Mortgage Credit News by Louis S Barnes - December 31, 2020

Traditional predictions of the new year? Peter Drucker prevails. “Nobody can predict the future -- the idea is a firm grasp of the present.”
Only one prediction at this moment seems to have merit: 2021 will be happier than 2020. If not... don’t even think about it.
So, herewith future thoughts from the sublime and simple (money), to the awful and ridiculous (Covid and politics).
Interest rates are not likely to change next year. The Fed will not change the cost of money (the Fed funds rate) -- it says not until 2023. The Fed might begin to taper the purchase of bonds and MBS, or announce tapering, but is just as likely to announce a cap on long-term rates.
Mortgage rates might rise, but a peculiar event is pushing down, and hard. Markets have assumed a never-lower long-term rate, over and over and over since 1986, but this time has a better case for never-again-lower, at least not low enough to refi today’s 2.50%. 30-fixed mortgages made today may last a very long time. In normal times (someday again, maybe), mortgages are priced to a six-year average life; today’s may last two or three times that long.
Longer and more definite maturity is a benefit to price of both the IOU and attendant servicing contracts. Creating a loan only to watch it pay off is a money-loser, and loan servicing rises in value with estimated life. The 10-year T-note is trading just above 0.90%, hence a narrow spread to retail mortgages. Even if 10s rise in yield, mortgages can hold, the spread narrowing more as the duration of mortgages lengthens.
Got two right! In the last week we have seen a Brexit deal, and new stimulus pass into law. It’s neither much of a deal or much stimulus, but markets had anticipated both correctly, not a flicker in the 10-year T-note. However, no reaction to the event does not mean no consequences as both matters unfold.
Covid will be the most important thing in 2021, as it was in 2020, but in reverse. I hope. Covid arrived suddenly in March. It will not depart suddenly.
-- We have no idea when we’ll get to a couple of hundred million vaccinations, or when together with the recovered immune the rate of infection will fall, nor at what slope or where.
-- Even when infections dive we have no idea when our behavior will change, consumers and merchants open to indoor and face-to-face commerce. I say that with confidence, as every projection of our behavior during the rise of the virus has been mistaken. One of the most basic American founding principles is our right to do whatever we damned well please, the durable legacy of our dislike for kings, nobility, and class.
-- Behavior matters to recovery. My many neighbors here in easily alarmed Boulder... how long before solo drivers stop wearing masks in their cars? Until they do, they’ll be economic retardants. On the other hand, it won’t take much reduction in contagion and mortality for youth to party and consume in every way.
-- The authorities will remain helpless. Poor Doc Fauci, doing his best crossed over to wolf-crying a half-year ago. Telling us over and over, “Going to get worse” is well-intended but useless. The authorities are desperate to control the entire population, but most people know that the big risk is to old folks only, and there’s a limit to the sacrifice of all of the others. Sacrifice to protect ICUs is wearing thin as a reason to eliminate the social life of a 20-something, or to go bankrupt, or face eviction. 40% of deaths have been in old folks homes.
-- Don’t yell “wolf” based on a model or at the sight of a mink. Covid is awful, but not the end of days. There was no surge after Thanksgiving travel. Mask and distance fairly eliminated the flu season, double-whammy imaginary. The late fall surge is in widespread retreat or has flattened. Mask-phobic SD new cases down 75%. If the new, mutated variant really is more contagious... discovered this week in Simla CO (pop. 639), it is not “new.” Nothing gets to Simla quickly except the jet stream.
-- Vaccine delivery... speaking of speed, we have vaccines but have failed to plan to deliver. Last week Boulder County (pop. 326,000) got 700 doses; Summit County (pop. 31,200, Breckenridge, Copper, Keystone) received 810. Two organizations know how to deliver anything anywhere fast. Logistics, logistics: the US military, and Walmart and Amazon. Could... we...please...ask...them?
Politics. For fun. Unpredictable? We may -- may -- know which party controls the Senate next Wednesday, January 6, or may face a week or two of recount. That same day of course Congress will vote to accept the Electoral College ballots (or not).
Biden’s Waterloo? That battle had a winner, Arthur Wellesley, 1st Duke of Wellington. Biden’s great strengths are knowing the game and willingness to work with unpleasant allies, both traits of Wellesley. Biden knows that any overdone “progressive” stuff will bring the same electoral disaster which in 2010 ruined Obama’s presidency. Instead, get a widespread series of small deals done, Clinton-style, and remind the nation of the benefits of a functioning government. It has been quite a while.
Biden’s Other Waterloo? The fastest way to replicate the fate of the Corsican... climate. A huge majority of Americans are concerned and should be, and a smaller group are alarmed. But no one has a plan which would be effective on global scale, and can be enacted. We are doing a lot in our disorderly way, but electoral catastrophe awaits the Democrat who attempts to allocate the financial pain of decarbonization. Every Leftie channel is drowning in climate porn, but the sale to the American public is nigh impossible when nobody else will play along except Northwest Europe.
Wild swing. Covid has cracked open a door for bipartisan good government: health care. Our grotesque overspending, nearly double that in peer nations is central to a fiscal fix. Over a couple of decades, if we could get the cost of care in line, that would take the pressure off Medicare and Medicaid at both federal and state levels.
Covid’s weird effect: medics are already charting the absence of huge numbers of non-Covid patients. To what health effect? How much of our uniquely hyperactive medical industry is necessary?
Your car is just a car, and your body closer to home, but it’s nuts to walk into a body-dealer and say, “Do whatever it needs.”
OOOoooOOOooo. Can’t close one of these New Year deals without something to worry about. China will do, although 2021 is probably too soon. But a declining workforce, an aging population with no safety net, birth rate two-thirds of replacement, and no elbowing to immigrate to Xi’s paradise.... In combination with an economy still dominated by state enterprises and excessive investment funded by phony debt and stealing from consumers.... Private enterprises not stolen as in Russia, but now in China with Party commissars embedded to be sure that no entrepreneur will compete with a Party business.... And the hideous, malignant misuse of technology for mind-control. Would I rather a sentence to the Gulag, or to be force-fed until my mind collapses, unable to think in an anti-party way?
One constant among New Years: perverse effects. One of the very few ways to get inflation going: a broken China machine. Its demented over-capacity is the top global impediment to rational pricing, production, and incomes.
Happy New Year!!

Each of the following charts of new infections is from a different place, selected only from places with reliable data. If there is a pattern, it’s the extraordinarily variable response of different cultures, geography, and in Asia possible ancient residual immunity. Identities follow at bottom. Sources are the NYT base of data, and Worldometer, each with pull-downs to political subdivisions:


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1 South Dakota, 2 Sweden, 3 Colorado, 4 Michigan, 5 Germany, 6 Japan, 7 California, 8 New York (state), 9 Minnesota, 10 Florida, 11 Italy, 12 Singapore