Another week of odd calm … at its heart a void of information from government. The economy is on life support, but the intentions of the physicians are unclear.
In the data details, nothing new. Mortgage rates still rattle in a very narrow, high-four range, held so low only by the Fed’s massive buying. The stock market has shown some buoyancy, holding its ranges: Dow 8,000 and S&P 850.
That optimistic trading is based on hopes that the economy will follow prior cycles: New weekly claims for unemployment insurance may have hit cycle-top at 665,000 in early April, and history says recessions end two months after that top.
Historically, we’re overdue for an inventory pop — new orders to replenish excessively depleted pipelines. Historically, we should soon begin to feel the stimulus spending.
Stocks reacted well to news of a slight decline in March sales of new and existing homes, and apparent drops in unsold inventories. However, there is still no increase in applications for purchase mortgages.
Inventories are down because of foreclosure moratoria, and many millions of owners who think it unwise to try to sell. This is best evidenced by a sharp drop in the number of Americans moving from one home to another — today about one-third below the numbers in the ’80s and ’90s.
The void: Treasury Secretary Geithner this week testified to Congress and delivered three speeches, all posted at http://www.ustreas.gov. He was commendably combative before Congress, but neither there nor in 25 pages of text did he describe the administration’s plans.
He has always acknowledged urgency, the continuing dysfunction in credit markets, but dissembles about results, metrics to measure results and intentions. The Term Asset-Backed Securities Loan Facility (TALF) program, central to renewing credit, fell dead flat at rollout. Yet Geithner claimed its pathetic $1.4 billion opening was "relatively good for an early program."
President Obama last week, at Georgetown University, offered a definitive economic speech in the style of a Franklin D. Roosevelt fireside chat. His intentions are good, but as a policy document, or rhetoric to reassure the nation … an awful, 10-page fireside filibuster. …CONTINUED
The peculiar calm in markets this week was in part due to the usual late-month wait for fresh data early in the next. However, hanging over everything has been and will be: the results of the stress tests on banks.
Apparently the bankers are being advised now, and leaks should appear shortly. Today’s release of the test parameters is black comedy, tell-’em-nuthin’ — a lousy harbinger of public results due on May 4.
Everyone, from parents to presidents, struggles with what to keep secret, how and when, and what to make public, how and when. "Should I sit on this, for fear of alarming the audience? Or do I do more harm by trying to conceal things they already know and fear? Do I dare reveal my uncertainty about what to do in an emergency?"
Normal people suddenly seated in government chairs become secrecy freaks. Classify everything "secret," even the things the enemy already knows: No fate is worse than embarrassment. Secrecy is bureaucratic power: I know and you don’t.
The Fed’s special secret hell: If you knew what we’re doing, then you’d act based on us rather than on market and economic forces, which would distort markets and the economy, which we are trying to adjust, manipulate and manage. Have a nice day.
We are now two administrations and two years into tap dancing around the insolvency of the banking system, and the devastating consequences of inadequate credit. The cautious International Monetary Fund this week said U.S. and European banks require $1.85 trillion to restore capital to the levels of 1995.
The nation is scared, fully aware of deep trouble, and it is far past time for the authorities to speak plainly: what we’re trying, how and when we’ll know if it’s working, and our contingencies.
One public entity came clean, and I think tipped a card or two in the Fed’s hand. The Bank of Canada cut its overnight rate to match ours, 0.25 percent, and in unprecedented fashion said it would keep its rate there at least until June 2010. You don’t say that if you think you’re at economic bottom, nor without the company of the U.S. Fed.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
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