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May 12, 2000
Some data which might have helped... didn't.
Despite the first decline in retail sales in eighteen months (down .2%) and a small rise in the producer price index (core rate up .1% in April), mortgages are struggling to hold 8.75% territory, last week's five-year high.
Off in a world of its own, oblivious to the Fed's meeting on Tuesday, the stock market is cruising on -- by today recapturing the last of Wednesday's swoon.
In an old Western, just before an attack by Native Americans, Ward Bond or Gary Cooper or The Duke himself would growl, "It's quiet out there -- too quiet."
So it has been near the Fed, going in to Tuesday's meeting (to conceal their pending strike, the Fed's governors may be communicating by bird whistle).
Two weeks ago, financial market trading all but halted in anticipation of Mr. Greenspan's speech in Kansas City, but the Chairman feinted with agriculture. ("Say, podner... did that willow bush over yonder... move?")
Last week, same thing: the markets were nervous in advance of the Chairman, and all they got was a one-hour yawner on bank regulation.
Not a word about rates or money, no comment on the wage data which shredded bonds, and not even a half-hearted swipe at the stock market. The Fed hasn't even organized an official leak to the Washington Post or Wall Street Journal, affirming or denying half-point speculation. ("Sure hope Scout made it through to the fort....")
Much as the Fed wants to slow the economy down, it doesn't want to de-stablize the markets with some abrupt, surprise move. When the Fed shifts gears to a tougher stance, it usually sends a signal (smoke, of course).
The dead, stark silence this time seems to me to confirm that it will, indeed be a half point on Tuesday; and second, that the Chairman is finished talking about the stock market and "asset values" (that's us, too, podner: homesteads), and is going to do something about it.
The nervous tension in the market is not so mmuch about Tuesday as trying to figure out how soon and how much the Fed will do after that.
The whole Treasury market has gotten clobbered in the last ten days: today's 6.52% yield on the six-month T-bill says the market has fully priced-in a half-point move on Tuesday, Fed funds to 6.50%.
However, the 6.89% yield on the two-year Treasury note means the market is not remotely prepared for the next Fed move -- nor are 8.75% mortgages.
Circle them wagons, podner.
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