Mortgages are stuck in a happy place, near 6.5 percent for the low-fee deals, the 10-year T-note's decline to 4.79 percent not enough to move the mortgage market.
At the moment, this whole six-week decline in rates rests on the assumption that the housing market is in a progressive collapse that will soon take the whole economy with it. The bond-betting housing bubblers have one big risk: the only bubble may be in the froth on their own Kool-Aid. Housing is slowing, steadily and a lot (sales of existing homes down another 4.1 percent in July, unsold inventories to a 7.3-month supply, last seen in 1993), but slowing in the real economy is undetectable.
July orders for durable goods rose a modest .5 percent, but on the heels of a big upward revision to June -- so strong that second-quarter GDP growth may be revised from mid-2 percent to 3 percent. The leading indicator for employment is new claims for unemployment insurance, and there is not the slightest upward flicker.
Yes, we're 17 Fed rate hikes deep, but from an emergency low, and now at a rate level at which the economy thrived in the 1990s. The big growth engine is global trade, growing so fast and in so many new ways (electrons!) that economic models and measurement can't keep up, let alone predict.
Read the entire Lou Barnes Inman News article at Citywide Services
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Friday, August 25, 2006
Saturday, July 22, 2006
Mortgage rates fall after Bernanke's speech
Fed chief says economy is 'moderating,' but outcome may be worse
The 10-year T-note is again falling toward 5 percent, and has taken low-fee mortgage rates to 6.75 percent
Newspapers today say that "mortgage rates rose" this week, but this factoid is based on Freddie Mac's bone-headed method of early-week survey and delayed (Thursday) release. Rates had risen in nervous anticipation of Federal Reserve Chair Ben Bernanke's Wednesday testimony to Congress, but fell instantly -- before he began to speak -- on release of his prepared remarks.
Bernanke's communication skills are improving: the testimony was as bland and even-handed as could be. However, the heart of his testimony, and the strong reaction in the bond and stock market, were odd. Bernanke, now repeatedly referring to a "moderating" economy, offered a forecast of GDP growth to decline from "3.5-3.25 percent in 2006 to 3.25-3 percent in 2007," and core inflation to decline from "2.5-2.25 percent in 2006 to 2.25-2 percent in 2007."
Oddity number one: a centerline decline in GDP growth of .25 percent from 2006 to 2007 is too small to measure, the insignificant over-the-weekend change in the waistline of a binge eater on a diet.
Number two: how would a .25 percent GDP moderation reverse the obvious inflation problem at hand? Bernanke seems supremely confident that if oil stabilizes here, inflation will gradually abate without economic sacrifice, and stock and bond markets gleefully agreed.
Number three: Bernanke indicated no particular angst that core inflation has crawled out of its 2 percent box. When one senator asked him his reaction to inflation above the 2 percent target, he snapped, "We have no target."
I think you get a post-testimony bond-buying surge like this only if the market believes that the economy is going to moderate a hell of a lot more than Bernanke's .25 percent, and that if the Fed goes to 5.5 percent on Aug. 8 it will result in deeper moderation -- ideally, a recession.
Now, there's nothing really odd about that line of thought. It is, after all, the standard, end-of-Fed-cycle, bond-market dream of Christmas. And, in the short run, the bond market is always more worried about the Fed than inflation. If the Fed sounds as tough is done, it's safe to buy bonds.
The deepest peculiarity here is the absence of caution in the market, especially the bond market. The worst moment for bonds in a hundred years was the 1970s, during which the Fed tolerated the gradually rising inflation pushed by energy costs, refusing to inflict the economic pain necessary to keep inflation in the box. Inflation ultimately spun out of control altogether.
Read the entire Lou Barnes article at Citywide Services
The 10-year T-note is again falling toward 5 percent, and has taken low-fee mortgage rates to 6.75 percent
Newspapers today say that "mortgage rates rose" this week, but this factoid is based on Freddie Mac's bone-headed method of early-week survey and delayed (Thursday) release. Rates had risen in nervous anticipation of Federal Reserve Chair Ben Bernanke's Wednesday testimony to Congress, but fell instantly -- before he began to speak -- on release of his prepared remarks.
Bernanke's communication skills are improving: the testimony was as bland and even-handed as could be. However, the heart of his testimony, and the strong reaction in the bond and stock market, were odd. Bernanke, now repeatedly referring to a "moderating" economy, offered a forecast of GDP growth to decline from "3.5-3.25 percent in 2006 to 3.25-3 percent in 2007," and core inflation to decline from "2.5-2.25 percent in 2006 to 2.25-2 percent in 2007."
Oddity number one: a centerline decline in GDP growth of .25 percent from 2006 to 2007 is too small to measure, the insignificant over-the-weekend change in the waistline of a binge eater on a diet.
Number two: how would a .25 percent GDP moderation reverse the obvious inflation problem at hand? Bernanke seems supremely confident that if oil stabilizes here, inflation will gradually abate without economic sacrifice, and stock and bond markets gleefully agreed.
Number three: Bernanke indicated no particular angst that core inflation has crawled out of its 2 percent box. When one senator asked him his reaction to inflation above the 2 percent target, he snapped, "We have no target."
I think you get a post-testimony bond-buying surge like this only if the market believes that the economy is going to moderate a hell of a lot more than Bernanke's .25 percent, and that if the Fed goes to 5.5 percent on Aug. 8 it will result in deeper moderation -- ideally, a recession.
Now, there's nothing really odd about that line of thought. It is, after all, the standard, end-of-Fed-cycle, bond-market dream of Christmas. And, in the short run, the bond market is always more worried about the Fed than inflation. If the Fed sounds as tough is done, it's safe to buy bonds.
The deepest peculiarity here is the absence of caution in the market, especially the bond market. The worst moment for bonds in a hundred years was the 1970s, during which the Fed tolerated the gradually rising inflation pushed by energy costs, refusing to inflict the economic pain necessary to keep inflation in the box. Inflation ultimately spun out of control altogether.
Read the entire Lou Barnes article at Citywide Services
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