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March 8, 1996
Panic.
Relatively ordinary events are so often hyped with words like "panic," "disaster," and "crash" that the words have ceased to have meaning. No hype this morning: authentic panic is racing through all financial markets.
The bond market is having its worst single morning since the day Iraq invaded Kuwait. Mortgage rates -- when the bond market settles down enough that prices can be set -- will be somewhere near 8.25% at "zero and zero."
Despite the extraordinary amount of money lost this morning, try to retain some sense of humor. The news which caused the panic was good news.
At 6:30am MST today the labor department reported on February payrolls. To get the report in perspective, you have to back up a ways.
Economic data from December were distorted by the government "shutdowns," and really awful data from January were attributed to the East Coast blizzards. This morning's payroll data was therefore the first, fresh, reliable data in 90 days -- an eternity for traders.
In January, payrolls were supposed to have gained about 100,000 jobs, and instead lost 183,000. Forecasts for February assumed a resumption of normal job growth, 100,000 or so, plus a recapture of maybe 200,000 jobs deferred from January. Net gain, high end guess, maybe 300,000 jobs.
At 6:29 this morning, sweaty trader palms wrapped coffee cups near CRTs planetwide. Drum roll, please.
705,000. Seven hundred and five thousand. Biggest single-month gain since 1983. Even if you average in the January loss, it's the strongest back-to-back job performance since the last time the Fed was tightening.
Which leads to consequences. -- Further Fed easing is inconceivable for several months. In fact, the whole easing cycle may be over. -- Forget mortgages in the sevens. Until and unless contradictory data appear, any improvement from today's rates should be considered temporary. -- Don't worry about the stock market (heh, heh). If its mania could be cracked into an '87-style crash, today was the day. Just keep on whistling past the old graveyard: ten minutes after the Dow hit 110-point bottom, mutual funds were back, buying, forced to deploy the flood of new cash.
There is a chance that this morning's job report is a statistical fluke: payroll numbers are prone to huge revision, and there are no other data (yet) to support an economic surge underway.
A visit from your Fairy Godmother would be nice, too.
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