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June 25, 1999
EIGHT! Who said EIGHT!? Don't you know? There are old people around who can't take the shock. Why, there's a Baby Boomer turning 50 every seven seconds! Saying EIGHT around these people could kill 'em.... Or get the messenger shot plumb full of holes. Low-fee fixed-rate jumbo mortgages have been above EIGHT for three weeks, while the sub-$240,000 ones are just barely hanging on under... EIGHT. However, here in Colorado, in the last few months I have met with a hundred or so people who would happily agree to pay TEN percent, if in exchange they got an ironclad guarantee that the seller of the house they want to buy would accept a full price offer.
The bond market had a miserable week, staggering around the two-year, 6.15% high reached two weeks ago. Long forgotten: last Thursday's nifty little "relief rally" under 6.00% following Mr. Greenspan's semi-relieving testimony. Again, the calming elements: "For the period immediately ahead, inflationary pressures still seem well contained." And, for all his concern about labor markets, "... labor market tightness has not, as yet, put the current expansion at risk." That's reassuring stuff, but the testimony was still a pre-announcement of a hike in the Fed funds rate on June 30, and an intention to be as tough as necessary to hold economic growth under 3% per year. Bond traders have their own special logic for situations like this. "Look. This is simple. The [deleted][deleteds] are going to tighten. They are NOT going to [deleted] ease. So, people are surprised I don't want to buy their [deleted] bonds?" Among the surprised: Ford Motor Company, which had planned to sell $6 billion (yup, billion) in bonds this week. Instead, they canceled. FoMoCo would love to lock in these rates, but if they dumped $6 billion worth of paper into a market as thin, illiquid, and cranky as this, there is no telling what rate they would actually get. FoMoCo's experience was a lot like a Coloradan trying to buy a house: "Okay, we'll pay your price... You won't take it?... Well, we'll pay more... You won't take that, either?...."
The wild card in Mr. Greenspan's summer extravaganza: the economy. "Nobody, not even [deleted] Alan knows how many times he'll have to hit to slow the [deleted] economy. If the [deleted] thing slows down all of a sudden by itself, we're gonna look like a bunch of [deleteds] and wish we'd bought every [deleted] bond we could get."
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