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July 19, 1991
This week's mortgage rates stayed at the low end of the JuneJuly range. However, this year's greatest vulnerability to a sudden jump begins next week (see below).
All the economic data suggest a healthy recovery underway, one which may be gathering steam. The chances of a "double dip" back in to recession are fading by the hour.
June Industrial Production rose .7%, and June Capacity Utilization picked up .3% to 79.3% each gain is the third in a row. Early July Car Sales climbed 7.7% ahead of last year's prerecession figures. June Housing Starts rebounded 5.2%, as did New Building Permits, up 4%.
The Consumer Price Index increased only .2% in June, but the "core" rate held to its stubborn .4% pattern.
If mortgage rates are going to pop over 10% this year, the most likely time is the next three weeks.
The Treasury will borrow $40 billion in new cash in the first week of August $72 billion overall in the next six weeks. That's a quarter of the whole year's deficit borrowing in one very short binge.
The overall deficit numbers have become Monopoly money. This year's deficit will be "only" $280 billion, but next year will rise to $340 billion. Better hope for a good draw from Community Chest.
And these figures are just the new money. All the time, day in, day out, the Treasury has to roll over the other three trillion we already owe (that's $3,000,000,000,000).
We've all been told about the deficit so many times that we are numb. From time to time the numbness among financial people gives way to hysterical giggling just like you do when you land on a Boardwalk loaded with four hotels. (Then you go to your neighbor's house, open his Monopoly game, take all its money, andŠ.)
The danger to mortgage rates is not some financial catastrophe. It could happen, but it's right up there with the likelihood of being hit by a comet. We stick to our opinion that the deficit is closer to long term solution than it looks. But what about right now?
The problem is the giggling financiers. Imagine being the Treasury investment manager for a big pension fund. Here come some more notes and bonds. Do I need to be in a hurry to buy a load off this truck? The damn things are lined up bumper to bumper as far as I can see.
What if I buy light, and wait to see what happens? What if other managers decide not to elbow each other into high bids?
Rates go up.
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