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June 21, 1996
For the second straight week, mortgage rates have not quite made it up to 8.75%, nor down to 8.50%. The yield on 30-year T-bonds has stayed above 7.00% ever since the most recent payroll surprise on June 7.
Which leads to the next one, due on Friday July 5. Any borrower not fully prepared to risk a 9.25% mortgage in hope for an 8.00% one should lock in early next week. Do not wait until the week of the 4th.
Interest rates tend to rise before long weekends and before big news. While there are always traders who have bets in place, unhedged, most of Wall Street does not wish to gamble. However, in normal, day-to-day operations, the Street is "long" securities, needing to have an inventory of stocks and bonds on hand to sell to customers.
The rise in rates typically preceding big holidays or big news is caused by system-wide unloading of inventory as firms try to get to risk-free, "flat" positions. The bigger the perceived risk, the bigger the unloading. Excepting Christmas-New Years, the 4th of July is the granddaddy of holidays, and payroll data the 500-pound gorilla of news.
If I'm one of the people who will have to react to the July 5 report, I already know a few things for certain (traders are famous for confidence in their ability to predict the future).
I know I will be in the Hamptons. Watching fireworks with the kids the night before will have delayed the party with other "relaxing" traders, and sleep deprivation will compound the effect of a blistering hangover. It will be just peachy keen to get on the phone at sunrise to get ready for the 8:30am news from the Labor Department. I will then spend the rest of the day explaining to angry people why I either (1) lost so much money, or (2) didn't make as much money as everybody else. Happy [deleted] holiday.
The more I contemplate my predestined vacation, the surlier I get, and the less likely I am to place a bet in favor of the market. In fact, I may sell every [deleted] bond I can find and just sleep in.
Lock in next week, not the week of the 4th; or bet on the attitude of the hungover on the 5th.
Mr. Greenspan won confirmation in the Senate by a vote of 91-7. Motherhood wouldn't get such bipartisan support.
The leader of the magnificent seven, Tom Harkin (D, IA) claimed that "living standards have been sacrificed on the altar of high interest rates and slow growth."
Some people you just can't please. Gains in living standards in 1996 are real, not inflated; interest rates are holding a sustained low last seen 30 years ago; and America enjoys the fastest growth in jobs and the general economy of any industrialized nation.
Sit down, Mr. Harkin. Thank you, Mr. Greenspan.
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