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August 30, 1996
Too much good news has lifted long term rates off their lows. Thirty year mortgages are up a quarter percent to 8.50% at "zero and zero," and thirty year T-bonds are trading at 7.04%, up from 6.69% in just two weeks.
New home sales surged 7.9% in July, and the June results were revised upward. Existing home sales "fell" .5% in July, but all is relative: at the July figure, homes are still selling better than any time since January, 1994, when the Fed began seven straight tightening moves.
The April-June Gross Domestic Product was revised to a 4.8% growth rate, up from the original 4.2%, and consumer confidence rose to a six-year record in July.
These are strong numbers.
One thing about as certain as it ever gets: this is no market in which to fool around waiting to lock an interest rate. Sure, these data may turn out to be yet another false alarm, and Mr. Greenspan's gamble may pan out.
However, no matter how loud the squawking from clients about "high" mortgage rates, today's rates are really quite low. The only recent episodes below 8.00% were caused by an economy near recession: three months last winter, and nine months in 1993 (1973 the most recent time before that).
This economy may not be as strong as the bond market fears, it may be a non-inflationary economy, and it may even begin the "natural slowdown" for which Mr. Greenspan hopes.
Whatever: it is not anywhere near a recession, and we ain't goin' into the sevens without that kind of slowdown.
The fall in long term rates in August was more due to Mr. Greenspan's reassurances than to calming news in the data. The man is held in such high regard that many a tough-minded trader gave him the benefit of the doubt.
Rates are still a quarter percent under the 1996 highs set in July, but the bond market is set on hair trigger. If Mr. Greenspan's gamble turns out to be misplaced, the market will abandon all its accumulated confidence, and only a 1994-style display of resolve by the Fed will restore it.
Tuesday brings the purchasing managers' index, and Friday the monthly jobs data. The bond market is not in a mood to give anybody, not even Alan Greenspan, the benefit of the doubt if those are strong reports.
It may still not be many, but a lot more people know who Dick Morris is than used to. Morris' resignation has changed the whole calculus of the election, both by removing an irreplaceable advisor, and in circumstances which have struck Mr. Clinton in his most vulnerable spot.
The financial markets do not pay much attention to politics except where money is concerned, but they do not like surprises. You can bet Mr. Dole's tax cuts are going to get a closer look at many a nervous trading desk. Fast.
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