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September 24, 1993
Volatility gradually washed out of the market this week, and rates held about a quarter percent above the lows set two weeks ago.
Housing Starts had a nice 7.8% rebound in August, producing the best month since 1990, but it hasn't been a great three years. 11,000 more people lost jobs last week than in the week before, a surprise increase, and a 2.0% pickup in Durable Goods Orders failed to offset last month's crash.
Labor statistics for September, which normally would be released next week, will be delayed until Friday, October 8. That's the next chance for a big change in interest rates.
There are a lot of bond traders staring at long term charts these days. The rate lows of two weeks ago hit levels prevailing when Lyndon Johnson decided not to run for re-election in the spring of '68.
The long term is usually immaterial to traders, to whom an hour is a long time, and for whom a career can be measured in weeks.
However, all are trying to figure out how low rates can go, and -- much more important -- how bad the wreck can be when rates turn.
It has been eleven years since mortgage rates topped at 17%. Can the same thing happen again, soon? Are we blinded by overconfidence, or has the world really changed shape?
Long term charts, back to the Twenties, show a Depression dip in rates, and World War and Korea inflation blips. Other than those three aberrations, interest rates held low, and flat from 1953 untilŠ.
The Seventies. Here you are cruising happily along the Great Plains, and here are the Grand Tetons. There are two huge rate spikes, one in 1973, reversing quickly, and the other beginning in 1979 and not heading downslope until 1982.
Were these aberrations, like the wars, or the beginning of a grim trend toward inflation and high rates which some say are inevitable in democracies?
Every passing day, the '73 and '79 spikes look more like aberrations with a single cause: oil. No other event or trend coincides with the spikes.
Twenty years ago this week, the Yom Kippur War sparked a boycott which tripled oil prices. More political instability in the Mid-East, and prices tripled again.
For any chart-reader, its hard to underestimate the impact of relative peace, a steady oil market, and oil prices holding in the high teens.
There is good reason to believe that the world is returning to interest rate "normal," where it will stay until some future aberration -- which may be rather a long way away.
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