MORTGAGE CREDIT NEWS BY LOUIS S BARNES - June 5, 2020

Some weeks it’s a struggle to find something worth writing about. Then there are other weeks.
The Economy. The format in this space has been to open with economic data, the reliable benchmarks. Since March, data have been useless. We entered something awful which was going to stay awful and without any precedent. Without historical context, new data will not help with future develop probabilities -- not even to grasp where we are today, or were last month, let alone the future.
However, since March the usual suspects of economic commentary have not been able to resist, publishing portentous predictions tilted to the apocalypse, rather like the Covid forecasts. Anthropologists in the far future will wonder why the Yucca Mountain nuclear waste facility is packed with ventilators, and the National Petroleum Reserve is topped full with sanitizer.
Stick with the unknown. Recovery will be as hard to identify and characterize as the apocalypse. Start with today’s employment data. Unemployment “only” 13.3% in May some hail as a great victory. May and April were the worst two months since 1940. The good news: April was a full-shutdown month, and May in most places about half so; June may look better and actually be so.
The bad news: the U6 measure of unemployment, “involuntary part time” improved slightly in May to 21.2%. Those are the furloughed and short-scheduled, who may be back and may not, and may grow. In the first week each month we get the twin ISM surveys of purchasing managers, each taken late in the preceding month, thus May’s partially reflecting reopening. “50” is breakeven. “44” is recession. The manufacturing survey arrived at 43.1 and the service sector at 45.4, both up from April, but wait a minute. The employment components were in the low 30s, new orders lousy, and the overall values propped by quirks of shutdown (if it’s not there, can’t be surveyed).
The improving employment stats also miss the worst-hurt by Covid and shutdown, the never-counted who work for cash or barter.
There’s a fair chance that May was bottom, but nobody has a mention-worthy guess at the shape of recovery. Sometimes the best thing to tell a client: “We don’t know.”
Interest Rates, Stocks, and Housing. The “good news” has brought the yield on the 10-year T-note up to 0.90% this week after two months at 0.65%. We’ll find out if the Fed cares and wishes to drive it back down. Otherwise meaningless, no effect on mortgages still crippled and to high by forbearance, unknowable future job losses and foreclosures, and criminal misbehavior by Fannie’s regulator. Housing for the moment is doing better than most of the economy, but after the release of pent-up springtime demand... nobody knows.
Stocks are certainly a help to housing, a lot of wealth restored. The Dow is less than 10% below its all-time high in January, which worries people who worry. Too high. Eek. Maybe, but five years from now most of the publicly traded business franchises are likely to be as or more valuable than this past January.
Covid. Give up on the prognosticators. Look out the window at the gazillion behavioral experiments underway. We are social creatures and cannot be kept apart. Will lake-parties, graduation parties, open beaches, leaky shutdowns, and mass demonstrations cause Covid resurgence? So far, if outdoors, no. Spend three hours with a contagious person in a poorly ventilated phone booth... not a good idea. Nobody can yet quantify the middle ground. If outdoors, some distance but not rigid, mostly masked... may work. We’re going to conduct more experiments no matter what the ouchy-Faucis say. Colleges and schools will reopen. Football is a national necessity. The Romans knew: bread and circuses or rebellion.
A new form of herd immunity: When we do not know anyone personally who knows anyone who contracted the virus since April, then we enter virus emancipation. Without guilt, in exhilarating denial, we are going out to lunch.
Post-Covid Change. My conservative impulses (in constant conflict with the other ones) have this foundation: we are and do what we do for reasons often not evident or lost to history. Don’t discard the old before testing the new. Back carefully away from anyone who has seen the future and wants all of us to hustle to the program.
Most of us prefer to live in cities. A Sumerian citizen of Ur 5,000 years ago would instantly recognize the patterns of a 21st Century city, surprised only by cars and window panes. Dirty, crowded, punishing economic classes, and pathogens, but most of us can’t be kept away.
We tend to revert to social baselines, no matter what or where. Europe’s languages, customs, and even borders today would be instantly familiar to any European of 1900 -- that after two world wars and a cold one.
Change comes, when it does, slowly and often recognized in retrospect. Recognition often feels sudden, but the process usually has taken a while.
In February if the Good Fairy had told you that a virus was coming and we would all be sentenced to two months alone, would you have guessed that the over-the-top change of changes would be national exhaustion with mistreatment of black people for being black?
“National” never means everyone, but the cultural center has broken cleanly to exhaustion, only the Tea Party unmoved. It is a secessionist movement, much in common with the Confederacy. No insult intended: three of my four grandparents had Confederate roots, and carried the same fear of economic backwardness, and hostility to city smartypants and their condescension. Secessionist impulses are as old as the nation.
Tea Party and Trump loyalty has dead-ended, 40% of the nation and not growing, versus 55% in opposition. Dead-end moments often result in moderation, post-Goldwater for example, but for the moment the minority is digging deeper. As extremism has deepened, many in the majority have feared an extralegal attempt to seize power, possibly military.
This week that possibility broke also, with Jim Mattis’ statement, a set of principles for governance by any political group. Largely missed, the simultaneous anti-political speech by the Secretary of Defense, and the nearly unprecedented order sent to all US armed forces by General Milley, Chairman of the Joint Chiefs of Staff. The links are worth your time.
Great good has come from this virus. I don’t know why, and would not advocate a repeat, but I have to look back a long way to find a week with more progress.

Just for old times’ sake, here is the 10-year T-note, three years back for context. It’s not going anywhere until real recovery, or the Fed wants it to:

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Some of my virus optimism is based on the view out my window. In Colorado we are now testing 6,000-8,000 daily, and positives have fallen close to 3% -- and testing is focused on hot spots, 300 nursing homes and the symptomatic: