MORTGAGE CREDIT NEWS BY LOUIS S BARNES - February 7th, 2020

Pick an adjective to describe this week. No, better not. This week’s economics, markets, Wuhan, and politics were seen differently by each beholder. Especially regarding politics, keep a firm grip on your sense of humor.

The economics were the easy part. Remember from last week: sort all new data by pre-Wuhan and post-Wuhan.

Today’s employment figures for January are pre-Wuhan, January data far too soon to see the virus impact. 225,000 new jobs beat the 160,000 forecast, but fiddled upward by good weather, and the seasonal adjustments for January have not worked well for decades. Why? It’s January, perhaps the most variable by weather/economy of all, and in January the holiday hires reverse, hard to measure during a time of retail disruption by the web.

No matter -- the job data are good and squash all suspicions of a tailing economy going into Wuhan, as well as near-term thought of Wuhan-preemptive easing by the Fed. The twin ISM surveys of purchasing managers confirm: the manufacturing sector rebounded to 50.9 in January from 47.2 in December, and the service sector held its long run in the mid-50s at 55.1 in January. Wages did perk up in January, 3.1% annualized, but the more broad (including benefits) measure of unit labor costs (total compensation divided by output) in Q4 2019 rose only 1.4%, below the rate of inflation.

Again: pre-Wuhan the economy was fine. Post-Wuhan is an unseemly tangle of global economy, markets and politics, and an epic lesson in civics and ethics -- and in weird sum, little effect on interest rates.

In pure data-tracking, the Wuhan effect is hard to detect and impossible to forecast for three reasons: we cannot know how widely Wuhan will spread; we have never seen such a thing in our globalized economy and thus its linkage to economic activity is unclear; and the nations most heavily affected thus far are concealing the infection.

As far as we can tell, in the People’s Republic of Korea, no one has sneezed for many years. As of today, China says 31,000 infected, 600 dead. Wuhan is the capital of Hubei province, population 58 million and apparently on its own, severed from the rest of China. One way to estimate the true rate of infection in China: to the official count, add one zero. Or two. And in the weeks ahead, maybe three.

Sidebar: I refer to “Wuhan” flu for accuracy and to annoy Xi Jinping, whose buddies are so touchy about truth and accountability.

It is possible -- if you wish really hard and click your heels together three times -- that Wuhan will benefit China by undermining the Party, which as-is will wreck the place. The second virus running through China, faster than Wuhan is the death of Dr. Li Wenliang, 34, the ophthalmologist who posted flu warnings at the end of December and was arrested for spreading rumors and forced to confess his “illegal behavior.”

More ethics... PIMCO and its best-ever trader Bill Gross were together the leading presence in the bond market from the 1990s through the meltdown. All of us depended on their information, within the limits of sales straighter than any other available, and the firm not a manufacturer of subprime trash. Douglas Hodge, successor CEO of PIMCO 2014-2016, at the firm since 1989, Dartmouth and Harvard MBA... today Mr. Hodge has been sentenced to nine months in jail after pleading guilty to felony bribery to get four of his seven children into college, and trying for a fifth.

Then politics affecting markets... as above, rev up your sense of humor or avoid. Most market observers of both stocks and bonds have felt that politics have had little effect on markets since the sharp reaction to Mr. Trump’s election. The stock market rose 25% in one year, surprised by the election of a business-friendly administration instead of extended Democratic hold on the White House.

Ask often: have White House actions since 2016 helped the economy and markets, or have they benefitted merely by protection from Democrats? This week we got the uncomfortable answer.

The only big accomplishment by federal government since 2016 has been the 2017 tax cut giving away a half-trillion dollars annually to the previously well-off, corrupting and not reforming, adding little to investment and wrecking the budget. This administration claims all sorts of other policies benefitting the economy. However, as with most claims by administrations of either party, cause and effect have been remote.

This week impeachment failed in two ways: if failed to convict, and failed to change minds. Simultaneously the Democrats again met their competence Waterloo (not Waterloo, IA, but in Iowa). Many Americans may have forgotten the first day of Obamacare, a genuinely beneficial program if hypercomplicated, but on the first day no one in the Obama administration had tested the software to see if people could sign up.

Few except political junkies have watched the Iowa preliminaries, except as trapped next to a gasoline pump with one of those new TVs yapping at us while we fill up, a lot like CNN. A year of your unimpressive candidates elbowing and shrilling, and you could not even count the raised hands among the distorted mix of caucus-goers and get it over with?!?

Stocks rose all week, until today’s job data squelched Fed-easing, and Wuhan news penetrated the Great Firewall. Still up 3.8% for the week. Mr. Trump’s approval shot up to an all-time high 49%. Connect the dots. The Democrats’ performance is so awful that Mr. Trump will be re-elected. Love him or hate him, buy stocks.

Magnifying the Democrats’ anti- performance: the collapse of the top moderate, Mr. Biden, in favor of Mr. Sanders. The “progressive” platform might be electable -- might -- at the bottom of a new depression, but today is repellant to a large majority. Buy stocks.

But wait -- hold your laughter. Most of us are at our most vulnerable when overconfident. Consider General Secretary and President for Life Xi Jinping, and Mr. Rodgers headed for the cooler. And Mr. Trump, better able to snatch defeat from the jaws of victory than any predecessor.

It is remarkable that good economic news of various kinds and the Fed off the table have not pushed up the 10-year T-note, but they have not -- here is just the last 30 days:

The Atlanta Fed GDP tracker requires two looks to find the green tracker at top right, forecasting growth above 2.5%, way above the economists’ guesses:

https://www.frbatlanta.org/cqer/research/gdpnow

The ECRI is just as happy as Atlanta:

An illustration of Dr. Li Wenliang shared widely on Weibo, a Chinese social media platform (Kuang Biao, New York Times).