Mortgage Credit News by Louis S Barnes - October 15, 2021

Every day we see more and more news of the Covid-scrambled state of societies everywhere. Some things will not go back to previous normal, although many will -- but we don’t know which or when or how we’ll know.

Once again remembering the drunk looking for his keys under a lamppost... A cop asked what he was doing, and then where he dropped his keys. The drunk slurred, “Over there in the park, but the light is better here.”

In that spirit, here follow interest rates, the economy, and the increasing tangle of politics, climate, energy and inflation.

Rates. We have a new trading range for the US 10-year T-note. It crested at 1.61% and rallied this week back to 1.51%, promptly back to 1.57% today. Low-fee 30-fixed mortgages are still just above 3.00%.

The bond market could not be more confused. 3rd Quarter GDP estimates say barely 2.0% growth. Fading along with stimulus? Will widespread price increases feed on themselves, or induce new supply, or slow the economy? Will the Fed speed up its tightening or slow it down?

The 10-year may have sent a signal. It stopped rising well short of the next chart support in the 1.70s, which indicates more worry for economic health than fear of inflation and overheating. Given the global surge in energy cost and disarray in China, wise to worry.

The economy. August retail sales rose 0.7%, but the meaning of the report is as Covid-murky as the others. Auto sales are suppressed by one-third (processor supply still strangled), so the report is better than it looks? A ton of stuff is flying off shelves as supply arrives to satisfy pent-up demand, so the report is overstated? Is our spending based on stimulus dollars and savings during Covid, now released, or the economy is heating and the Fed should squash it?

Mark Twain on Wagner’s music: “It is better than it sounds.”
CPI all-items in September rose 5.4% year-over year. But wait a minute... the core figure without food and energy, despite big jumps in housing rent rose only 0.1% in August and 0.2% in September. Despite the energy and food spikes, the rate of overall inflation is slowing rapidly.

Jobs... the economy is short about 5 million jobs from pre-Covid. Participation in the workforce has fallen about the same. Chicken and egg... who is who? Businesses everywhere report inability to hire. Some is due to skills mismatch, but where did the truck drivers go? It will take time to survey and understand. One aspect of Covid, durable or not: a year away from work has reset work expectations for many millions. Preliminary reports say that even hiring bonuses and higher pay do not attract employees.

Denver has advised citizens to brace themselves: the City is short of snowplow drivers


Supply chains... Biden people at last took action, the ports of LA and Long Beach now working 24/7 but still short of trucks and railroads to get the stuff off wharfs. Presumably the Departments of Transportation and Commerce have been busy with other things. Savannah is jammed with ships and containers although offloading at a record pace. When stores go out of stock, there is no way to measure accumulated demand. And when goods reappear, customers inevitably over-buy in modest hoarding. Thus chains are in for many months of herky-jerky supply and shortage, highly likely to end in modest gluts.

BTW Fed: The top officials and noisy regional Fed presidents get the ink, but some of the most valuable work is done by the near-invisible. Michelle Bowman became a Fed governor in 2018. She gave a speech on Wednesday worth your time especially if interested in non-technical aspects, and it will help anyone to feel well about the Fed.

Bowman is a banker and lawyer, high school in Council Grove KS. 2004-2010 in London and then back to Kansas. Although a right-side political pedigree, she spoke this week like someone who knows that she holds the world in her hands. She delivered the speech during a reconnaissance trip to the wilds of South Dakota; more federal officials might visit our hinterlands and get to know the locals.

She is not aboard with Powell and others who want the Fed to stay super-easy to force employment recovery. “Employment will continue to move up in the months ahead, although for several reasons that are unrelated to the stance of monetary policy, I don't expect that we will see employment fully return to pre-pandemic levels any time soon.”

The Furball: politics, climate, and energy. Duty calls: annoy a lot of people, but in a kindly and hopeful way.

Ezra Klein is the deep-interviewer at the NYT. Last week he posted a conversation with Democrat pollster David Shor, who is the bane of Progressives and disliked by other party pollsters for his unpleasant conclusions. The posting drew well-night unprecedented favorable notice by other pundits.

Shor nailed it. The Progressives have replicated the Tea Party: painted into their own corners, neither can grow to majority status, both forcing moderates away from their parties, and both in paralyzing extremism. To their own parties, “We-get-what-we-want-or-you-get-nothing.”

Shor: Democrats should stop talking about things which drive away center voters (immigration, de-fund police...) and focus on appealing things (economy, health care...). Shor’s worst-polling result: climate. “Very liberal white people care way more about climate change than anyone else,” he said. “So when you talk about climate change, you sound like a weird, very liberal white person.”

Example: this week Prince William with the same intellectual force as his father, said about Shatner’s space flight (BBC): “We need some of the world’s greatest brains and minds fixed on trying to repair this planet, not trying to find the next place to go and live.”

Jimmy Carter was a one-term bust for several reasons, but the main one was his failure to manage the energy crisis. We needed supply, and got a windfall profits tax, opposition to Christmas lights, a 55mph national speed limit, and while wearing a sweater told us that our malaise was the problem -- as we stood in line to buy gas and tried to pay for heat.

It’s going to take some study, but the energy shortages and price spikes are not Covid effects; they appear due to climate advocacy and action. Biden’s early limits on drilling and Keystone have direct parallel in China’s top-down instruction to limit energy use resulting in widespread shutdown. Coal of all things is in short global supply.

A big and painful unintended effect: if you are MegaCarbon Inc, and told that the US and West will force renewables to replace half of fossil energy in ten years, how many hundred billion in expensive capital will you spend now to find more fossil fuel? In the US especially, suppliers are front-running fossil restrictions long before we have replacement sources, long-leadtime nuclear of course foreclosed by Progressives.

If shortages do not get worse, the cost to heat a home with gas will jump this winter by 30%. If you don’t like four-buck gasoline, how about six?

If you are a Democrat, do you want to run on that platform next year?

The US 10-year T-note in the last year, now likely adapted to the Fed’s nearby taper of bond-buying:

Global Covid as reported by Oxford’s Our World in Data
Australia is opening after very rapid vaccination. I would not have guessed the world as high as 47%, but that figure is bloated by use of poor vaccines in China and Russia, and fibbing in places like Iran.