MORTGAGE CREDIT NEWS BY LOUIS S BARNES - February 21st, 2020

There are times when the world goes crazy. Not just garden variety, man-bites-dog, but unpleasantly wacko. We’re not there yet, and episodes are rare.

Economist Hyman Minsky proposed that bad economic trouble tends to follow extended good times which left us vulnerable to overconfidence or to the consequences of not paying attention. The observation is almost an Obviousman! “duh,” but that’s the point. We get distracted, wander off somewhere and forget to consider obvious concerns.

And not just economies. My Okie mother was the youngest of six, raised by a single-mom. On my mother’s wedding day her mother said to her new father-in-law, “Damn. I forgot to raise that girl.”

Wuhan is proceeding toward pandemic, and a quiet, slow-motion panic is underway (the generic “coronavirus” and specific COVID-19 are cleansers for China’s accountability). Throughout the virus’ progression, financial markets have been ahead of governments and the China-fearful WHO. Overnight last night the US 30-year bond traded below 2.00%, presently a new all-time low 1.91%.

The mortgage-defining US 10-year T-note has fallen below 1.50% to 1.46%, and looks more and more likely to test its all-time low at 1.32% in 2016. The exact level s quibbling, the 2012, 2016, 2019 and now 2020 lows all within an inch of each other, and today.

Three things “so far:” the panic is overseas, buying Treasurys not mortgages still stuck above 3.50%; second, there is no evident damage to the US economy, just suspicions; and the Fed is in an awful pickle, make a pre-emptive cut or cuts, or wait for symptoms?

The world has not faced a possible pandemic like this one in modern times. Wuhan is not as deadly as SARS or MERS or Ebola but much more contagious than those and deadlier than seasonal flu. Thus the economic effects cannot be forecast. But everyone in markets is paid to think, and handicapping began in earnest before the end of January.

The thinking begins with supply chains, many sourced or transiting China via import and export. China’s energetic if blundering quarantines certainly interrupt those chains. However, one thing about those chains: their extraordinary flexibility has caused price-compression and our low-inflation era, and every logistics desk has been using that flexibility to avoid Wuhan. Markets fear a spread which can overwhelm flexibility, and that fear intensified last night.

A deeper effect of Wuhan is silent and undetectable except by secondary effect: time. Time passes, and flies. Tempus fugit. Time is money, and money is time. If I am quarantined, will I be paid? If so, how by an employer temporarily without revenue? And the debt obligations of both the employer and employee -- who makes those payments? What happens to the investors and banks holding unpaid IOUs? We have no idea how to just... stop an interlocked global economy... for a while...?

Central banks can print, already doing so in China. But in many places (China) the printing is already at unsustainable levels.

Enough of that. Good news in the US: sales of existing homes in January were 9.6% above one year ago. Yes, we were slow then, mortgages 5-ish, but the sales rebound is real, even though inhibited by a 10.7% year-over-year drop in inventory for sale.

Enough good news. On with the crazies.

The world is in or near a first-class health and economic crisis. Leadership? Emperor Xi is not as dumb as he looks. His top priority by far: to hold the place together. He seems to have his own mystical dreams about old China, but the unstable fight between Party, entrepreneurs, modernizers, and conservatives makes the US look like a consensus. So Xi tells fantastic lies outside and to his own people, and China bristles in the defensiveness of those who fear their weakness, but nobody outside can know what is happening inside.

Europe and Japan are asleep. Maybe better so. The rest of Asia and the Middle East are preoccupied. The developing world, to include to much of the Americas south of us are terribly vulnerable to Wuhan.

Despite all of that, other leaders do their best to entertain us. Our president, recently excused of poor behavior has responded by pardoning gangsters, and appointing a totally inexperienced crony to Director of National Intelligence because the president is angry at new intel findings that Russia is trying to get him re-elected.

Consider Vladimir Putin’s state of mind. Whether I did it or not, America could not have elected someone more harmful to itself and helpful to me. But now, if I must choose between the one they have and this Sanders, which would be more harmful to them? How can Holy Mother Russia, the Rodina be so fortunate? Perhaps I can sit as they did in the Cold War and let nature take its course there as it did here. Poke at them with dezinformatsiya, needle them into more distrust of each other, and just... enjoy.

March 3 is the Democrats’ Super Tuesday. As difficult as it was, many of us felt the civic duty to watch this week’s “debate.” The format is so awful that it’s hard to reach conclusions about anyone, or even to measure relative performances. The moderators all think they should be president and so craft cutesy-tricky questions which the candidates do not have time to answer. While they try, the others are allowed to interrupt and wave their hands like kids asking permission to go to the bathroom, the whole show a serial food-fight.

Lest this letter seem too dark, watch the most magnificent pie-fight ever filmed (in The Great Race) and pick out your favorite presidential candidate here.

Each observer seems to have seen a different debate, so it’s open-opinion season for all of us. Mike has gotten bad reviews, but as an outsider suddenly trapped in idiocy, who could mask that knowledge? I’ve liked Pete from the get-go, but he shrank to half-size when Amy laid him out for his low blows. Warren is a viper biting and biting, her poison effective but has no other substance, no accomplishments or talent as a public executive. Sanders and his wing of the party are the mirror image of the other and its messiah.

James Madison gave his life to crafting a republic, the best of us elected to do the people’s business, and balanced by law to prohibit a monarch and to counter extremism. But he knew and said that without an informed electorate, structure does not matter.

Do your best in ten days, Democrats.

The US 10-year T-note in the last year. The September bottom reflected uncertainty about the economy and a hope for more Fed cuts, followed by health and rising yield. Until the fourth week of January, and Wuhan:


The Atlanta Fed GDP data is happy, but entirely pre-Wuhan:


As of February 14 the broad and sophisticated ECRI may have picked up the first sniffle: