The financial markets were just awful this week, falling between three and four percent. August and September had been so disappointing because of perceived weakness in China, a likely FED interest rate increase, a stronger dollar, and collapsing oil prices. Yet, in October, the markets went gangbusters while looking at the same factors and sensing, “Hey, things aren’t so bad after all.
Now we’re back to seeing those same fact – with less thought about China and more about the problems of retailers come Christmas – and all we see is gloom.
Yet this, too, shall pass.
Yes, this will pass. But for many individual investors, the kind of people I write for, their emotions can get the better of them and cause them, once again, in light of new turbulence, to move to cash or not invest at all.
This is just the nature of long-term investment: periods of good news (about 2/3rds of the time) are intermingled with periods of disappointment the rest of the time. But you have to be “in” to get the benefits of the good 2/3rds. You can’t “time your entry” so as to invest only “when everything is fine, clear, and stable.” It just doesn’t work that way.
Let me end with some better news; that is, news from the world of mortgages. I attach a chart below that captures a 44-year history of 30-year mortgage rates (thick blue line). Today’s ongoing concerns over a sluggish global economic activity, in addition to a potential deflationary environment, have encouraged investors, institutions and governments alike to move a portion of their investment dollars to the relative safety of U.S. Treasury bonds. This has resulted in a significant decline in the yield of many other long-term debt instruments. This decline has brought 30-year mortgage rates down to a level rarely seen over the past four decades.
We all – at least those of us with mortgages – know this. But it’s good to see in chart form. We’re not getting a lot of pleasant economic data these days. (But imagine paying 18% for a mortgage back in 1981! Yikes!!!!)