08 October 2008

David, I Hear You Say,

Why are you able to remain so cool in a crisis? Why are not you panicking?

While the current economic situation is uncomfortable, there are three numbers I'm keeping an eye on that convince me that all is not lost: the 30 year fixed mortgage rate (6.011 APR today on E-Loan), the 10 year Treasury rate (3.72% in today's auction) and the dollar exchange rate (up against just about all world currencies in the last few weeks). All of these are in very comfortable territory in historical terms.

Basically, these numbers mean that we're not in a liquidity trap, that people still have faith in the credit worthiness of the federal government and that, in a crisis, international money is still taking refuge in the dollar. I'm not saying that everything is hunky dorey, but I am saying that, right now, the smart money is not expecting Great Depression II.


Bret said...

Almost all numbers other than stock markets and short term interbank numbers look reasonably okay. I like the website carpe diem (http://mjperry.blogspot.com/) which has a continuous stream of interesting numbers:

Commercial and Industrial Loans Set New Record"

Gasoline Price Free Fall: Gas Now At $2.89 in Michigan and $2.62 in Missouri.

Expected Inflation At a Six-Year Low

Unemployment: 6.1% (a fairly low number historically)


David said...

Bret: Thanks for the pointer to that site, and I agree with what you say. The reason that I focus on the numbers I do is that everyone keeps telling me that there's a credit crunch, people can't get mortgages, we're bankrupt, the dollar won't be the reserve currency any more, etc., etc., etc. That's just not what the numbers are saying.

Anonymous said...

Gosh, you mean maybe the mainstream media is not a reliable source for competent (note I said competent, not unbiased) financial news and analysis?

Duck said...

Sure, the financial system is hooked up to governmental life support systems, so its pulse looks normal.

Gas price drop is a symptom of a weak economy.

Inflation at six year low, again sign of a weak economy. Can you say "deflation"?

Whether unemployment number is low depends a lot on whether you have a job or don't.

FYI, my company had another round of layoffs yesterday, second in as many months. My job survived, barely. I'm personally not in a very Pollyannish place right now.

And remember, things could get a lot worse from here. Don't take today's readings as a given.

Bret said...

duck wrote: "Gas price drop is a symptom of a weak economy."

Possibly (but may be an overbought condition reverting to a more normal price range), but even so, provides a negative feedback loop relative to recessionary forces.

duck also wrote: "Inflation at six year low, again sign of a weak economy."

But it gives the Fed ample room to continue to create money to stimulate the economy. No danger (currently) of stagflation.

Harry Eagar said...

What do you mean no danger of stagflation?

We've got it already.

My worry is about a crash and deflation, though. Has been since March.

Conceivably, we might manage our way out of this, but not with the incompetents we got doing the managing.

The idea that loan money is available is just not true. I spent part of Tuesday with the projectors of a $500M project that is 80% complete that got its financing yanked.

They might be able to get a new underwriter, but probably not at a rate that will permit a profit.

I talked to another developer who's got over $500M tied up and has shelved all his projects because no financing is available. Consider his carrying costs.

Another project, rather smaller (about $200M) was around 90% complete when it shut down in August.

David said...

The plural of anecdote is not data.

Bret said...

I've been using that saying for a while, but I've sworn off it as it's misleading.

Surely, you'd agree that the plural of datum is data. The difference between an anecdote and a datum is pretty small with respect to statistics. You can't get good statistical information out of a single datum or poorly collected data any more than you can out of an anecdote or a bunch of anecdotes with a systemic bias.

Bret said...
This comment has been removed by the author.
Bret said...


According to the numbers I see, inflation is very low. Without inflation, there's no stagflation.

David said...

Bret: When someone is telling me that, despite low interest rates, there must be a credit crunch because three commercial real estate ventures on Maui are having trouble getting financing, then that saying strikes me as apropos.

Harry Eagar said...

Well, there are more than 3. I was limiting myself to projects over $200M.

Bret, I dunno what you call low inflation, but it was way over 6% until oil went down.

The situation is very strange. All sorts of commodities are down, but their processed downstream products are up. In some cases (sugar is one I know about), way up.

The flation part of the stagflation isn't at 1979 levels (although it was getting there until the financial markets crashed), but the stag part is.