|
August 19, 1994
Post-tightening euphoria has completely evaporated, and Friday's mortgage rates are almost .375% higher than the best of Wednesday's. That's rate, not just higher points.
Economic data were not explosive, just growing along nicely. July New Home Sales rose a healthy 4.7%, while Industrial Production picked up .2%, and Industrial Capacity Utilization held steady at an uncomfortably high 83.9%.
Home, home on the range; where the traders and borrowers playŠ.
The prices and yields of securities bounce endlessly across charts, but while wandering, spend time in well-defined "ranges," never higher or lower than certain boundaries. Watching ranges is useful, particularly for those who don't like to try to predict the future.
There are three rules of the range. The longer the time a security trades in a given range: (one) the more persistent the range; (two) the bigger the event necessary to move the price or yield out of the range; and (three) the bigger the ultimate stampede to new pasture.
30-year mortgage rates with neither discount nor origination fees have stayed between 8.50% and 9.125% ever since April Fool's day -- pushing five solid months, now. Range theory has been helpful: whenever rates have been in the top half of the trading range, it's been a good idea to wait a bit for a bounce down. Alternately, whenever rates have been in the bottom half of the range, a quick lock has been rewarded.
Ranges don't last forever. It is embarrassing to hold off on a lock while near the top of an expiring range, and have your next chance a half a percent up in the next range.
Discouraging words are supposed to be seldom heard on the range, but the guess here is that sometime this Fall a rule two thunderbolt will get the rule three herd moving up a fence line or two into the nines.
The worrisome thunderbolt is the I-hope-I'm-wrong thought that the Fed's moves so far this year haven't hurt the economy at all. Unless the Fed hurts the economy soon, authentic inflation will appear in another few months.
The Fed may look busy and tight, but there is no sign of pain. For example, banks are so full of cheap money that they pay new depositors two percent less than the Treasury. A good, painful sign would be skyrocketing CD rates, leading to scarce and expensive commercial and consumer loans.
Another good sign would be howling politicians. Last week we were wrong: we said the White House would be furious if the Fed messed with Willie's recovery. Instead, the White House indicated that higher rates were a good idea. If the politicians are happy, the Fed can't possibly be tight enough.
Meanwhile, the fences are holdin'.
|
