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July 17, 1992
Long term rates rose slightly this week despite data showing a flat economy.
Retail Sales rose a sorry .5% in June (only .1% without an unusually good month for automobiles), while both Industrial Production and Capacity Utilization fell by .3%. June Housing Starts slid 3.2% after a pretty good May.
The only good news was a 15,000 drop in Initial Jobless Claims, but the total this week still held above 400,000.
Purists feel that this week's interest rate rise is a prelude to the big Treasury borrowing in early August.
Renegades point to the convention of a resurgent Democratic Party only a couple of miles away from the heart of world finance.
This lower Manhattan collection of money valves is arguably the most inflation sensitive acreage on earth, and "Democrat" has translated as "inflation" for 30 years.
Now, it's downright unfair to blame all the inflation there ever was on the Democrats. But Jimmy Carter inherited a 4% inflation rate, and left it at 18%. Lyndon Johnson's guns and butter episode didn't create such stratospheric levels, but wage and price controls followed his presidency.
There aren't many people still working in finance who remember that Jack Kennedy was a financial conservative, and was the most recent president to balance the federal budget.
Too close to the Wall Street arteries, here came wellorganized Democrats. The center of the party gagged the radical left, and yet nobody walked out in protest. After running a pathetic third all spring and summer, these people look like they might just get elected.
The Inflationcrats are back! No wonder rates rose.
Thursday morning, Democrats riding high, rates headed up again. Just then, when the world looked like a nice, predictable place, something weird happened. Ross Perot surrendered his Alamo without a fight, and an instant later, the bond market enjoyed a sharp rebound.
Why would rates fall on this news? Perot's el foldo helps Clinton, not Bush, the Republican darling of the financial markets. Go figure. Maybe the markets were reassured because the election won't go into the House.
Maybe by week's end the Democratic rhetoric sounded so Republican that the markets couldn't tell the difference. Clinton's acceptance speech could have been delivered by Bush to loyal Republican cheers.
Nah, forget the politics. Stick with the purists. Rates popped up because they had fallen too fast. Thursday was weird because the Bundesbank drove German interest rates to a 60year high. Watch out for the early August auction. And for the first book on why Perot really quit.
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