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August 30, 2002
Mortgage rates returned to their post-June lows, as reflected in Freddie Mac's survey finding at "6.22 plus .7% fee" (though, as usual, modest shopping could get you the rate without the fee).
Rates were taken down by net-negative economic data, as the positives, all from July, were peculiar. Downward pressure also came from play-it-safe buyers of bonds, trying to insulate long-weekend "event risk," and from the constant, background concern about prospects for war with Iraq.
During July, and since, economy-watchers wondered at the extent of damage done by a wealth effect running in reverse: surely the 20%-25% losses in portfolios would stagger the economy.
Surely... not. Harm, sure; flip into flat growth, or new recession... no. Sales of new homes rose 6.7% in July, and sales of existing ones rose 4.5%, both from very high levels in June. You can quarrel with the rest of July data, but a nation brought to a standstill by an evaporating stock market doesn't buy homes like that.
The peculiar stuff: personal spending jumped one full percent in July, though personal incomes gained nothing. Orders for durable goods soared 8.7%, but retail sales in stores sagged. Meanwhile, July auto sales raced ahead, to an 18.1-million annual pace from June's 16.5-million. Connect the dots: 40-year-record cheap money supports home sales, while no-cost money juices cars. The consumer is still in the game, buying the last assets which hold value, or are fun, or both.
Light a candle for the job market. New claims for unemployment insurance rose for the first time in two months, and the volume of help-wanted advertising has fallen to the lowest level since May, and that was the lowest since 1964.
Next week brings the first substantial data for August, especially the job data due on Friday. Markets already expect a weak report, but a weaker one (negative payrolls?) would produce the first chance for new mortgage-rate lows. However, the refi clog in the mortgage market drain will prevent a big decline, for a time.
On the other side, bear in mind the market's extreme vulnerability to a good news surprise: the more remote the probability of good news, the greater its impact.
Mr. Bush, Iraq, and a pre-9/11 retro-prospective.
One year ago this week, Mr. Bush's prospects for a second term were lower than any since Jimmy Carter's. Unlike Messrs. Reagan and Clinton, who ran from right and left but governed from the center, Mr. Bush has attempted to govern from a wing. Were it not for 9/11, the economy would by now have obliterated his chances.
A few suggestions for altered strategy on the occasion of the 9/11 anniversary:
First, borrow George Aiken's 1966 plan for Vietnam: declare victory in the War on Terrorism. Downgrade to Damn Serious Campaign, but limit the preoccupation in the administration and among the people. Move on.
Second, drop war on Iraq in favor of "We warned you." No matter how right you may be about Iraq, nobody except Israel is with you. N-o-b-o-d-y. The one terminal risk to the world's only Super-Duper-Power: imperial over-reach.
Third, it's the economy, stupid. We're on dead center and don't know how to get off. Only a Republican oil man could propose... the National Telecommunications Recovery Act, a public-private venture charged with buying up all the wreckage, and getting fat bandwidth access in every home, office, and classroom in America (call it PhonyMae... get Lily Tomlin for the ads)... begin a Damn Serious Campaign to limit our dependence on Middle-Eastern oil....
It's a lot to ask from the tunnelviewer-in-chief, but once in a while he could try to point the thing in a different direction.
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