Stocks Whipsaw Down Wednesday, Up Thursday Morning
In early trading Thursday, stocks made a strong recovery, at least to some extent on bargain-hunting after the fire-sale discounting equity issues have suffered over the past week, but also on news of a drop in jobless claims. The downside of this surge back to stocks is that bond prices are plummeting this morning, thus renewing the long-term upward trend in yields. By mid-morning, however, the major indices had given up some of the heavy gains achieved in the first hour.
Confirming the effect of the inexorable rise in interest rates across the economy, the Mortgage Bankers Association on Wednesday reported that its index of mortgage applications fell by more than one-and-a-half percent last week, turning against an uptick in the week previous. This was somewhat surprising to some because mortgage interest rates had actually eased back a bit.
However, the mortgage market is driven by factors other than interest rates only. In particular, the decision to take on a first or second mortgage has much to do with prospective borrowers' expectations about their personal financial situations in the months and years ahead. In an economic environment where households have serious concerns that are more than mere passing worries, decisions on major, new debt committments get postponed or abandoned altogether.Dark Wraith CyberGloss
Economists and financial analysts hold that what has already happened is, at least in principle, much less important than the expectations of consumers and businesses about the future.
As far as the March consumer price index released on Wednesday, both the overall and the "core" rates were above those for February, leading many investors and analysts to see more evidence of mounting inflationary pressures in the economy. Of more immediate concern than the long-term, corrosive effects of such inflation is how the Federal Reserve will react to it.
While few believe that the Fed will stop raising short-term interest rates in its fight against inflation, the hope was that the central bank would continue its recent pattern of "measured," quarter-point increases in the key federal funds rate. Wednesday's evidence that inflation is picking up momentum led to some worries on Wall Street that the Federal Reserve might have to take its gloves off and become more aggressive in future rate increases. Investors' assessments of the probability, small as it might be, of that scenario caused much of Wednesday's downdraft in stock prices. Easing concerns about that possibility on Thursday morning allowed a somewhat more positive valuation regime to take over, at least for a while, on the Street.Dark Wraith CyberGloss
Securities prices are inversely related to interest rates. Whether it be stocks or bonds, when interest rates go up, the prices of the stocks and bonds go down. More importantly, when interest rates are expected to go up, securities prices fall.
Regardless, however, of whether the Federal Reserve Board chooses to fight inflation with large or modest increases in short-term interest rates, the trend is decidedly upward for factors that go beyond the decision making of the Federal Open Market Committee. With continuing demand pressure on capital markets caused by federal budget deficits that cannot seem to be controlled, the U.S. government will continue to compete for limited lendable funds and bid interest rates up to whatever extent is necessary to secure its financing needs. Until such time as fiscal prudence in both expenditures and tax policy return to Washington, then, interest rates will labor under upward pressures; and as such, the U.S. economy will suffer from the debilitating effects of those interest rates.
Published 4/21/2005 10:36:00 AM
<< 9 Comments Total
Don't have anything to say, yet. Last night, I tried, twice, to leave a comment on your open thread and I kept getting page not found after typing a lot. Just checking to see if I can comment.
Good afternoon, Old White Lady.
Although Blogger has been behaving better recently, it still has those spells like you were describing. Last night, I gave up on posting an article because the service kept taking me to an error page. Comments got through for me, but not the articles.
One weird thing is that people in one part of the country will be having problems at the same time people in another part of the country are just fine. That seems to have been happening last night: I could comment, but you couldn't; I couldn't post articles, but other bloggers could.
I swear, it's enough to drive a man to the bottle. Unfortunately, no one bottles good, strong coffee.
The Dark Wraith just might have an idea there for a new consumer product:
Old Dark Wraith® Coffee-in-a-Bottle!
Yer gonna be bitchin' fer days about it
Maybe we should let the whole thing burn. You know the old cliche,
"The Forest has to burn in order to release new seeds from the pine cones..."
I have been accused on being nihilistic in the past, and maybe this sounds nihilistic but I think the ends justify the means.
Lets force the United States economy down the Krapper. Sure, generation Y and the Twixters will get lost in the shuffle, but their kids would most likely participate in a new economic revolution.
Why prolong the agony? I keep having this arguement with friends that IMO in as little as 10 years there will be no jobs for Americans except for a few nouveau riche who have carved themselves out a little niche somewhere.
It used to be you could go work in a factory, become a construction worker, or even work in a grocery store and make a decent middle class living. Those days seem to be disappearing.
How can anyone in the United States compete with the cheap labor of India and the cheap products of China?
Wall Mart is selling us down the river.
I say let them. Soon, no one will have any money to consume the cheap products they are trying to sell us.
In the words of Sublime:
"let it Burn..."
Is this what they want? Is this what the Moguls of today are gunning for? Small, wealthy elite at the top and a huge under class at the bottom?
If they want it, I say we give it to them. And when they say "Let them eat cake..." we'll break down the doors to their gated communities and take our country back.
America was built on the backs of the middle class. America has always depended on the taxes from middle class workers. Without a middle class...who is going to pay the tax gap? Corporations? The Rich? LMAO.....
Go ahead you robber barons and international Moguls, run this country into the ground and see where it get you...I dare you!!
Good afternoon, NeoCon Crusher.
In my quieter moments, I think seriously that it would be best for people to see the full effect of the future that looks so much like the past. Far too many are the generations now whose education has been so lacking that it robbed them of a solid understanding of what the good ol' days were really like.
The problem is that the technologies of repression are far subtler and more effective now than they were in times gone by when people rose up against abusive systems of government. Even at best, the effective rebellions of the past were few and far between. Any rebellion of a future generation would have even less chance of success.
We blog. Unfortunately, that means we are the rebellion. I don't know how many would pick up an actual weapon to stop a fascist, but I believe the number is few. As such, this is where we have to draw the line: here in cyberspace, where we keep telling it like it really is, hoping for people to start listening.
Failing that, we either die on our knees or die in running street battles.
It might come to that, NeoCon Crusher, and I certainly hope you'll be there amid the shattered glass and broken dreams of both our side and theirs.
In the end, one way or the other, if they want to deny me freedom, then it will be at the price of their plans. But I won't let them have the future.
The Dark Wraith has spoken.
This country was founded on Rebellion. No Taxation without Representation.
Now, depending on who's history you believe some say (Like Thoureau) that 1/3 of the colonists were for the revolution, 1/3 of the colonists were against the revolution, and 1/3 of the colonists had no idea a revolution was taking place.
Needless to say, perhaps I am too much of an idealogue and romantic but I do believe the Spirit of 1776 exists. I believe in the Sons of Liberty, the Federalist Papers, and a lot of the precepts this nation was founded on like the Bill of Rights.
I think there is an instinct in the American People that will always harken back to that time when noble men did noble things.
Now, that is not to overlook the sins of our fathers who allowed the instituion of Slavery to persist, the extermination of the Native Americans, and did not look upon women as equal.
Despite all of this they still put in place a vehicle of government that even with its flaws has been fairly successful.
I think the American people, even if they do not know that much about The Constitution or the Declaration of Independence still hold these values very dear to their hearts.
I think when it gets to a point where we loose more and more freedom, the tax burdern becomes too great, and the ability to make a living becomes almost non-existent, the people will rise up in that revolutionary spirit and take back their country.
Now, politicians being what they are have a way of licking their finger and sticking it in the wind to see which way the wind is blowing. If they catch a whiff of any malcontent they will seek to appease The People to prevent any such uprising. But their appeasements could only prolong the inevitable if they still seek to do it piecemeal and not promote radical change.
Where have all the great leaders gone? Is anyone at there still standing for Truth, Justice, and the American Way?
Yes, but none of them are dumb enough to think that running for political office is the way to preserve those precious concepts.
May I ask for a favor? There are many ripples in the Blogosphere this afternoon over Greenspan's discourse about China "unpegging" its currency from the dollar. I have attempted to comprehend what is being said and cannot fathom it.
One of the many reasons I gave up being a Communist (yes, it was youthful rebellion) is utter defeat when it came to understanding economics (that and most Communists have no sense of humor...zip...nil). I never got past the preface of "Das Kapital" and Lenin's "Imperialism: The Highest Stage of Capitalism" is a first rate cure for insomnia.
I read layperson's books about quantum physics and I have a better comprehension of angular momentum and all the little beasties inhabiting the sub-atomic world.
thank you.
Neo-ConCrusher's comments remind me of a quote I used once before on this site but which again seems appropriate:
The year was 1954 and PoLT's father came home from work one day and said, "What this country needs is a damn good depression". He wasn't speaking lightly. He graduated from high school in 1929.
What WILL the rich folks do when they lose their slaves?
Good evening, Culture Ghost.
It seems to me that I should probably revisit the topic of pegged and managed-exchange-rate currencies in my Saturday evening post, given that Chairman Greenspan has increased the volume on the drumbeat to get China to unpeg the yuan from the dollar.
I wouldn't hold my breath, however, on China doing the unpegging at any time in the near future, at least not in any dramatic fashion. The consequences on China's economy would be disastrous.
Hee-hee-hee.
Oh. That's not funny.
Hee-hee-hee.
The Dark Wraith re-gains his composure.