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April 26, 1996
In the second quiet week in a row, par mortgages stayed unchanged at 8.25%.
Newly released economic data were historical information, not market-moving news: any data older than April do not reflect the surge in interest rates during March. For example, existing home sales jumped 6.9% in March, but these are closings of old contracts, not new business.
These last, quiet weeks of April reflect the overwhelming importance of the job data released on the first Friday of each month. The bond market spends the first two weeks of each month lurching around in reaction to the payrolls number, and in the last two weeks, there is nothing to do but wait for the next one.
The big rise in commodity prices has inflation propagandists all in a lather, but is not yet a cause for legitimate concern.
The price gains are strongest in grains: wheat and corn prices are double those of spring '95. However, we have been through this cereal cycle before.
The largest consumer of grains in the US isŠ cows. Thirty-five million of the little darlin's, and if grain prices get too high, it's no longer profitable to feed them. Too-expensive cow does not cause a consumer stampede to vegetarianism, but does trigger a switch to more efficient users of grain (chickens and pigs), and cheaper sources of protein (fish).
In fact, as the Greens often remind us, cows are the least efficient converters of grain to protein. Cow protein requires 17 times the grain protein you would get if you just ate the grain, and cut out the cow intermediary.
If you can't afford to feed them, you have to, ahŠ "send them to market." This year's high grain prices will result in cheap steaks. Clinton campaign slogan: "A Cow In Every Pot!" The cheap steaks offset the higher grain prices, and nothing much happens to overall inflation.
Next year, there are lots fewer cows (and happier Greens: "Greenhouse Methane Slaughtered!"), and steaks get expensive. Of course, this year's high grain prices mean that next spring every field, garden, and window box from Nebraska to Ohio will be planted in grain. Prices back down.
Boom-bust cycles in agriculture are normal; stability is the exception. A boom interval can ripple into general inflation, but only with the help of a sleepy Fed.
If we have an incipient inflation problem, it will show up in the job market: payroll growth or wage creep.
6:30am, Friday, May 3, CNBC's reporter (hands shaking) will be out in front of the Labor Department: "April non-farm payrollsŠ."
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