Interest Rate Roundup

Monday, October 22, 2007

The wrong week to stop ...

"Looks like I picked the wrong week to quit sniffing glue" -- Lloyd Bridges, as Steve McCroskey, "Airplane!" 1980

Okay, first let me stipulate for the Internet record that I do not, in fact, sniff glue. But that quote definitely comes to mind as I think about my vacation last week. It seems like while I was out and away from the blog, the markets went haywire. In other words, I picked the wrong week to go on a cruise! A quick recap of what's been going on ...

- Housing starts collapsed ... again. Builders began construction at an annual rate of just 1.191 million units in September. That was a whopping 10.2% monthly decline and it left starts at the lowest level in 14 years.

- Another two points were lopped off the National Association of Home Builders' monthly survey measuring buyer traffic, present sales, and expectations for future sales. It fell to 18 in October from 20 in September, leaving it at the lowest level in history.

- The dollar continued to slide, setting a fresh low of 77.41 on the Dollar Index on Friday. Meanwhile, the bonds rallied sharply, with long bond futures up more than a point in price on Wednesday and another point on Friday. Stocks fell out of bed, with the Dow down every day of the week, culminating in Friday's 366 point rout. But in commodity-land, crude oil flirted with $90 a barrel and spot gold rose to around $770.

And don't even get me started on the debate over the so-called "Super SIV" (or more formally, Master-Liquidity Enhancement Conduit). From everything I've seen and read, this is nothing more than a bailout fund in disguise for top banks and Wall Street firms that bet big-time on investor demand for asset-backed commercial paper ... and lost. This column from Ben Stein in yesterday's New York Times has some good stuff on what's going on there. So does this Economist piece.

So what's next? Well, this week we get a peek at existing and new home sales activity in September. Let's just say I'm not very optimistic about what the numbers will show. As for the longer-term outlook, check out this Bloomberg story that extensively quotes Ivy Zelman, one of the best housing analysts in the business.

We also have to keep a close eye on the bonds and stocks here. The key question is whether this was just a correction lower in stock prices/short-term move higher in bond prices -- or whether it's the start of something more. Place your bets ...


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