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April 9, 1993
The credit markets are closed today; but yesterday was a splendid continuation of backwards bond trading. Call it Good Thursday.
Last Friday, interest rates jumped in response to good news. Yesterday, mortgage rates fell close to their twenty-year lows on terrible news: the March Producer Price Index soared .4%.
Today's inflation report is a good one: the Consumer Price Index for March gained .1%, but there is nobody trading. (If there is news, but no one to listen, does the news make noise?)
The bond market's weird rabbit track in the last couple of weeks is a good illustration of two very different methods of hunting for eggs on Wall Street.
Method one is known as "fundamental" analysis, whose adherents believe that economics govern markets. This column is fundamental analysis, for the most part.
Central thoughts include: interest rates move in response to inflation; inflation comes from bad political and Federal Reserve management of the economy; a hot job market is a leading inflation indicator, and a bad job market limits inflation. Extreme fundamentalists believe that the economy has an influence on the stock market.
To a fundamentalist, a bad bond day last Friday in response to a grim job market report is an impossible pattern. Ditto a good day yesterday on bad inflation news.
Trading theory number two is known as "technical" analysis. Believers are known as elves or chart freaks, though it is not true that they all wear white socks, thick glasses, and slide rule holsters.
A good tekky will tell you that economics has nothing to do with interest rates. Their lingo is worse than basketball jive: they talk of double bottoms and triple tops (which can get you slapped in a bar), triangle formations, Kondratief waves, support, resistance, and an amazing array of mathematic descriptions for patterns on charts.
The tekkies do have a point. A market which has gone up eight days in a row is due for a bad day.
The 1993 market is behaving like a technical market: it is often unhinged from econimc news. Its patterns on charts are more illuminating than the outcome of Bill's tiff with Congress over job pork.
Mortgage rates dropped a percent and a quarter in a single move from November to February. In the last month, rates have bounced back up a third of the way several times, and waffled for a while in between -- exactly what a tekky would say should happen on the way to a new low.
Meantime, watch out for that wascawy wabbit.
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