Global markets have been calm for a second-straight week. Mortgages are still just above their all-time low, holding down here despite up-ticks in stocks and oil. Remember: markets far more often reflect economic goings-on than cause change.

  • The inflation rate is close enough to the Fed’s 2 percent target to increase unease among hawks. How to justify remaining super-easy with inflation near target?
  • A new study released by the Economic Innovation Group addresses the creepy sense felt by most of us that we live in and among two Americas. One making it in style, the other half not making it.

Global markets have been calm for a second-straight week. Mortgages are still just above their all-time low, holding down here despite up-ticks in stocks and oil. Remember: markets far more often reflect economic goings-on than cause change.

New data last week had a few surprises. Not in housing, still moving slowly ahead. But January personal income and spending each rose 0.5 percent, above forecast and healthy. Orders for durable goods rose in January, still 4.4 percent below one year ago, but manufacturing may have found bottom. Cheap gasoline is finally affecting behavior: In 2015, U.S. miles driven jumped 4.2 percent, at last above 2008.

The most significant change — and new Fed argument ahead — came in reports on inflation. Last week’s “core” CPI arrived at 2.2 percent year-over-year, the Cleveland Fed “trimmed mean” CPI up to 2.0 percent , and the Fed’s favorite (core personal consumption expenditure deflator) continued a sustained rise, now 1.7 percent year-over-year.

That’s all close enough to the Fed’s 2 percent target to increase unease among hawks. How to justify remaining super-easy with inflation near target?

One way: quibble with the meaning of “inflation,” a favorite pastime. The two sectors pushing up core inflation are health care and rents, probably accurate measurements. However, given stagnant incomes, these are cost-pushed, neither wage-pulled, nor propelled by a too-easy Fed.

The others at the Fed are not so much dovish as goggle-eyed at the rest of the world, and trying to figure out how much — if — that trouble will slow us here, or if it has how long it will last.

Japan’s 10-year bond this week became the first major-nation long-bond to break below zero, today minus-0.063 percent. The German 10 is down to 0.147 percent. No wonder our 10-year is holding 1.75 percent.

The worst of financial hucksters have found a new fright-mask: NIRP. Their previous focus was the evil of ZIRP — zero interest rate policy — and now on negative interest rate policy.

Please, do not be alarmed at this bone-rattling by witch-doctor salespeople. NIRP has different uses and benefits in different places, and if useless or counter-productive will be abandoned.

Do be concerned with another aspect of negative rates. If the haters of government and central banks got their way, and efforts at stimulus were dropped, then we would see the dangerous side of super-low or negative rates.

In the 1930s with the Fed sound asleep, the yield on 90-day T-bills fell below 1.00 percent in 1932 in pure market function. From 1934 to 1942, that annual average yield rose above 0.20 percent only in 1937, and not rise back above 1.00 percent until 1950.

10-year yields in the 1930s fell every year, from 4.10 percent in 1930 to 2.10 percent in 1939. One of the best reasons for U.S. recovery since 2009 has been the Fed’s QE (quantitative easing), pulling down long-term yields before a depression did so.

But no central bank can fix everything, or even most things. In particular, the Fed has impact on the aggregate economy, and only by accident upon individuals, communities, and sectors.

A new study released by the Economic Innovation Group addresses the creepy sense felt by most of us that we live in and among two Americas. One making it in style — hardly the nasty-mythic 1 percent, but more like 40 percent or 50 percent.

The other half is not making it. The study finds heavy concentrations of each by ZIP code. (I can find them, also, just by going to Safeway and then to Whole Foods.)

EIG: “From 2010-2013, the average distressed ZIP code lost 6.7 percent of its jobs and 8.3 percent of its businesses closed. Jobs in prosperous ZIP codes grew by 17.4 percent and new businesses by 8.8 percent. In median ZIP codes, job growth was half the national average and no new businesses opened. In the bottom 20 percent of ZIP codes one-quarter of adults have no high school degree, half of adults are not working, and the median income is two-thirds of the state level.”

This division gives the Fed its own conundrum, but may explain why the Presidential election on both the Republican and Democrat sides of the aisle seems especially fraught this year.

Ten-year US T-note in the last six months

Ten-year US T-note in the last six months.

Ten-year US T-note in the last six months, now rumbling along bottom, waiting for falling footwear overseas.

Exceedingly tepid recovery in home construction.

Exceedingly tepid recovery in home construction.

Exceedingly tepid recovery in home construction. No wonder rents are rising.

Purchase mortgage applications have tracked rates: get close to 4.50 percent and fall off; go back into the 3s and rise.

Purchase mortgage applications have tracked rates: get close to 4.50 percent and fall off; go back into the 3s and rise.

Purchase mortgage applications have tracked rates: get close to 4.50 percent and fall off; go back into the 3s and rise. The fall-off at 4.50 percent (2014) does not say much for market strength.

The Cleveland Fed overall economic indicator had a good January, but the trend is still nowhere.

The Cleveland Fed overall economic indicator had a good January, but the trend is still nowhere.

The Cleveland Fed overall economic indicator had a good January, but the trend is still nowhere.

Bloomberg’s graph of different China measures.

Bloomberg’s graph of different China measures.

Bloomberg’s graph of different China measures. The official deceit pouring out of Beijing is (at minimum) confusing everyone else, from central banks to businesses.

More detail from the Economic Innovation Group “Distressed Communities Index” by ZIP code.

More detail from the Economic Innovation Group “Distressed Communities Index” by ZIP code.

More detail from the Economic Innovation Group “Distressed Communities Index” by ZIP code. The measures of distress:

  1. Percent of the population 25 years and over without a high school degree.
  2. Percent of habitable housing that is unoccupied, excluding seasonal or recreational.
  3. Share of population aged 16 years and older not employed.
  4. Percent living under the poverty line.
  5. Ratio of the geography’s median income to the state’s median income.
  6. Percent change in the number of individuals employed between 2010 and 2013.
  7. Percent change in the number of business establishments between 2010 and 2013.

Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.

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