Markets & Economy

The physics of market boredom: Something’s got to give

The Fed's smoke signals gave no hint of what comes next, but the pressure seems to be building behind the curtain
  • The minutes of the Fed's July 27 meeting are 14 pages of artwork, with not one single hint about what comes next but two glimpses into its background thinking.
  • A big part of the central-banking game, maybe the biggest, has been to preserve the Great and Powerful Oz -- the public belief that nothing is beyond our powers. The time for confession now approacheth -- one of the banks is going to ask for help.
  • The longer we go without something happening, the bigger the deal when it does.

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It is August, but the last few weeks recall the many cartoons of bored buzzards deciding to kill something. From July 12 through today, the 10-year T-note has traded between 1.50 percent and 1.60 percent (except for the electrifying 29th of July at 1.45 percent). Hence mortgages have been within an inch of 3.50 percent that whole time. 10-year T-note in the last 90 days. ZZZZZzzzzzZZZZZ. The 10s/mortgages spread is a hair wide at 2 full percent, but nobody wants to be the lucky mortgage trader to buy at 3.375 percent, touched in the second week in July for the first time since 2012. Everybody who bought in 2012 has lost money since, although several did not hold their jobs long enough to enjoy the experience. Fed-sensitive 2-year T-note, last 90 days. If the Fed is up to something, the best Fed watchers on Earth don’t see it. The Fed has sent some smoke signals. The minutes of its July 27 meeting are 14 pages of artwork, with not one single hint about what comes nex...