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August 14, 2009
Long-term interest rates fell this week, and a lot: the 10-year T-note from its 3.85% peak last week to 3.51%, which took mortgages from 5.75% to 5.375%.
This move thoroughly contradicts the one-way stock-market exuberance, and the inventive reading of new data and the Fed’s post-meeting statement. One day, when the Green Shooters have it right, the bond market will get killed by the news, rates racing up. This week, despite the prospect of open-ended Treasury borrowing, bond investors voted via hungry buying: shoots there may be, but no crop.
Clunker-cash added .5% to July industrial production, and inventory pipeline-filling will add a little to GDP, but these are “statistical recovery,” not the real deal. The Fed said “economic activity is leveling off,” which the NYTimes headlined as “Upbeat Fed.” Beware of spinners: level is better than down, but is not up.
Hard data: claims for unemployment insurance are rising again, 558,000 last week. July retail sales were awful: forecast to rise .8%, they fell .1%; minus clunkers, down .6%. Consumer credit continued its freefall, ’09 monthly declines roughly double each forecast, the aggregate outstanding now even with October 2007. Some deleveraging is good and inevitable, but too much too fast, involuntary by arbitrary cancellation and doors slammed on applicants by frantically shrinking banks... agent orange.
Many dead-honest forecasters are struggling with changed rules. The mathematics of economic prognostication depend on correlations of current activity with prior recession-bottom cyclical turns. This one is extraordinarily different from priors, and so correlations are misleading. The Chicago Fed’s national index has an absolutely gorgeous “V” recovery in progress (www.chicagofed.org, “CFNAI”), as do the surveys of the always-reliable (previously) ISM (www.ism.ws, “Reports On Business”).
However, to see the actual world, not correlation: www.nfib.com, “Small Business Economic Trends, August 2009” (bottom of home page). The overall false-dawn in May has faded for two-straight months. In component surveys continuous since 1973, small-business sales are the worst ever measured, as are earnings, prices, and compensation, and employment is even with the ’82 record low. Some elements show signs of choppy bottom, perhaps the Fed’s “leveling.” However, if I’ve been holding my breath while sinking for two years, leveling at twenty feet under is still a problem.
Back in the spring, “Tea Parties” seemed an obvious contrivance. Many eruptions at the first Congressional-recess “town meetings” were likewise arranged agitations (opposing politicians have complained of such at least since Rome).
Something different is going on now. The tapes of gatherings with Senators McCaskill (D, MO), Grassley (R, IA), and Spector (Switcher R to D, PA), and CNN reporters playing it straight with their own groups of course show some lunatic screamers, but most participants were hot at representatives of their own parties.
These meetings are in theory about health care. However, behind the wild scatter of audience opinion (accurately reflecting incomprehensible “reform”), the faces in these meeting halls show overwhelming anxiety. Beyond fear at losing coverage, or coverage unobtainable, or clutching at coverage they can’t afford, or raging at government meddling, these people are tapped out by an economy they never imagined, and very angry at a bi-partisan political establishment that Does Not Get It.
They just got shut of an all-time Did-Not-Get-It (today as invisible as Warren G. Harding), and then gave a landslide to a charming and eloquent Does-Get. Or does he? Just yesterday, Leftie pals barked at me two “Jimmy Carters” and one “Empty Suit.”
Test coming. Mr. Obama seems soon to appoint intemperate, bullying egomaniac Larry Summers to replace Ben Bernanke, for the sake of change, to signal the end of the emergency, and perhaps to remove an obstacle to his agenda. Get It, or Not? Give priority to the national difficulty, or slide farther off into talk and show?
Clinton’s Law is in play, as never in modern times: “It’s the economy....” |
