MORTGAGE CREDIT NEWS BY LOUIS S BARNES - June 12, 2020

After weeks of trying to find the heart of the matter in new events which I don’t understand, it’s a relief to return to old and familiar things which I don’t understand.

The Fed.

And in a year in which several categories of events rank as all-time, add humility to the 2020 required list.

All-time... Chair Powell on Wednesday: “We went from the lowest level of unemployment in 50 years to the highest level in close to 90 years, and we did it in two months.” Leave it to Jesuit-trained Powell to articulate the heart of the matter.

This is not your Dad’s recession, nor your Granddad’s, nor his Granddad’s. We understand traditional recessions very well. All involve credit excess compounded by economic excess. All economies have speed limits tied to productivity. The role of central banks -- themselves 150 years old, and their effective operations only half of that -- is to intercept speeders, and if they miss one to come to clean up the accident. In the modern era, central banks successfully intercept constantly, missing only once or twice a decade, and usually because of our own insuppressible exuberance and misbehavior.

This time... oh, my. In early March we had little credit excess, limited to some silly corporate debt again involving “structured products.” Unlike 2008 when such things were pervasive throughout the financial system and had infected housing, today’s “CLOs” are concentrated among the hedge and private equity suspender set, arguing fiercely among themselves about the meaning and collectability of the IOUs and trust indentures. Couldn’t happen to a nicer bunch of guys.

This time... we shut down a perfectly healthy economy in an unseemly panic. We won’t shut down again -- can’t afford to -- but streaks of panic remain. The Fed can’t fix that. The Fed has done all it can, and will continue to do it, to be sure that panic does not infect the supply of new credit, and band-aid the effects of the shutdown.

Powell’s observation of the neck-snapping flip in unemployment accurately states the statistical problem. But low rates and plenty of credit can’t fix it. The cause of the flip is fear of working or spending money indoors. The Fed cannot fix fear of airlines, hotels, restaurants, retail stores, and offices. The best Powell can do is to support the economy while we figure this out, or we redeploy the millions of workers who in a worst-case event will never return to their original work.

Progress I. We are built to take our casualties and to move on. If not so we would not be here. If we lost Uncle Gork and some cousins to a mammoth stomp, and were then too afraid to leave the cave... that’s the end of that branch of the species.

Most of us have known from the Covid get-go that its worst effects have fallen on the least of us. Those who work with their hands or in close proximity, who live in the most compact homes, and who have the least financial cushion.

Do you feel admiration for the people -- millions -- who returned to work despite the unknown hazard, because they had to and found the will? Our roofers, landscapers, hygienists, barbers, and builders, and for the no-glory people who never stood-down, picked up our garbage, delivered our mail -- and did all of that often to benefit those with the scratch to stay in their caves?

To recover we must share and feed on their courage.

Progress II. We are making progress. Showings of homes for sale have returned to normal -- and sales also in many areas. Wow. Shutting them down in the first place was to keep us from moving near each other, even though zero risk from properly done showings themselves. Going into the virus, every urban area had a housing shortage made worse by IT-worker migration to cities. IT is almost untouched, competition for housing... game on!

The mask set (count me a member) regards the non- and anti-maskers with disdain, and vice-versa. On the way into rich and ultra-left Boulder this morning I began to count

the single drivers wearing masks in their cars, working on a percentage (one-quarter?). Paying attention to increasing traffic seemed more prudent.

To many, no-mask seems bravado, or a political statement. We are built that way, all three ways, the judgment and risky courage and the oppositional behavior. The courage shows in combat, Marine first sergeant Daniel Daly to reluctant infantry at Belleau Wood, “Come on! Do you want to live forever?” Or advice to offspring, “If you can keep your head when all about you are losing theirs....” Or leadership, “...Nothing to fear but fear itself.”

America is voting with its feet and getting going. And thus conducting extraordinary experiments. Mr. Trump will hold a mass rally indoors next Friday, masks probably unwelcome. Football teams at the college and pro level everywhere will begin practices, many next week. In ten days we’ll know the contagious effect of mass protests. If negligible, the great outdoors is wide open, from beaches to stadiums.

Fear I. We need to feel reasonably safe with each other indoors. Not safe, but safe enough. Safe enough to shop and eat out and travel, which means tax revenue. That’s the problem and the Fed can’t solve it. Without tax revenue all of this gets worse with spiraling layoffs. While we work on the medical aspects of the virus, could we please have an all-out effort and funding to make interior spaces safe enough?

Fear II. The media are having a grand time attracting eyeballs to stories designed to keep everyone scared silly. And unfortunately assisted in that effort by too many medics and academics.

The CDC two weeks ago pointed out the now obviously low risk of surface contagion -- and was shut down by the well-intended who think they will limit contagion by keeping us scared. Probably so, but this is us, and we are bored easily by wolf-crying even if there is one. A doc at the WHO mentioned studies skeptical of asymptomatic contagion (a no-symptom person tests positive, re-tests positive, so begin energetic contact tracing and find no secondaries... that’s good data). She was fried into silence. There is a huge fight underway between research opponents in several areas, but the leader may be droplets versus aerosols. The aerosol people persist, furious that anyone would discount aerosol physics, despite the absence of aerosol hazard visible out the window.

History. History is too often used for political distortion instead of enjoying our ridiculousness. I have not been fond of any presidential press secretary (except JFK’s Pierre Salinger); abrasive lying is a lousy line of work. But Trump’s newest, Kayleigh McEnany this week set a new standard. She justified Trump’s wish to retain the names of Confederate generals for military bases: “...A complete disrespect to the men and women who the last bit of land they saw before they went overseas and lost their lives, were these forts.”

The first three in question, Benning, Bragg, and Hood have never been “forts.” Hood was built in 1942. Benning is about 100 miles from enough water to carry a troopship, the other two about 250 miles. Few people leaving any of the three have expressed regret, their dominant memories involving sand, mud, and snakes. As for the sacred memories of the three officers, Henry Benning was a leading advocate of slavery and never trusted to command more than his 2,000-man brigade. John Bell Hood was an aggressive commander who rose to lead a division of 7,000, but promoted to higher command got more of his own people killed to no purpose than anybody in the war (two-thirds of his last command were casualties). Braxton Bragg lost every battle, entire books devoted to his incompetence.

Small businesses have suffered the worst damage, but the survey by the NFIB for partially re-opened May shows a significant rebound from bottom not as bad as 2008-2013:

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Full interactive Colorado public health data here https://covid19.colorado.gov/data/case-data . We are still short of tests, can’t sustain more than 5,000 daily, and are self-selected toward positive results (testing only hot spots and those who think exposed or symptomatic). Maybe it’s just seasonal, or maybe the May collapse has something to do with concurrent adoption of masks in our population centers. Whatever, falling into the 2% range... someday may assuage fear.

Speaking of fear... the NYT asked 511 epidemiologists about their post-Covid activities and anxieties. Struggling to be respectful of science and scientists... if these people guide the national reaction to the virus, the economy and society are toast: