Stock prices and rates in Treasurys and the mortgage market continued in their quiet, narrow ranges, but expectant tension is rising, with optimists in a special lather.

The 3.2 percent gain in fourth-quarter U.S. gross domestic product was stronger than it looked: Households at last spent some money, with annualized growth at 4.4 percent; exports had a great 90 days, accounting for the whole GDP rise, which would have doubled the official figure were it not for peculiar inventory calculations.

Next Friday we will learn if the happy ending to 2010 has carried through to payrolls in January.

European debt worries have reversed very fast on legitimate signs the zone may opt for the sacrifices leading to unity, and in two weeks the euro has jumped from $1.29 to $1.37. Emerging nations are running red hot, pulling our exports. It’s unsustainable but enjoyable, with inflation-threat commentary in every economic report.

Stock prices and rates in Treasurys and the mortgage market continued in their quiet, narrow ranges, but expectant tension is rising, with optimists in a special lather.

The 3.2 percent gain in fourth-quarter U.S. gross domestic product was stronger than it looked: Households at last spent some money, with annualized growth at 4.4 percent; exports had a great 90 days, accounting for the whole GDP rise, which would have doubled the official figure were it not for peculiar inventory calculations.

Next Friday we will learn if the happy ending to 2010 has carried through to payrolls in January.

European debt worries have reversed very fast on legitimate signs the zone may opt for the sacrifices leading to unity, and in two weeks the euro has jumped from $1.29 to $1.37. Emerging nations are running red hot, pulling our exports. It’s unsustainable but enjoyable, with inflation-threat commentary in every economic report.

One overall caution: As you study media accounts sugar-glazed with the short-term news above, consider the sources of the quotes you’re reading. Is the person who is so certain of self-sustaining recovery by any chance a salesman of investments?

The full picture doesn’t make good headline copy. The U.S. economy is still in intensive care, and unstable markets are entirely dependent and vulnerable to public policy.

The Fed is anything but confident: "Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit."

The Fed voted unanimously to continue its economic rescue policy as is, "helicoptering" $100 billion in new cash every month. The constantly dissenting Kansas City Federal Reserve Bank President Thomas Hoenig has rotated off as a voter and will soon likely turn up as the darling of some troglodyte think tank.

Despite their stated suspicions of QE2 (the Fed’s second round of quantitative easing), two new voters — Philadelphia Fed President Charles Plosser and Dallas Fed President Richard W. Fisher — were not certain enough of recovery to cast nays.

In addition to the Fed’s money-printing, the Treasury borrows and spends another $120 billion or so every month, and therein lies a Catch-22 that I cannot puzzle out.

If the optimists are right, long-term rates are going to rise no matter what the Fed does. Global investors are buying Treasurys now out of their own remaining economic fear; if that dwindles, to be replaced by inflation fear and overwhelmed by new borrowing, why is this "recovery" not self-limiting, or self-extinguishing?

The nonrecovering housing market is the obvious trapdoor in the show. Mortgage rates have risen 1 percent in 90 days. Applications for purchase mortgages last week were 20 percent below last year, and just barely above the July crater, right after the expiration of the homebuyer tax credit.

The fraction of distressed home sales has risen right through the winter, to 47 percent nationally, with home prices flat to falling in all surveys. If "recovery" tacks on another 1 percent to mortgages, then what?

Only certified political junkies watch the State of The Union address, but it has been the central guide to every president’s policy intentions. President Obama had some nice things to say about the need to compete in the world, but drifted off into vaporware about federal "investments" in education and infrastructure.

If you have a kid, you know that we have no idea how to measure educational bang for the buck, and investments are all about measurables.

The fantastic thing about this State of the Union address was its detachment from the actual state of the union. Nowhere in the speech were these words: unemployment, housing or foreclosure. "Now that the worst of the recession is over …" for some; but for most … insulting.

Worse, in 16 pages of the text transcript, "deficit" first appeared on page 10, the thought concluding on the next page with his dislike for the findings of his own deficit commission.

In a matter of this magnitude — stopping 50 years of national self-deception — Congress cannot make progress without a president’s personal urgency and role as lightning rod. Instead, his own self-deceit shined at cloud height.

The day after the speech, the Congressional Budget Office revised the 2011 deficit up $200 billion from 2010, to $1.5 trillion.

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