Another week in these odd times, public policy and theoretical economics completely dominating markets.
Federal Reserve leadership — Vice Chairwoman Janet Yellen and New York Fed President William C. Dudley — gave same-day speeches that clarified the following:
1. The do-nothing, hawkish regional-Fed presidents’ club is alone in its treehouse.
2. If anything, the Fed has not done enough since 2009.
3. The Fed’s commitment to ease through 2014 is more likely to be longer than shorter.
The Fed takes cover under its congressional mandate, saying "unemployment is too high," which is true. But the greatest danger lies overseas: Industrial production in the European Union had the worst month in two years; China’s economy is slowing faster than expected; and Japan is … who knows. The Fed cannot risk a U.S. stall now.
Bonds already had the hint: The March spurt in rates fizzled out last week. Stocks got the "more easing" message, too: a midweek rally pulling the stock market out of an incipient trench.
There is some perversity in this stock market response. The Fed would be this easy only if badly worried about domestic and global risks, and a risky economy is unfriendly to stocks. Yet stocks still responded happily to the Fed’s promise of action. It’s nice to know somebody still has faith in the Fed.
New domestic data tentatively confirmed the weakness in March payrolls. Weekly claims for unemployment insurance have risen from a sustained stretch — sub-350,000 to 367,000, and then to 380,000 — in the last two weeks. In the short term that’s not big, but it’s also not good.
The National Federation of Independent Business’ small-business survey in March unwound months of gains, following the pattern of the 2011 spring swoon.
Housing. Kick any Wall Streeter today, and he’ll say, "Housing has bottomed. Hit me for something else."
What would the turn look like, if really under way? My own backyard has turned in just the last 60 days.
The Front Range of Colorado never had a housing bubble: We danced with the "Technology Fairy" from 1999-2001, and afterward built too many houses, and made too many stupid loans, but all of that was over by 2004 when we led the nation in foreclosures.
That was a long time ago. We have the sixth-lowest level of mortgage delinquency of any state in the U.S. Our rental vacancy rate spiked to 12 percent, now below 5 percent for the first time since 1999 (it’s close to zero in Boulder, Colo.).
Rents are moving up quickly. State population in the last dozen years has risen from 4.1 million to 5 million, and we’re short of land to build (you could drop Rhode Island in here and never find it, but we are maniacs for "open space" reservations). Building permits have been off 85 percent since 2007. Unemployment is down to 7 percent-ish. Our listed inventory of homes has evaporated by 40 percent since last year. Buyers have lost their fear; the only problem is in finding something to show them.
Does your local market look like that? Mr. Housing has bottomed? Eh?
As perfect as our setup, are prices rising? In rich, government- and tech-payrolled, land-starved Boulder County, Colo., yes. At last. Enough to unlock sellers? Um … later.
Two philosophers have remarked incisively on speed. Stephen Hawking: "Time is what keeps everything from happening at once."
Then, Satchel Paige’s description of "Cool Papa" Bell: "He was so fast he could flip off the light switch and be in bed before the room got dark. One time he hit a line drive right past my ear. I turned around and saw the ball hit his ass just as he slid into second."
Housing is the polar opposite of Cool Papa Bell.
Here in Colorado, the 1980s were tougher than this patch, and in Boulder we had all the same, lovely conditions as above by the spring of 1990, and the first, timid price increases in nine years.
It then took 18 months for prices to begin to rise on the far side of town. "Bottom" is one thing, "better" is another, and "recovery" something else entirely.
The Mortgage Guaranty Insurance Corp.’s (MGIC) newest guide to its underwriters described 73 metro areas this way: 26 of them "stable," 25 "soft," 22 "weak", and not a single one "strong."
Even if bottoming, and if surviving the release of held-back foreclosures, it will be a long time before recovery takes the brake off the economy, and puts heat on the Fed.
Source: National Federation of Independent Business (NFIB).