African Weather and Mortgage Rates.

Or: Is it raining in Botswana?

Sometime early in the month of August 2004 a disturbance developed in the jet stream which travels across Africa. It was just a small "hiccup" in the flow of air which travels from the East, beginning in the Ethiopian highlands, and flows Westward at about 10,000 feet along the divide between the very warm Sahara region and the cooler Guinea coast. The disturbance was likely given scant notice by meteorologists - just another in a long line of small squalls and weak low pressure systems that punctuate the day-to-day weather in sub-saharan Africa. It is likely more notice was made on the ground by those who welcomed the systems squall lines and the rains they carried. But still, nothing was particularly unusual about this particular weather system.

On the average, about 60 similar disturbances occur each year, moving Westward out into the Atlantic Ocean off of Cape Verde on the African coast. No one really knows why these disturbances occur, or what mechanisms exist that drive their number and frequency. The vast majority of these atmospheric "hiccups" simply slowly churn their way out to sea, dissipated or absorbed by other atmospheric phenomena, never to be heard from again.

But this hiccup was different. It had a mind of its own, and, as we'll find out, a bit of a destiny to fulfill. As our hiccup traveled out to sea it began to organize itself. Over hundreds of miles it was transforming slowly from the loosely organized series of fronts and squalls to something else. Almost imperceptibly, it also began to rotate, while the pressure within the system started to drop. With the drop in pressure the winds picked up, and scattered thunderheads began to form as the system started to draw energy upward from the warm tropical waters it now inhabited. As the air currents, convections, and vortices slowly conspired, a bolt of lightening would periodically light the horizon. The system was strengthening from within.

At this point, the former hiccup was getting noticed, but not in the Eastern Atlantic, though mariners would probably note the increasingly gusty weather and more ominous looking skies with not a little concern. No, this attention was now coming from Miami, at the National Hurricane Center, where over dinner a young meteorologist studied the latest Eastern Atlantic satellite imagery via a live feed. In a matter of hours this system would be described as "A discrete tropical weather system of apparently organized convection." In other words, a tropical depression. It was 11:00 PM on August 24th, and this was the sixth tropical depression of the 2004 Hurricane season.

Two days later, at 5PM on August 26th, our former "hiccup," now tropical depression #6, was given a new name: Hurricane Frances. Ten days later, on September 5th, Hurricane Frances made landfall near Fort Pierce Florida as a category 3 Hurricane. The cost of the damage caused by Frances is estimated in the 4 billion dollar range. The state of Florida estimates it spent at least 37 million dollars just in clearing debris alone. In the 2004 Hurricane season, in which 3 other major hurricanes also made landfall, 1 in 5 Floridians suffered damage. Hurricance Frances, and those that followed, were disasters of immense cost in human and monetary terms, both for Florida and other states in her path. Homes, business, and in some cases lives, were destroyed. And it all started with a just little puff of wind somehwere that most of us couldn't find on a map.

But that's not all. The little puff of wind that eventually became Hurricane Francis had other effects whose reach was far beyond the borders of the states effected by it, which brings us to this:

The most recent monthly jobs report showed strong job growth (about 337,000 new jobs created in October.) Many analysts note that a large portion of the job strength was directly attributed to a surge in construction employment following the recent Hurricanes that, along with Francis, hit our shores. It was this same jobs report that, when taken by the marketplace as a sign of a strong economy, was in part responsible for the recent rise in interest rates.

So there you have it - from a small puff of wind on a hilltop in Africa, to higher mortgage rates. Just a small example of the enormous number of factors, in this case weather, that can cause interest rates to move. Worth keeping in mind the next time you ask someone "So, where do you think rates are going?"

Or at least you won't look at them funny if they start checking the weather reports in Africa.

11/15/04 at 03:57 PM | Permalink
Filed Under: Interest Rates