Life, the Universe, and Everything

Promised to talk a little about the market, so let's do that. The Fed is making gumbly noises about doing something foolish like continuing to raise rates, but I suspect it's mostly sound and fury, signifying nothing but a desire to be seen as continually relevant. It's tough during political elections for the poor undervalued members of the World's Most Powerful Financial Institution. So it's possible that the next Fed meeting produces another rate hike. Not likely, but possible.

Meanwhile, here's a howdy-do: new housing starts were up strongly for the first time this year, while new building permits were down sharply. Figure that one out. I had originally hoped that this meant more people were just building houses and not getting the sign-off from the man first, but then decided that's just my libertarian fantasy talking. Nevertheless, the bond markets don't seem to know what to do with that information, so bonds have been flat all week. Fine by me. For those just joining us, and I sure hope there are some out there that are (WELCOME!), what we track here is mostly the 10-year bond, which is the best indicator of the direction of mortgage interest rates. When that bond rises, that is, when its price falls and its yield rises, that means mortgage rates will improve. Probably. Eventually. There's a whole treatise on this here, if you're interested.

The stock market continues to flirt with new highs all the time, cresting 12,000 recently, and perhaps I should take a minute and talk about that, too. Ordinarily, stock-market good news is bond-market bad news. This makes some sense, of course, because there's only so much money out there, and if it's not buying bonds, then it' buying stocks, and vice-versa. Except for several things, like, in no particular order: there's never been this much money out there to buy anything, so it's possible that everything can rise simultaneously; currently we're in a trend where long-term bonds are so popular that the yield curve has inverted (bonds with short maturities actually have higher yields than bonds with longer ones), and nobody knows what that means for sure; the Fed is the prime market mover right now, so anything tyhat makes another stupid move by the Fed more likely hurts both stocks and bonds equally; the election season is shaping up to be a potential disaster for the only political party that has any clue how the economy works; etc. Needless to say, there's a lot of chaff out there among the wheat and markets are not sure how to price any of it in. Given this, traders look at individual stocks, preferably really big ones (the Dow Industrials, for instance, note please that the Nasdaq isn't anywhere near its all-time high, nor likely to get near anytime soon), and buy those, figuring GM is likely to be a safe bet, if anything is. Right. GM. Hmmmmm..... (for the rest of the Dow components, go here).

Anyway, if you want to know what's going to happen in the future, you're in the right place. I love making predictions. Here are a few:

• 30-year mortgage rates will hit 6.5% in April next year, up about .25% from here.
• The Dow will crest just after the November elections, and go into the new year at about 11500.
• The Democrats will pick up ten seats in the House but only two in the Senate, and election night will be an almost across-the-board disaster for them again this year.
• US fiscal and foreign and domestic policy will improve, but only slightly, as a result.
• There will be no reform to the budget, or to either of the twin demons of federal bankruptcy, Social Security and Medicare.
• The economy will limp into January and next year will cool off entirely. Nobody will realize it has done this until the middle of the second quarter 2007.
• The Super Bowl will be won by neither the Colts nor the Bears.
• You, however, will be sitting pretty.

You read it here first.