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May 17, 2002
Mortgage rates behaved well this week, staying just under 7.00% despite a big week for the stock market.
The stock market "counter-trade" (stocks up, rates up; stocks down, rates down) has tended to define mortgage rates this year. When the economy looks good, stocks rise, and rates rise in fear of inflation and Fed tightening.
So, why not this week? Why the best week for stocks in a couple of months and no particular damage to rates?
Neither stocks nor the economy are as good as they look this week. The Nasdaq fainted below 1,600 only ten days ago, and has this week risen above 1,700, but it's still down 11% for the year. After struggling below 10,000, the Dow has jumped above 10,250, up 2.5% for 2002, but it's down 8.5% for the last 52 weeks. The broad indices are worse: the S&P 500 is off 4.3% in 2002 and minus 14.7% in 52 weeks -- including this week, its best since last September.
Stock market optimists dominate the news, but the real economic data are no better than back and forth. Today the U of Michigan consumer confidence index posted its best gain in 18 months, but the surveyors must have been calling people at work, and missed the 418,000 people who filed for unemployment insurance last week (a recent high). Retail sales in April doubled the forecast gain, but sales of new homes fell to the slowest pace since last October.
There is nothing here which would push businesses to the capital spending necessary to steepen the slope of recovery, nor to push the Fed to tighten.
As soon as the Democrats conclude their disgraceful misconstruction of pre-9/11 intelligence information (You're accusing itchy-trigger-finger Cheney and Rumsfeld of being asleep at the trigger? Really? Don't tell 'em -- they might think they have something to prove.), we'll get back to basics: Who Lost The Surplus?
Estimates for this year's federal deficit run from $50 billion to $150 billion, and the longer the recovery stays tepid, the higher the number will go.
What should be done about this disaster, and who should we blame?
Since it's not a disaster, don't bother with part two.
Marketable Treasury securities outstanding peaked at $3,504,361,000,000 in March '97, bottomed at $2.85 trillion (easier to take, that way, ain't it?) in July '01, and stood at $2.99 trillion at the end of April this year. (The total debt runs over $5 trillion, but the excess is money which government owes itself, and changes in its supply don't impact bond and mortgage trading.)
Not a disaster, you say? Yeah: as a percent of GDP, our debt is the smallest of any big industrialized nation -- less than half the conservative Germans'.
Who lost the surplus? We did. We aren't making money so fast, and therefore aren't paying taxes as fast -- a dead, flat, typical pattern in an economic slowdown. Government spending is up by only a percent of GDP from the boom-and-bubble, half-century record low at 18.4% set two years ago.
Beware any emergency budget action demanded by an Elect ME! soon to be televised near you.
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