After a wild six weeks from Christmas forward, the 10-year T-note stone-falling from 2.35 percent to 1.65 percent and then rebounding to 2 percent, global anxiety rising … this week’s news is an extended sermon from The Church of What’s NOT Happenin’ Now.
Interest rates did not move. Low-fee mortgages stayed just under 4 percent, the 10-year T-note 2.02 percent today. German and Japanese bonds, euro, yen, yuan … quiet.
U.S. retail sales did not rise. Or fall, really. The unquenchable optimists believe that lower gasoline prices will boost consumer spending. Arithmetic contradicts. January retail sales fell 0.8 percent, which optimist loons dismissed as the work of lower gas prices — we bought the same amount of gas, but at lower prices, hence aggregate dollars fell.
However, the dollars not spent on gas were supposed to be spent on something else, right? Leaving aggregate spending unchanged? And if consumers felt stimulated, they spent more? None of the above.
So far, the consumer is pocketing cash saved at the pump, an indication of persistent stress and household budget overextension.
Despite fantastic exertions by the world’s central banks, inflation is not rising anywhere, not even if prices are adjusted for the oil collapse.
Geopolitical risks have frightened a lot of money into bonds, pushing rates down. This week’s unhappenings have been surprising, releasing some fear.
President Obama has been unable to deal with Congress on any recent domestic matter, but this week he did the best job of foreign-policy consultation by any president since Vietnam and the 1973 War Powers Act.
He requested authorization for military action against ISIS, including ground troops, but in model fashion — true consultation, and closed-ended action, no loopholes for mission-creep. ISIS has managed to anger simultaneously everyone in the Middle East (an unprecedented feat), and will soon not be a threat to anyone but itself.
Nothing happened in nuclear negotiations with Iran, but the U.S. advised Iran that it can stew in sanction juice forever unless it offers reasonable trades by March.
Ukraine and Vladimir have topped most lists for greatest risk. The non-happening there this week reeks of European decadence, but markets seem to have decided that total absorption of Ukraine one bite at a time is no particular financial risk, nor the inevitable follow-on nibbling-up of the Baltic states and maybe Bulgaria and Hungary.
Who knew that Minsk rhymed with Munich? Please, may the fate of my nation not be decided by Francois Hollande and Angela Merkel — trapped in an all-nighter by Vladimir for his sole purpose, to see if Europe will effectively resist anything he does. Uh-uh.
Greece ties in. Condemned by other Europeans as freeloaders not keeping their word, there is a bit of a contest for that title. The euro deal included pledges not to run an export surplus above 3 percent of gross domestic product. Germany’s export surplus just reached a new record $250 billion, nearly 6 percent of GDP. Its economy jumped 0.7 percent in the fourth quarter, boosted by an absurdly weak euro for its productivity and too strong for its “partners.”
The European Central Bank has begun quantitative easing, but at German demand the bond-buying will be pro rata to eurozone GDPs. Since Germany has balanced its budget (combined with its trade surplus, devastating to the others), its share of ECB QE will in 2015 retire $120 billion of existing German bonds. Hard to beat for sheer beggar-thy-neighbor self-absorption.
Not happening: Italy’s fourth-quarter GDP. No growth at all, and France by 0.1 percent. ECB help to the strong, not the weak.
Sidebar on word-keeping and freeloading: Vladimir’s free hand is enabled by not one NATO nation keeping its promised amount of military spending, not by half.
Sidebar on exports: Joining Germany as the world’s most brazen predator, China’s exports to a weakening world fell 3.3 percent last month, but imports by its own weakening economy fell faster. Its monthly net surplus surged from $49.6 billion to $60 billion.
Given general improvement in the U.S. economy, if not acceleration, and retreat of geopolitical risk, and the Fed sending every possible signal of a rate hike in June, the mortgage rate risk has tilted upward. Not far, but tilted.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
