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January 3, 2003
If you unplugged during the Wednesday-to-Wednesday holiday gap, you missed it: a new record low for mortgages, 5.75%.
Gone now. Mortgages are back to 6.00% today (Freddie Mac's "5.85%," released yesterday, is an early-week survey artifact).
Rates reversed Thursday on news of a surprisingly healthy poll of purchasing managers. Home sales rolled along, but Christmas sales gained the least in thirty years, consumer confidence fell to a nine-year low in December, and new claims for unemployment insurance are back above 400,000 each week.
'Tis the season for prognostication... what cometh in ought-three?
Peter Drucker is the guide: "Nobody predicts the future; the idea is to keep a firm grasp of the present." Drucker, America's best business thinker, added last year, "People think I predict things, but I don't -- I just look out the window."
Outside the window today are the same forecasts of economic recovery as last January and the January before that. The Wall Street Journal's survey of fifty-five economists: GDP growth will accelerate and approach 4% for 2003, long-term rates will rise a half-percent by June, and the Fed will stand pat. The "soft spot" is over.
The forces which will propel the economy forward: Fed and fiscal stimulus, the same as the last two Januarys' positives. New helpful influences: an abatement of panic, and an end to revelations of corporate piracy. Hopes: reductions in fear of war and terrorism, and for rising stock prices. A year ago, stock market types were sure the market couldn't have a third down year in a row, and are now sure it can't have a fourth. An overall market down 43% from its high is bound to improve.
The only real change in forecasts from last year and the year before: serious people no longer look for much contribution to recovery from technology companies. In the long run, their work product will help the rest of the economy, but as big producers of profit themselves, and direct drivers of the economy..., tech providers may be on the wrong side of Moore's Law. You want to be a buyer of cost-compression, not a seller.
For my part, I don't find these recovery forecasts any more compelling than the last two times around. The Fed didn't cause this "soft spot," and can't fix it, and Federal fiscal stimulus has been offset by strictures at state and local levels.
However, the passage of time does help; it's in our nature to get used to things. We are engineered to get the bear out of the cave; once that's done, no matter how banged up we are, we go on, adapting, and making the best of things.
I think that's what we're doing now, and will continue to do: we are adapting to a post-inflation world. We must make money the old-fashioned ways: innovation, cost-cutting, and productivity. Yet, especially in stock market America, I don't think we're even halfway through the transition. Far too many people still believe in "financial-statement engineering"; there is way too much talk of hazy "operating earnings"; and few boards of directors and compensation committees have gotten the word, and in turn given it to CEOs.
The stock market is not cheap just because it's down; its current value is double 1995, and quadruple 1987. Check earnings for authenticity.
I'm looking forward to the return of the Old Economy. We're fragile and accident-prone during transition, but there's nothing to fear from the outcome. There won't be any more pretend business plans, or phony stock-option income, but real profits and real productivity pose no threat to inflation and interest rates.
If 2003 proves to be another transition year among several, there's nothing to prevent re-visiting 5.75% mortgages, or gradually, intermittently 5.50% or 5.25%.
So, there: Happy New Year!
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