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March 1, 1991
Well, that's pretty much over.
As suggested here for three weeks, an end to war has brought higher interest rates.
Some of the last of January's economic data are in, and confirm a dismal month. Leading Indicators fell .4%, and Durable Goods Orders dropped another .7%. In more January data, Consumer Spending sank .6%, and Personal Income contracted .5%.
Preliminary news for February says the January freefall has stopped, and there may be a rebound underway.
This morning's report of the February Purchasing Manager's Index shows a gain to 38.5% from 37.7% in January. MidFebruary Consumer Confidence (which had crashed so badly last fall) rose to 57.1 from 55.1 in January.
The money supply numbers, the fabled M1, M2, and M3, which used to be crucial (197982), then were irrelevant (198389), are crucial again (1990present). No growth in the Ms has been a key Fed concern: continuous easing had done nothing but push on cooked spaghetti. Surprise, surprise: the money supply started to grow at a healthy rate in late January and hasn't slowed since.
This week's revision of the GNP for OctoberDecember 1990 showed a decline of 2% instead of the initial 2.1%. In January, everyone expected the revision to show a decline of 4% or more.
The average bond market investor feels about as secure as an Iraqi in a frontline bunker.
Inflation is still near 5%. Considering damage to fields in Kuwait and an embargo of Iraq, oil prices will go no lower: no inflation help here.
The Fed has disappeared completely behind the blizzard of greenspanbacks shot forth to stop a freefall. What if the freefall was just a few bad months caused by wartime jitters? Where will all the new money go?
Meanwhile, the federal budget deficit is completely out of control, running at $25 billion a month. This deficit is not from the war: the S&L bailout alone this year will cost five times what the war did.
The guess here says that rates will continue to trend up until next Friday, March 8. That morning, we will get employment data for February. If we have lost another couple hundred thousand jobs, mortgages will stay in the nines for a while, maybe even go back to 9.375% at par.
If there was a net gain of one new job in February, forget single digit mortgages this spring.
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