RateWatch #216 - RATS - The Election Is Coming
September 16, 2000
by Dick Lepre, Homeowners.com
I) Fixed Rates
30 year conforming* 0 point 8.000%
30 year conforming 1 point 7.75%
15 year conforming 0 point 7.75%
15 year conforming 1 point 7.375%
30 year Jumbo 0 point 8.5%
30 year Jumbo 1 point 8.25%
15 year Jumbo 0 point 8.25%
15 year Jumbo 1 point 8.000%
*"conforming" is less than $252,700 for a single family home
II) What's Happening?
This week saw some savage selling in the 30-year bond market. What is
this all about and what does it portend for rates? Letís go back
a week and set the stage. We were (an still are in a long-term) bull
market for bonds. The Treasury yield curve has been inverted since
the beginning of the year. What happened this week was the inevitable
disinversion. Look at the economic data this week. It would be hard
to imagine a stronger case for "no inflation". So what happened?
Investors who were long in the 30-year and short on the shorter
maturities (so called "flatteners") abandoned their positions
and sold the long (30-year) bond. The flattener unwinding, thus,
caused exaggerated selling of the long end (30-year) and buying
in the short end as investors betting on the continued inversion
The size of the movement is, at least in part, the result of the
decreased trading volume which translates into greater volatility
or exaggerated movement. In addition, looking purely at the
technicals, over last weekend the recalculation in the weekly
technical (this is where the oldest data gets tossed out and the
newest included) caused a downcross from the closing of the market
last Friday. This technically instituted downcross acted as a force
to support the selloff.
What we just had is an intermediate cross or correction. The bull
market is still alive. Whatís more, the increase in oil prices is
working with Greenspan. Increasing oil prices act as a brake on
business just as rate hikes do. There are no more rate hikes in
the near future.
III) RATS - The Election Is Coming
OK, so the election is coming. The big issue to date has been the
"RATS" issue. That is a clear indication that this will be a campaign
of substance in which issues of national importance will be discussed.
I mean, rats are a serious health problem and it's time we took care
of the little bastards.
In talking with folks on the phone, I often hear an expression
something like, "Well, since this is an election year interest rates
will go down". This statement has no basis in fact. The Fed Funds
rate did not increase in 1992 and 1996 but there was no need to
increase it either year. Before that, from 1960 to 1988 the fed
funds rate increased 3 times during the campaign, decreased 3 times
and was flat twice. That is the very definition of "zero correlation
The Fed owes nothing to either political party or to the incumbent.
The fact that the Fed operates outside the political arena is one of
the very things that makes it work. As financial deregulation expands
and the distinction between insurance companies, brokers and lending
institutions become blurred it is imperative that the Federal Reserve
not get caught in a political crossfire and have its ability to help
the economy impaired.
There is one thing about the election and campaigning and the
candidates that I don't like. That thing is - everything. I've thought
real hard about it and may have come up with a solution. This is
somewhat radical and may need a little bit of work. Let's remember
Columbus was headed for India when he ran into America.
One of the underlying things that no one seems to like is campaign
finance. What I propose here is the ultimate campaign finance reform.
Raising money is tough. It is difficult to make one case to the people
whom you are seeking to get money from and another case to the voting
public. That's the problem. Our founding fathers saw fit to give
everyone, well, every man, one vote no matter how much he contributed.
There is a much more efficient way to do this. This new method will
do away with campaign rhetoric and save the government a ton of
money. The notion is simple. We put all national offices: President,
Senate and House of Representatives up for bid. There are two rules
which will make this extremely profitable. Rule #1 - when you submit
a bid you need to send a cashier's check for the entire amount of the
bid and the government keeps all of the money - even the losers'.
Rule #2 - all of the winners will take the offices that they have
purchased but none of them will be paid. They don't act as if they
work for us, so why should we be paying them? They will have to pay
their own staffs and their own travel expenses. This is not a cold,
heartless proposal. They will be given office space in government
buildings (150 sq. ft per employee) complete with utilities and
janitorial services. They have to pay for their own phones, copies
etc. just like any other business.
Do you like political commercials on TV? Radio? Do you like all of
those darn signs saying "Vote Yes on N and No on Y?" Of course
not! With my plan we do away with all of this and instead of the
money going to TV networks and stations it goes to the Treasury.
This is just the beginning. Congress needs to be run less like NASA
(a financial disaster) and more like NASCAR. No more of this 106th
(or whatever it is) Congress stuff. Corporations will be encouraged
to buy the naming rights to Congress. It will be the Microsoft
Congress (might help with that darn lawsuit) or the Yahoo! Congress.
For some reason, I like the sound of Yahoo! Congress but, hey, if AT&T
wants to pay more, that's the way it goes. In addition to Congress,
in general, we will sell the naming rights to the House and the Senate.
The opening of each congress will seem more like a Hollywood movie.
Each session of Congress will begin with a prayer but that will be
followed by a 60-second commercial message. When a Congressman gets
up to give a speech on the floor he will be requires to wear a baseball
cap with an advertiser's logo. Bella Abzug had this idea first but she
did not know how to monetize it.
This is just the beginning. We can sell the naming rights to Federal
buildings, monuments, parks and maybe even holidays. Professional
sports have learned this lesson from NASCAR.
Who makes more money, C-Span or E-Bay? Washington Mutual would probably
be willing to pay a lot to not have the name of the Washington Monument
changed to the Countrywide Monument. Yosemite is a nice place. Kodak
should be willing to shell out big bucks to become "the official film"
of Kodak National Park.
The important thing is that we will be spared campaign rhetoric. We
won't have to listen to the candidates debating about how many debates
they are going to have. In fact, we won't have to listen to them at all.
And you know what? In the end it will make little difference as to who
gets into office. It will just save us a lot of money.
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