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April 3, 1998
Bonds and mortgages have reached the low of the December-April trading range (for the fifth time in that four-month span) at 5.75% and about 7.125%, respectively.
In a modest April Fool, the domestic news media is reporting a "weak" employment report as the cause of the rate drop. That domestic myopia is mistaken: bonds rallied last night in overseas markets on more bad news from Japan, long before the Labor Department report this morning.
March payrolls contracted by 36,000, but the shrinkage was due to flawed seasonal adjustment. The El Nino non-winter moved traditional springtime hiring (construction and retail) into January and February from March; hence, immense 300,000+ increases Jan-Feb and "weakness" in March.
There is no slowdown in the American economy.
Distortion, maybe, but no slowdown.
"Distortion" is a good word to keep handy this year as you get word of unusual events here and in the rest of the world. Not "bubbles", in the classic, pre-crash sense, justŠ unusual patterns, especially in Asia and the forgotten continent, Europe.
Before a rundown on peculiar events overseas, one domestic oddity: the Dow traded above 9,000 this morning. In what may someday be the answer to a grim trivia question, the Dow value on December 5, 1996, the day Mr. Greenspan gave us "irrational exuberance"? 6,200.
Japan, and the overnight bond rally: yesterday, Norio Ohga, chairman of Sony: "Japan's economy is on the verge of collapse." He went on to compare prime minister Hashimoto to Herbert Hoover. Moody's downgraded Japan's banks and debt; and a key growth measure showed outright contraction.
Last week, I mentioned the ephemeral nature of $9.5 trillion in Japanese savings, and the imaginary nature of about a trillion of it, backed by bad loans. This week, Japanese banks were supposed to begin to value stocks on their balance sheets at market value. Regulators flinched: banks may carry stocks at the original price the bank paid. So, in the aggregate, another trillion worth of phony assets and equally imaginary savings. Down to $7.5 trillion, now.
On the forgotten continent, euro-mania has taken hold. In anticipation of the single currency, and possibly authentic benefit from budget discipline, European stock markets areŠ wellŠ exuberant. Distorted, maybe.
Aside from Korea's dead cat bounce, care to guess the three top-performing stock markets worldwide in 1998? In order, Portugal, Spain, and Italy. France and Germany, double-digit unemployment and all, not far behind.
Mr. Greenspan's mention of the euro yesterday: "Risky activityŠ lots of pitfalls." How's the mood at the Fed? A meeting summary: "a number" of governors expected to tighten, "one" expected to ease.
Sure hope it's the right one.
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