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The economic indicators are in the process of repairing themselves from the distortions and damages caused by what began to seem a steady march toward defaulting on our sovereign debt. It is somewhat easy, therefore, to look upon this past week’s numbers as an indication that all is well once again. But it’s not.
The price of crude oil, for example, suggests that world markets don’t expect a great deal of economic growth in the near-term future. For that apparent reason, they don’t expect demand for fuel (especially crude oil) to grow. And thus the price of a gallon of gasoline at our neighborhood pumps has declined.
The dollar, meanwhile, is slightly weaker next to several other major currencies, and this is worth watching carefully. There is a significant resistance to the dollar’s strength among many countries—especially China—because of the fact that it was nearly allowed to fall into default. It will be important to see whether the dollar regains its luster or endures a season of distrust (which would show up, most likely, as weakness against other currencies.
We can take little solace in the tardily-reported Existing Home Sales numbers, though sales this September were a healthy 10.7% higher than they were in September 2012. Indeed, real estate numbers—while not worrisome—haven’t been very inspiring of late, nor have employment numbers. This is not greatly surprising, given all the worries and uncertainties plaguing the emotions of investors and business leaders. Every day, it appears we have to factor a new possibility into our thinking—like the fact that the Fed will probably delay its “tapering” of the support for mortgage-backed bonds.
Interest rates, meantime, are rearranging themselves, moving back to where they were before the final days preceding a possible default. The short-term rates—represented here, as always, by the 6-month Treasury bill—spiked (or should we say “spooked”) at the last moment, climbing to 0.16%, and the mortgage-length maturities, here represented by the 10-year Treasury note, rose to a commanding 2.75%. Both have fallen back to where they were before the near-default.
Which leaves us facing yet another fight between politicians not only of different parties but also of very different views and beliefs within the same party—some of whom are already promising another round of intransigence. The American public seems generally weary of the political battle; that may minimize somewhat the chances of the kind of cliffhanger that we’ve seen twice already. On the other hand, it may not.
It’s hard to keep up, much less to stay ahead of today’s relevant changes. Many are therefore in a holding pattern and are likely to stay there for a while.