Mortgage Credit News by Louis S Barnes - August 13, 2021

Here in the heart of the Silly Season, all media starved for news, below are interest rates, the new federal budget, eviction and unemployment, climate, Afghanistan, and the improbable new location of massive marijuana farming.

Interest rates have oozed upward but are behaving irrationally, a thread running through all of this week’s news. On July 19 and August 3 the 10-year T-note double-bottomed at 1.19% and then rose above “support” at 1.30%. The double and broken support should have produced a run to the next level, 1.42% and did not. Crazy markets. Mortgages briefly fell below 3.00%, now back above.

The Fed will taper its bond and MBS buys this fall, everyone at the Fed except the chair now saying so. But July inflation was not as bad as it could have been, small business and consumer optimism is fading, Covid loose in China, Covid stimulus concluding, and other scary noises from the anxiety closet have combined to hold rates down, contrary to reason.

Bernie’s $3.5 trillion dollar dream. Bernie Sanders is the Senate Budget chair. The preliminary skeleton of his dream passed this week 50-49, so every Democrat can claim to have voted for it. The plan is Great Society redux, every imaginable social trinket to be funded by soaking the rich.

The spending will not survive, but the fatal illness is the soaking. Among those to be held under water: anyone who sells an asset which has appreciated more than one million dollars will cough up half the excess, even at death. Under all previous law, at our death we do not pay taxes on capital gains, just upon the overall value of our assets. Oh -- taxes on all capital gains will double to about half.

High taxes on capital gains are bad law, discouraging investment. Some have noticed that the nation is a tad short of housing, and that prices have risen. Imagine this common occurrence: an investor bought a rental home, looked after it, paid interest and taxes, kept it for 40 years until death, and the capital gain today exceeds one million. No matter how Progressives feel about rich people, the rest of Congress is not itching for suicide. Biden is in theory aboard with the budget, perhaps because he has to be, but hateful, grasping foolishness like this will drive middle class suburbanites to Republicans in 15 months.

Eviction and Unemployment. The extended eviction ban which Progressives talked Biden into will lose in the Supreme Court, soon. It is both extralegal and outrageous. Congress appropriated nearly $50 billion for tenant assistance, but government has failed to get the money to the people who need it. The Left thinks that appropriation is all that’s necessary, but we fail constantly to manage and measure the effectiveness of new social spending. Meanwhile landlords are stuck with mortgage payments and no rent, but they are rich so no problem.

Unemployment and new jobs... this spring as the economy began to recover, red states began to cancel Covid-extended unemployment benefits because the unemployed are lazy freeloaders taking the money instead of going back to work. Then and still that attitude is disgusting to me. But. By spring, openings for jobs exploded and were unfilled. Now that extended benefits have concluded in many states, we suddenly see huge new jobs in monthly stats, and a drop in claims for the old, minimal jobless benefits. Ick.

The New IPCC Report on Climate Crisis. This week’s release has a new format: all of the disaster predictions, but intentionally no advice for what to do about it. The risk is real, especially to sea level and ocean currents, but everyone who is interested already knows.

After the Paris accord, in 2014 separate teams from the 15 nations set out to measure what needed to be done. By 2050 for temperatures to stay below the 3.6F increase limit agreed upon, global CO2 production has to stay below 1.6 tons per person per year. The US team found a 90% reduction necessary from current US use, possibly doable with 60% of electricity generation switched to nuclear. China found the target impossible, 3.4 tons/person/year the best attainable. (Source: NYT 7/9/14)

Reinforcing fear and demanding action is pointless and annoying without specific sacrifices and feasibility, engraved every day to help us to do all that we can. We may be doing now most of what is feasible without excessive economic harm. Instead of rational planning, this week we have the IPCC dodge and Progressives threatening to block chair Powell’s reappointment in favor of someone more sensitive to climate action (huh?).

Afghanistan. The 20-year adventure will conclude shortly, but the ugly aftermath will be a political distraction here from useful work. It should not be; the adventure has done enough harm already. National understanding is limited, given our era of inattention to important things.

The venture was folly from the beginning, and in recurrent form. The US is a maritime power. Afghanistan has no port or seacoast, 700 miles from an ocean. To supply an army, the closest port is Gwadar in Pakistan, thence 1,800 miles to the Khyber pass and 325 miles to Kabul. The nation is roughly the size of Arizona and New Mexico combined with much worse climate and terrain, the population of California, the terrain so bad that Army engineers found it impractical to build a railroad across the place.

As a strategic matter, we have discovered recently and repeatedly that a sanctuary for our enemies across a nearby and hostile border is a losing game. And repeatedly our ally’s adversary has fought harder with fewer resources than our side (exceptions SKorea and Israel). The outcome is unspeakably sad for our dead and crippled, and for Afghans. We did try, but should not have.

Marijuana Production. In an improbable social breakthrough, the new production capital of the universe is... ultra-red Oklahoma. As a certified Okie myself, I sorta understand. The place has always admired creative edge-walkers and most crooks. A referendum in 2018 allowed medical dope, and now 376,000 Okies have medical cards. But unlike other states allowing medical use, OK has no regulation, and production has become... ahem... somewhat larger than local consumption and an export product, among other places to Mexico. 12,600 Okie marijuana business licenses, 8,600 growers, just one in Okemah (pop. 4200), the Tribe Collective last year grew 63,000 pounds.

Art Buchwald’s favorite closing line: “Could I make that up?” (NYT August 9.)

The 10-year T-note in the last year. This looks more like a bottom than the other times it wasn’t.