Keeping blue skies in sight
The other day, I got a letter from my bank — offering me a lower interest rate on a loan, letting me “save” .5% than my current rate, fixed for 1 year. Should I be jumping for joy or what!? Would that be good news? We’ve got to “wise up” and recognize why banks advertise give such “good offers”.
Remember, banks make money from money. They get deposits which they pay interest on (say 5%), then lend it and get say, 8.5%, pocketing the difference. The only way they can make their money of course is to charge higher rates. And if they are offering that I pay a lower rate (.50%) for 1 year, they must be betting that within 1 year, the drop in official interest rates will be more than .50% (the last interest rate cut was .50%). And I am supposed to “save” money for 1 year?!
Anyway, getting that offer really made me think how things could go. Simply stated, governments set interest rates to control the money supply, either they cut rates to make more money available when economy needs support or raise interest rates to make less money available and reign in inflation (rise of prices of goods and services).
So everybody’s seems to be getting stressed out with the Eurozone debt issues. Oil, which you know I’m following has broken below $90 per barrel and I imagine, now at $86, that it won’t stop there. That, even with the threat of Iran sanctions kicking in to those very same European countries by 1st of July. The supply arrangements will change “that’s all” with Saudi oil making up for the shortfall. That’s the optimistic view.
Anyway, I am going with the flow and will position for more downside movements. This is going to be a long slide, even with Greece government agreeing to bailouts, there’s Spain and Italy too to add to EU’s woes. Last year, the lowest low for STO was 10. 11 — I think we have to keep that in sight in assessing risk-rewards.
