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August 31, 2001
In what should have been a quiet, pre-holiday week, a stock market dive took mortgage rates below their January lows. At the worst of Thursday's Dow, a mortgage borrower could make it into the sixes without an origination fee.
Mortgages are still a quarter-percent above the bottom set in 1998, and the last visit to the mid-sixes before that... roughly 1966. "Roughly" because today's modern, fee-light, securitized market bears little relationship to pre-1980 conditions, and there is no data base for comparison.
Said a different way, in market terms, except for six weeks in 1998, it has been thirty-five years since an investor -- any investor -- bought a mortgage with a yield lower than today's. A threshold covering a span of time so long presents enormous resistance to breakthrough, despite today's ideal situation for just such a breakthrough.
After this week's 400-point Dow fade to four digits, its 2001 return is negative 8.04%, the S&P 500 negative 14.49%, and the pathetic Nasdaq down 27.48%. If you've got a spare buck to invest, what would you like to own? Cash, stocks, or government-agency guaranteed six-something percent mortgages? Eh?
Whether the economy is in a recession or not is now an academic quibble, as 2nd quarter GDP was revised to a point-two percent gain, well within the margin for error. The important questions are, will the economy deteriorate into a serious recession? Will there be a recovery? Will the recovery be strong? And soon?
Based on the most current data, the answers are no, of course, no, and no.
Factory orders managed a feeble point-one percent gain in July, gathering much bottom-found and corner-turning commentary, all unfounded. August consumer confidence slid, together with expectations for job-finding.
With European economies headed quickly into recession (France and Finland joined up this week), the dithering European Central Bank cut its overnight rate by .25% to 4.25%, still .75% above our Fed's rate, and way too high. The ECB chairman, recently returned from a time warp, observed: "The slowdown in the U.S. is larger, deeper, and longer than had been anticipated." The only other people so late to this discovery: the stock pushers on planet CNBC.
This week's technology poster-child: Toshiba, laying off 19,000 workers, mostly in Japan, announced a likely $1 billion loss and an "IT... structural depression."
As grim as all this seems... is... economic weakness is still largely confined to working through extreme foolishness in technology business plans and investment, and that work-through is closer to an end than a beginning.
Where ends are murkier, maybe closer, maybe not... the IMF formally requested Japan's permission to send early-warning inspectors to its banks. "No", came the reply.
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