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April 16, 1999
Mortgages on low fees moved back up toward 7.00% this week as Treasury bonds could not hold in sub-5.50% territory. Rates are deteriorating further at midday. The economic data were peaceful, CPI not yet reflecting the surge in oil and gas prices. It's coming though: crude is still trading $16.50/bbl or more versus $12/bbl all winter, and gasoline in California has broken two bucks a gallon. Little signs of slowdown should have helped bonds, but did not: housing starts fell 1.3%, and industrial production rose only .1%, but both were dismissed as weaker-than-expected because of late winter storms.
The stock market is... well, on its own planet. I used to be able to say that I didn't see any borrowers whose stock market winnings were the primary motivation for buying a new house, or for an elevated price range. That was true until last year, but in '99, especially in high price ranges, many a borrower arrives still glowing from the tap of the stock option fairy.
The war for Kosovo has caused its first, faint tremors in the financial markets. Of course, there is no effect on the stock market whatever. The Wall Street Journal's idea of war coverage is to discuss brightened prospects for weapons manufacturers. The first little rumble appeared Wednesday morning on news that Serbian troops ("Yugoslavian" would be a euphemism at this point) had crossed the border and attacked a village in Albania. That finally got a reaction. On the threat of widening war, cash raced to Treasuries for safety, for a few hours taking rates to a post-January low. If you got a slightly better deal on a mortgage that day, thank... no, better not. Yesterday a more serious fissure appeared, and has not closed the way Wednesday's panic did. In Thursday's trading, the value of the euro crashed a percentage point, down to $1.06. This is the same euro launched in January euphoria at a price of $1.16. Now, there isn't any way to know for certain if the euro's recent woes are because the European economy is slowing down, because the European Central Bank cut its rate last week, or a coincidence involving NATO's accidental bombing of four civilian convoys and call-up of 33,000 American reservists. Pro-war forces are very much in charge in Congress, though there is not the slightest sign of ground commitment (beyond special forces already in Kosovo). As the air war presumably intensifies, bad news -- especially news of a wider war -- will produce interest rate dips. If we're lucky, we'll get out of this without any major economic disruption.
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