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May 13, 1988
For those of you who like to gamble a little, the next week or so looks like as good a time to float a deal as any we have seen for a while. Rates this morning (Friday) are slightly lower than at the end of last week.
Economic data were sparse, but encouraging for rates. Retail Sales in April fell by .6% and bond dealers tried to explain away the number, claiming the fall was due to an early Easter and bad weather; nevertheless, a fall in retail sales hardly indicates an overheating economy. Please understand that during a Treasury auction, the dealers will say almost anything to depress bond prices so that the dealers can buy the bonds as cheaply as possible. (Market manipulation, you say? Heavens, No!)
This morning the Producer Price Index (the wholesale version of the consumer index) rose .4%, which was less than expected. This shows inflation at less than 5% per year, and the bond market is improving accordingly.
The Fed did tighten this week, and the only remaining question for the short term is how much. Fed Funds bounced around a little over 7% all week, and seem to be settling at 7 and 1/8%; if Funds trade back down to 7% next week, mortgage rates will probably stay down for a while. If funds settle around 7.25%, we may get lower rates for only a few days. If you don't know how to find Fed Funds in the newspaper, or what all this jargon means for daytoday real estate work, please call.
The Savings & Loan industry had another bad week. Federal regulators announced (in the smallest possible print) that the aggregate net worth of Texas S&Ls declined by $2 billion in the first three months of 1988. $1.2 billion of the loss was attributable to Sunbelt Savings of Dallas by itself. From personal knowledge, Sunbelt's credit condition has been predictable for at least two years; it is not reassuring when regulators delay the release of accurate financial information. The delay is indicative of the terminal weakness of the FSLIC. The regulators are doing the best they can without enough money, but the whole story on the S&Ls is a long way from told. This pervasive credit weakness continues to make me very nervous about the future behavior of S&L cost of funds indexes.
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