What To Pay Attention To In The Finance 'Silly Season'

In the news business, the end of July through August is known as the “silly season.” So slow that page one carries “Man Bites Dog.” So it is in finance, also. My parents and grandparents were political junkies, scattered from Bull Moosers to Dixiecrats. They did manage polite discussion. Constantly.

Key Takeaways

Stimulus hopes have stock markets everywhere trading happily upward, even though bad news is the source of stimulus.
Here in the States, the bond market has just about stopped trading, only minuscule changes day-to-day, and mortgage rates aren't moving, either.
Sooner or later one of several pregnant matters overseas will deliver, and the Fed may be forced to raise rates, affecting mortgage rates.

In the news business, the end of July through August is known as the “silly season.” So slow that page one carries “Man Bites Dog.”

So it is in finance, also.

My parents and grandparents were political junkies, scattered from Bull Moosers to Dixiecrats. They did manage polite discussion. Constantly.

Thus I am a junkie, too, although an anti-partisan (anti any party), and I have memories of every national convention from 1960 forward.

Just as unprecedented lunacy in Cleveland began to pierce my armor, my wacky hometown came to the rescue.

This week in distractions

In Nederland, a village just west of Boulder, on Wednesday a lemur on a leash bit a 2-year-old girl (“nibbled” is more accurate, as no injury). Local gendarmes pursued the owner while using the radio call sign, “Lemur Command.” The nibble aside, Lemurgate is a criminal offense — in Colorado, it is illegal to keep a primate as a pet.

Cleveland might have considered a similar ordinance. And Philadelphia, right now.

Then this week at the eleventh “Identification of Dark Matter Conference,” researchers said the LUX (Large Underground Xenon) project is a success. We spent $11 million to suspend 600 pounds of liquid xenon in 72 million gallons of water for two years in an abandoned gold mine in Lead, South Dakota, to detect WIMPs (weakly interactive massive particles) marking dark matter as predicted by supersymmetry theory.

A “success” — but no WIMPs and no dark matter. Thus, the unstoppable march of science.

On Thursday, HMS Ambush, a state-of-the-art U.K. nuclear hunter-killer submarine, collided with a merchant ship while Ambush was submerged. Its captain will be stationed for the rest of his life in the Orkneys, counting puffins.

Economies around the world

Next up, Europe, which closes for August. On the continent, they expect to steal London’s international banking franchise but shut down for August. Good thing, this year.

Post-Brexit, the E.U. parasites have proven the Brexit point. Bossy Brussels intended to punish the U.K., but E.U. businesses have trumped (sorry): The E.U. sells a great deal more to the U.K. than vice-versa and want no damage done to that trade.

The ECB (European Central Bank) also left early. Expected to add stimulus to offset Brexit, the ECB instead offered its vigilance and readiness. Maybe in September.

Italy’s banks are near, on the edge, or over the brink of collapse. Deal with that? Mon Dieu! Get out of town.

Expectations for stimulus by the Bank of Japan are also high for helicopters scattering clouds of yen. That’s still a fair bet, but it will not be clouds, just another too-little too-late for the economy — but perhaps enough to destabilize markets.

Stimulus hopes have stock markets everywhere trading happily upward, even though bad news is the source of stimulus. Few think that stimulus will work, but it’s enough to know that the central banks won’t tighten. So buy on bad news. Right.

Stateside: Mortgage rates and markets

Here in the States, the bond market has just about stopped trading, only minuscule changes day-to-day. Mortgages are still close to 3.50 percent. That low, but still not creating a national buy-frenzy, and only a mini-boom in refis.

However, this long period of hyper-low rates has created complacency. A buyer might worry about affordability, or job relocation, but fear of spearing by the Fed…? Gone.

We may make it through the silly season without much happening, but sooner or later one of several pregnant matters overseas will deliver. (Psst: China.) They all seem low-probability, and in the meantime, anxiety about these threats is a boost to the U.S. economy.

But, if that boost becomes overheating, the Fed may be forced to act, and in turn risk making any of the overseas issues worse. Tough job, nothing silly about it, a situation both unprecedented and unpredictable.

Here is a wild contingency. Suppose negative yields overseas continue to pull down U.S. mortgages… below 3.00 percent, and get a bubble going.

Raising the overnight cost of money is fraught with other risks, so instead push up mortgage rates by beginning to dump the $2 trillion in mortgage-backed securities bought with quantitative easing? It is silly season, but that idea is sound.

U.S. 10-year T-note in the last week. The chart looks exciting, but only because of an exaggerated vertical scale, all trades between 1.55 percent and 1.61 percent. ZZZZZZZZZZZZ.