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July 14, 2000
The bond market got the wholesale price news it had hoped for (down .1% in May), but failed to rally on the good news -- a performance which reinforces the 8.125-8.25% bottom for low-fee mortgage rates.
The mortgage market fell to that level early in June, rose to 8.50% on high oil prices in late June, and dropped back to the low eights for most of the last two weeks. That lazy, mid-summer, 8.125-8.50% trading range will hold until something big happens.
There are three potential something-bigs between now and mid-August.
Next Thursday, Alan Greenspan will deliver his semi-annual Humphrey-Hawkins testimony on monetary policy to the Senate Banking Committee (there will be a repeat performance in the House Banking Committee on the 25th, verbatim by the Chairman; the Representatives posturing, puffing, and mangling the economics just like the Senators).
Mr. Greenspan has not offered a single sentence on the substance of monetary policy, the economy, inflation, or the wealth effect since March. Especially not the wealth effect.
The Chairman got in hot water in February -- the hottest in his entire, 13-year term in office -- for repeated inferences that the Fed is targeting stock market prices. His solution to criticism: silence. If you don't like the Word, well, you'll do without the Word.
The Chairman will likley stick with silence in the form of several hours of gobbledygook, and references to a "moderating economy," ongoing "unsustainable trends," and inflation "vigilance" will tend to damp some of the Fed-is-finished optimism.
The second market-mover: payroll data on Friday, August 4. The last two reports indicated a labor market slowdown of some kind underway, but 400,000 temporary census-taking jobs made hash of the data.
The rest of the economy still shows a lot of strength. June Retail sales pulled ahead by a solid .6%, and May's .3% decline was reversed to a .3% gain, while June industrial production tripled its forecast, up .6%.
The Fed may not tighten again, or much; but it ain't about to ease. No, sir-ee.
The third mover is a long-running possibility, and could drive rates down, maybe a lot, at least temporarily.
There are new signs of distress in Japan. The government attempted to pay off $9 billion in bad bank loans made to Sogo, a department-store chain, the bailout to leave banks, stockholders and management in place, unharmed -- in pure-Japanese style.
For the first time, the Japanese public revolted at one of these bailouts and Sogo went into uncontrolled bankruptcy, American-style, which threatens a wave of un-contained bankruptcies, depression-style.
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