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May 11, 2001
Mortgage rates have risen to their highs of 2001, just under 7.50% for the lowest-fee packages, despite the likelihood of another cut in short-term rates by the Fed next week.
At this moment, an excess of good news for the economy is shifting odds toward economic recovery, and away from recession: in reports this morning, April retail sales rose a surprisingly healthy .8%, and the University of Michigan's measure of consumer confidence popped to a four-month high.
At other moments... well, one week ago today, news of the net loss of a quarter of a million jobs in April dragged mortgage rates to their lows of 2001; exactly one Friday before that, news of 2% economic growth in the first 90 days of 2001 pushed mortgage rates to their highs of 2001... back and forth this way since February.
In 25 years of Fedology, I've seen debates about how bad a recession was, how long it might last, how much damage it might do, how hard it would be for the Fed to get us out of it... but never, ever have I seen such indecision about whether or not we would have one.
The official scorekeeper of recessions, the Conference Board, has maintained all winter and spring that no, we're not going to have one. A competing authority, claiming better information, has insisted that a recession is inevitable.
Bill Gross at PIMCO, who and which have replaced Henry Kauffman and Salomon Bros. as the Oracle of Bonds, has maintained for months that we are in a recession, and all sorts of horrible calamities await the economy and markets. His recommended strategy is heavily weighted to bonds, but suffers from the fearsome pounding bonds have taken in the last month (30-year Treasury bond yields have risen from 5.25% to 5.88% in a month, prices dropping accordingly), and the remarkable rally in stocks.
One of the world's few legitimate broad-scale business theorists, Peter Drucker, wrote: "Nobody predicts the future. The idea is to keep a firm grasp of the present."
Nobody alive knows if a recession will develop. However, the present data says there is not a recession now, nor is the economy sliding toward one. The present data say the economy is rumbling along at about a 2% growth rate.
Meanwhile, if the Fed cuts another half percent on Tuesday, it will have reduced the Fed funds rate by 40% in four-and-a-half months -- hands down the most dramatic easing campaign in the Fed's history.
A recession is the bedside prayer of all bond traders. The longer we go without a recession, the harder it is for traders and investors to buy bonds or hold the ones they have... and the harder it is for mortgage rates to stay as low as they have been.
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