Economics and turning wrenches
My neighbor Dave bought his son a car recently. The car is a used BMW and the plan was that they could get some good father and son time while working on it. The car was having some problems recently so Dave came over to my house to borrow a set of car ramps. The idea was that he’d get the car up on the ramps, get a good look at the problem and then fix it. About two minutes after he borrows the ramps the neighborhood was filled with the sounds of chaos. There was lots of shouting and the sound of metal on metal contact…the type of scraping, smashing and grinding that would make survivors of the Titanic cringe.
After borrowing the ramps Dave drove the car up them and then straight off the back. At this point his son began screaming “NO NO NO!” as he watched his new chariot (along with his dreams of first dates) come crashing down right in front of him in a horrific show of automotive carnage.
A few minutes later Dave was back. This time he wanted to borrow my 3-ton floor jack. OK. He drags the floor jack over to his house and at some point realizes it’s going to take more than he thought to fix this problem.
A few minutes later Dave was back…again. This time he wanted to borrow my jack-stands. He was now just reaching for solutions. He didn’t look like a man that was thinking things through…he was in full bore “reaction mode”. Rather than think through the problem, he was just doing the first thing that came to mind and then dealing with the fallout of that action in the next round.
I haven’t seen Dave since the last round of borrowing but as I worked in the garage last night I glanced over at Dave’s house and chuckled when it hit me. There are some similarities between Dave fixing that car and the government’s attempts at fixing the economy. When it was first learned that there was a problem they both decided they could “fix” it. They didn’t really have the tools they needed though so they borrowed stuff and decided they’d figure it out as they went. The problems actually got worse once they started trying the fix them, then they got stuck and had to borrow some more, then that didn’t work and they had to borrow still more. Now they’ve got all of the original problems to deal with plus a few more that they created along the way, and sooner or later the lenders will need their stuff back.
When I left for work this morning he still had car problems and he still owed me a bunch of tools. I just shook my head as I drove past his house because I knew I’d be seeing the same story play out on my Bloomberg when I got to work…we’re still trying to “fix” the economy and we owe a lot of people a lot of money.
Recent news
The economic news of the day surrounds the pace of business activity. The Chicago Purchasing Managers index was in positive territory and beat the estimate, signaling a bit more growth than expected. The NAPM-Manufacturing numbers behaved similarly, and the Dallas Fed Manufacturing Activity report eaked out a very small increase posting a 0.3% increase vs. an expectation of 0% change. The market has not moved much this morning on the economic data. In fact it rallied a bit after those releases, pushing prices a bit higher and yields lower.
Much of the news seems to be overshadowed by equity market concerns over the fallout of the Dubai debt situation. Treasury levels are currently near their recent low-water mark. The 10-year is trading at a 3.23%...close to the 3.17% level it posted back in October. MBS spreads remain fairly tight as well with the spread between the 15-yr MBS and the 5-year Treasury running at 126 basis points. This spread was well over 300 bps at the height of the crisis.
So right now the market is fairly quiet and seems to be awaiting the fallout of both the Dubai situation as well as the Tiger Woods situation. This morning we were trying to figure out if a
5-iron or a 6-iron is more appropriate for busting out the rear window on an Escalade. If anyone has the answer to that please let me know because we’re trying to settle a bet.
If you have any questions or if there is anything we can be doing for you just let me know.
Steve Scaramastro
800-311-0707
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