Let me get this straight. Europe is bailing out Spanish banks with something like $100 billion in low interest loans (three per cent). But the problem is: in many cases the countries providing the funds are as broke as the Spaniards, and in some cases may be the next to need a bailout.
Italy, for example, now has to pay six per cent on their government bonds — a high number that is indicative of the risk involved in loaning money to the Italian government.
I have some questions:
Given that Italy represents 22 per cent of the Euro zone, how can they afford to cough up $22 billion for the Spanish banks without getting themselves into even worse shape than they are already in? It seems to me it will only add to the amount needed to bail them out when the time comes.
Since obviously Italy will have to borrow the money that they loan to Spain, how does it make any sense at all that they are borrowing money at six per cent to loan to Spain at three per cent.
Can they afford this madness?
Why does the stock market rally when the bailout is announced, then go down the next day, then go back up again, then down again after that? Each time with headlines explaining the rise or fall by recent events in Europe?
If anyone can answer any of these questions, please enlighten me.
In the meantime my advice is to focus on things like:
• Finding fixed income and other safe investments that deliver a respectable rate of return
• Investing in things that pay me today for being an investor
• Finding ways of controlling taxes on investment income
• Finding better ways of managing debt
• Taking better advantage of what the government has to offer
Why worry about Europe? Why try to figure it out?
Why try to make sense of anything?
Instead, focus on what you can control.
Feel free to call or e-mail for more on this topic, as well as information on upcoming presentations.
Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). The views of the author do not necessarily reflect those of RJL. This article is for information only. Raymond James Ltd. is a member of Canadian Investor Protection Fund. For more information feel free to call Jim at (250) 594-1100, or email at jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca.
