More Market News

The $8,000 and $6,500 homebuyer tax credits went out—to use poet T.S. Elliot's phrase—not with a bang but with a whimper. The applications index for purchase money mortgages managed to climb to 257, thankfully, but if you look at the history of this Mortgage Bankers Association index, you find that it's spent a good deal of time above 1,000…and 250 is very, very small potatoes.

So the tax credits didn't do all that much for us this time around, though every little bit helps. We will now have to start relying on genuine demand, rather than gimmicks, to bring in homebuyers and financers. The big problem, as I see it, is that we need a bit of confidence in the economic recovery if consumers are to feel good about buying a home. And we don't have that yet, in spite of slowly improving jobs figures and consumer purchases.

Last week provides a case in point. We began the week with the DJIA reeling from fears about the debt situation in Europe. Then, on Monday, the stock and credit markets were frozen in place as concerns that Treasury auctions might go poorly, based on the slightly weak auction of 5-year Treasury Inflation-Protected Securities.

On Tuesday, the DJIA plunged 1.9% on news that Standard & Poor's had demolished Greece's debt rating, sending the country's bonds to junk status, and also lopped two notches off of Portugal's debt rating. The only good news here was that the auction of 2-year T-bills benefited from the resulting global flight to quality.

On Wednesday, largely because the Fed reiterated that it plans to keep rates low and mumbled that the economic recovery seems to be faring slightly better, the DJIA regained 0.5%. But of course, the day's auction of 5-year notes resulted in slightly higher yields than expected, and the 10-year T-note climbed a bit to 3.778%.

Things looked up on Thursday, with a strong auction of 7-year notes, a large array of foreign investors participating. The DJIA climbed another 1.1%--which seems to be what it would like to do each day, left to its own devices—and the 10-year T-note giving very little ground.

And then Friday, a criminal investigation into the Goldman Sachs shenanigans was announced and the markets freaked. The 10-year fell to 3.663%; the DJIA dropped 1.4%.

This week, we face not only the usual auction of 3-month and 6-month T-bills, but also a hefty auction of 1-year T-bills. The stress on the market just doesn't stop—and won't. One of these days, as we all know, we will watch a panic of some sort…hopefully a small beast that can be quickly tricked back into its cage.

This is a difficult gauntlet for a weak recovery to have to run. It suggests that, though it is commonly agreed that interest rates are on the rise from here forward, the rise will be—at the least—slow, choppy and often unpredictable. Low interest rates, indeed, are one of the benefits of all this sound and fury. But I, at this point, would surely settle for slightly higher rates if they resulted from a firming recovery and real estate market.