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April 2, 1999
As April Fool's Day is our anniversary (eleven, now), the following is our annual find-the-foolishness issue.
The two most important pieces of economic data which will appear in April canceled each other out, and it's Goldilocks time again. The economy has regained that perfect state of "not too hot, not too cold." The Purchasing Managers' Index soared again, in three months from a recessionary 45 to yesterday's 54.3. However, this morning's job data have more than offset Thursday's damage, as non-farm payrolls grew by only 46,000 jobs. The net result: rates for low-fee mortgages are near the bottom of their 7.00-7.25% range -- a damn fine outcome after the worst 90-day stretch for bonds in three years. If the first quarter was that bad, how come mortgages are only .25% above their 1998 lows? Spreads. During the end-of-world last October, the spread between Fannies and Treasurys was 2.41%; today it's 1.54%, back to normal.
If we're back to Goldilocks, what could go wrong? In the last three weeks, oil has gone from $12/bbl to $16.75/bbl, and gas is up 20 cents at the pump. Then, that unpleasantness in the Balkans. How do you make a million refugees disappear? When the Dow hits 10,000, you can't find a single one in the Wall Street Journal. The stock market certainly isn't bothered by the Balkans. Priceline.com, which last year lost $114 million while selling $35 million worth of airline tickets, went public at $16/share and traded as high as $85/share on its first day. Its stock is now worth more than that of United, Continental, and Northwest airlines... combined. Thus far, degrading the Serbs has had only one detectable market effect: the very odd absence of Treasury buying for safety. The degrader degrading? From the end of World War II until 1964, the yield for long term Treasurys varied between 2.19% and 4.15%. From the introduction of American combat troops in Vietnam to their withdrawal, the average annual yields: 4.21, 4.66, 4.85, 5.25, 6.10, 6.59, 5.74, 5.63, 6.30. Everybody else has a Balkan opinion, so here's mine. If our aim is humanitarian, NATO should offer to evacuate the Kosovars, furniture and all. Then -- much cheaper than Air Kosovo -- provide for them with a mini-Marshall Plan, let the pestilent Serbs rot in isolation, and get back to making sure their Russian buddies don't leak any nukes to bad guys. If, on the other hand, we sincerely, absolutely believe that the Serbs are a military threat to the rest of Europe, there are two perfectly good American armored divisions sitting in Germany. In 1941, with less technological superiority, the Wermacht took Yugoslavia in two weeks. The current policy is not too hot, not too cold; dumb and dangerous. No foolin' at all.
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