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September 19, 2003
After an early-week rise, mortgage rates made it back down to the high fives. The catalyst: the Fed's post-meeting statement on Tuesday.
The Fed's main conclusions have not changed since spring: the prospects for growth are balanced, and "... the risk of inflation becoming undesirably low remains the predominant concern for the foreseeable future."
The bond market changed its tone because the Fed changed a single word in another paragraph. In recent statements, the Fed had referred to the labor market as "mixed"; on Tuesday, the Fed said it "...has been weakening." Forget the arch-optimists' quibbles about bad data, and jobs-are-really-okay. However, job losses are built in to today's rates, which won't go lower unless the economy slips out from under stimulus, and stocks.
It was a light week for economic data, but there were significant developments in that hazy land dividing finance, politics, markets, and foreign policy. I'll get arguments, but I think these developments were uniformly positive, and difference-makers -- divide-crossers -- that signify more beneficial change ahead.
Dick Grasso has scuttled off with his loot and the headlines. However, the bigger story underway is the long-overdue reform of the NYSE, its board, and trading practices unreasonably favorable to brokerages and to relics like "specialists." Further, the Grasso/NYSE stories masked the really big deal: the Federales nailed Merrill for its Enron misbehavior. Merrill's "settlement" at last puts it and everybody else out of the business of cooking up non-economic deals to make clients look like they are making money when they are not. Any firm fooling around this way again will be "Andersonized."
Next, Gerhard Schroder broke with France, saying that Germany was ready to help the US in Iraq. We will get a UN resolution, and contingents from many nations will help to build Iraq's human infrastructure. We won't get any money, as nobody has any; but money and crow are the least of our worries. (Beware Wesley Clark's entry as the Democrats' anti-Iraq-war general. As Supreme Allied Commander in Kosovo, his aggressive behavior brought his emotional stability into question... at one point he ordered a British-commanded unit to attack a Russian column... the Brits declined.)
China. In recent weeks, US officials of both parties, and the EU and Japan have called for China to stop its export predations by allowing the yuan to float to its proper strength in world markets. This week, American credit-rating agencies explained patiently that China's banks could not withstand a shift to a floating currency, not for some time.
I can hardly imagine a development more beneficial to the US and the world than a China increasingly pre-occupied with the details and perils of capitalist housekeeping. Beyond building competent banks, any nation hoping to make good capitalist money can't afford disruptions to commerce by rogue nations. Reliable sources this week reported that China is moving 150,000 troops to the North Korean border.
Developments like these don't quickly move the bond market, or the economy, but they are good for business. Don't doubt that.
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