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March 19, 1993
The early week jump in mortgage rates has reversed itself, and the market is back close to its lows.
In just a few hours bond traders shrugged off truly lousy Consumer Price Index news: up .3% in February, core rate up .5%. Nobody believes inflation can persist in an economy as weak as this one is supposed to be.
Capped by bad weather, February Housing Starts rose only 2.5%, and Industrial Production picked up .4%. Initial Jobless Claims held the high end of their range at 351,000.
There is a minority opinion held here that the economy is poised for very rapid growth. Sooner or later all the painful restructuring is going to produce a happy explosion (happy except for the Fed, inflation, and bonds).
Sooner could be any time, now; but later could be a couple of years away, leaving lots of room for low rates in the meantime.
One key leading indicator shouting "sooner!" is the return of the banking system to pink-cheeked health.
IBCA, the international bank ratings firm in London, says American banks were last year the most profitable in the world: a record $32 billion in net earnings. And 1993 looks to be better.
William Seidman, retired head of the FDIC (and one of the world's straightest shooters), said last week that American banks are now the best-capitalized they have been since the 1950's.
A year ago we said the commercial real estate woes at banks were nearly over. We had no idea just how fast it was happening. Except in Southern California, bank inventories of non-performing loans and foreclosed property are shrinking.
Though you'd never know it from the nightly news, late payments on mortgages have fallen to an 18-year low. Much of the grim national real estate news is tracable to the following: all six of the top foreclosure states are in the Northeast, home base to most of the national media. The rest are in Los Angeles, which is in real pain (but the whole of California is not even in the foreclosure top twenty).
The Clinton people have asked Congress for the last $45 billion to finish the S&L cleanup. For the first time, this figure is an overestimate of funds required, and the direct Federal cost is down fifty billion from estimates only a year ago. The fantastic, six-year drag of a half trillion dollars in S&L losses is about to come off the economy.
It may be too much good new for one article, but the credit crunch is about to disappear, and we're going to have to get used to a healthy economy -- sooner or later.
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