretty high-volume trades in the risk-off world.  Yet as markets do tend to be a ‘two steps forward and one step back’ sort of animal, there was nothing really that one should not expect.

Well, it’s the end of the week, we’ve hit some additional new highs in the markets (new peaks) and skies are looking bluer again. 

Perhaps it’s time to remember our advice regarding headlines – you’ll sleep better and probably know no less if you ignore them. 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk


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Ron Denk is a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Mr. Denk is also an Advisory Representative offering services through Denk Strategic Wealth Partners, a Registered Investment Advisor. Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation.

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