TELL THE MAESTRO THERE'S NO ORCHESTRA:

Treasurys cave on jobless claims drop: Price plunge pushes benchmark yields off 5-week lows (Kate Gibson, 12/16/04, CBS MarketWatch.com)

Already lower on early profit-taking, Treasurys on Thursday made their biggest plunge in six weeks after data that included an unexpectedly sharp drop in weekly U.S. jobless claims. [...]

"The mix of data has succeeded in driving yields slightly higher, in line with their modest rebound in overseas trade. The root cause is likely the focus on the steep drop in claims," said Action Economics analysts. "The record current account deficit and housing starts slump had less traction on the fixed income side."

The Labor Department said the number of people filing for state unemployment benefits plunged last week to the lowest level since July. Initial claims dropped 43,000 to 317,000 in the week ended Dec. 11. Forecasts called for a decline to about 342,000.

Fixed mortgage rates dip: Freddie Mac: Adjustable-loan rates nose higher in latest week (Rachel Koning, 12/16/04, CBS.MarketWatch.com)

Average U.S. mortgage rates were mixed in the latest week, with fixed rates edging lower but adjustable rates higher amid bets the Federal Reserve will continue to lift its short-term lending target.

The average rate on a 30-year fixed mortgage eased to 5.68 percent in the week ended Dec. 16, down from 5.71 a week earlier, Freddie Mac said Thursday.

Last year at this time, the 30-year rate averaged 5.88 percent, said Freddie Mac, which has been tracking mortgages since the late 1970s.

December strength in Philly factories (Gregory Robb, 12/16/04, CBS Marketwatch.com)

Activity at factories in the Philadelphia region accelerated in December, the Federal Reserve Bank of Philadelphia reported Thursday.

The Philly Fed's activity index rose to 29.6 in December from 20.7 in November. See full survey.

The increase was larger than expected. Economists surveyed by CBS MarketWatch had been looking for the index to remain relatively unchanged at 20.0 in December.

But expectations were raised on Wednesday in the financial markets for a stronger Philly Fed report after a similar survey for the New York region, the Empire State index, jumped to 29.9 in December from 18.9 in November.

The Philly Fed index is closely watched because it often accurately forecasts the national purchasing managers' survey on manufacturing activity reported by the Institute for Supply Management just after the end of each month.

It seems fair to wonder whether Alan Greenspan and the Fed either understand the economy or have much influence on it at this point. We're in a period that's the precise opposite of the stagflation of the 70s--with robust economic growth, rising employment, and deflation--conditions not seen since the late 19th century. But, being creatures of their own past, rather than of the historical past, the Fed members are reacting in the way they were conditioned to by the 70s, cranking rates to prevent even the possibility of inflation. It would be better for them to take the Hippocratic approach and "first, do no harm."

Posted by Orrin Judd at December 16, 2004 9:05 AM