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July 10, 1998
Mortgage rates drifted up during a quiet week for news, finishing near 7.00% on the low-fee packages.
The markets are still focused on Japan, waiting for post-election (Sunday) tax cuts and an authentic bank bailout -- or not. Prime minister Hashimoto's performance this week should be the envy of any American politician: he announced his forthright support for tax cuts, then cautious indecision, switched to suspicious disinterest; and at last, foursquare support of tax "reform".
Treasury Secretary Rubin did something unprecedented in response: he gave public confirmation that American intervention to support the yen in June was indeed the result of a deal. We intervened based on an unambiguous promise that Japan would cut taxes and repair its banks.
If Hashimoto & Co. fail to follow through, his visit to Washington on July 22 will get none of the charm treatment from Beijing Bill. If Rubin feels crossed, he may withdraw the invitation and cancel the visit.
If you feel like gambling on interest rates, now is as good a time as any. There won't be a big drop until and unless the economy slows down, but at some point in this waiting-for-Tokyo there is going to be another flight to American Treasury quality, and a temporary dip in rates.
On the simple, easy-to-understand front -- figuring out what the Fed will do next -- there is a serious disconnect between what you and your clients are hearing from Wall Street prognosticators and what the Fed is doing.
The unanimous call from pop finance: deep slowdown, Fed's-gonna-ease, bonds-are-goin'-deep.
Just for the sake of balance....
Item: the last time 10-year T-notes traded in the 5.40s was 1968, when -- among many, many things -- America was still on the gold standard.
Item: The economy may have slowed a notch, but June car and truck sales rose (leaped? exploded?) to a 14% gain. Some slowdown. Only GM would choose a market like this to pick a labor fight. Say -- if GM dealers run out of wheels to sell, maybe the economy will slow down after all.
Item. The Fed released the minutes of its May meeting. "A number of members indicated that the decision [not to raise rates] was a close call." For two members, too close: in a most unusual event in the Greenspan era, two Fed governors overrode the chairman's insistence on consensus and voted to raise rates immediately.
You can bloop a hanging Japanese curve for a base hit, but... what? Expect Sweet Alan to hit one into the parking lot for you? Ain't gonna happen this summer.
Whad'ya think this is? Coors Field?
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