Mortgage Credit News by Louis S Barnes - October 30, 2021

Halloween... so keep it light. The world is scary enough. Start with rates and the Fed, a Covid mention, then the dominant stories: measuring risk of inflation, and politics.
Rates. In the general rise of the 10-year T-note from Covid bottom at 0.55% last year, the rise began one year ago right now. It crested in March at 1.74%, pushed up by economic optimism as Covid seemed to be on the way out, fell to 1.20% in summer as vaccine resistance squelched optimism, and in the last two months rose again but in a manner so uncertain that it does not look ready to pierce the chart support at 1.75%.
10s have wobbled this October between 1.50% to 1.66%, mortgages relatively steady just above 3.00%. The Fed will announce at its meeting next week a quick taper to its bond and MBS buying, which everyone in markets knows, bond yields already adjusted.
Fed funds futures markets suggest early rate hikes next year beginning by summer, perhaps three hikes in 2022. That futures market is mistaken more often than correct. If inflation stays high, over 3% then the Fed will have to hike. I doubt it.
Powell’s term expires in February, and Biden needs to appoint someone soon. The only surprising part: that Powell is willing to take another term. Hunch: Biden is entangled with the Progressive base, and its inspired idea to get a Progressive chair who would forbid loans to fossil energy suppliers. Biden needs every Progressive vote to get his two ventures adopted, and will wait on a Fed chair as long as he can.
Covid. Here in the States, vaccine resistance has seemed a political divide, but there is more to homo sap than politics.
Several thousand USAF personnel are resisting orders for vaccination, unaware or indifferent to George Washington’s orders to inoculate every soldier. WWI, WWII, Korea, Vietnam, and present: you’re going to get vaccine air-blasted into your shoulder shortly after induction and your free haircut. No options. Until the ‘70s, drafted. When shipping out overseas, better not to ask what’s in the shot of tropical-disease cocktail.
But resistance is global, our overall anti-Covid response an embarrassment to the species. Czar Putin is as amazed as anyone, he the leader of a do-as-you-are-told state, barely 30% vaccinated... “There are just two options for everyone -- to get sick, or receive a vaccine. And there is no way to walk between the raindrops.” Covid deaths in Russia are running perhaps four times the US rate, Russia rising, most in US behind us.
China is still attempting zero-Covid at awful economic and social cost, and likely to fail. Xi will not attend the climate conference, presumably because of Covid. He has not left China since Covid appeared. Which leads to...
Climate. If we cannot deal with a new but ordinary respiratory virus, faith that the world can get organized for short-term decarbonization is... faith without evidence, but a popular pastime.
Inflation. Apologies. Herewith a numbing series of inflation-related developments.
-- Third quarter GDP rose only 2.0%, cut in half by Covid shortages. Auto supply is barely two-thirds of demand. If not built, not in the production statistics. Housing has many more units permitted or even underway than completed, because of shortages of materials and labor, and builders unsure of cost and therefore what to ask. Trade feeds into GDP, still a mess. And government stimulus is falling fast.
-- Yet, close to normal business volume: hotels, movies, and transit. Airlines about 80%, as are restaurants but only the ones which have reopened.
-- Sooner or later, inflation stays close to incomes. Which fell 1% in September (missing stimulus), but personal spending rose at a .6% rate, presumably funded by accumulated savings but nothing inflation-scary, or even inflation-sustaining.
-- The Fed’s favorite measure of inflation -- the personal consumption expenditure deflator -- rose .3% in September for all items, and .2% ex-food and energy. That’s in the range of 2.5% annual core, within the Fed’s limit for extended tolerance.
-- The Employment Cost Index is our most-broad measure of total incomes, the ultimate juice for inflation. The ECI includes benefits. Total comp rose 3.7% in the year ending in September, versus 2.4% in the year ending September 2020. A fine point: wages alone rose 4.2% and 2.5% in those respective periods, indicating much slower growth in benefits than wages, which is the pattern typical of the lowest-end jobs, which rarely pay benefits. The overall pattern suggests a one-time increase in wages for low-end jobs, not a bad thing and not a sign of a dangerous spiral.
Politics. It is hard to find a time in US history when the bases of each party were so far apart, and diving ever-deeper into their respective wishing wells. In one similarity, Dixiecrats were a separate part of the Democratic party for 100 years, their power enhanced by the Congressional seniority system of committee chairs. All of that ended 40 years ago.
In 1860 the US was its most-fractured ever, four men and four parties receiving electoral votes. The consequences of fracture were painful in the next five years. Abe: “A house divided against itself cannot stand.”
Today we have just the two bases, each purging for purity, and neither with the slightest chance to convince a majority. In the middle, centrists and independents are increasingly unhappy with base-ism. Third parties have a dismal US history, only TR making a good run at it.
Our divisions have coalesced in a strongly regional way, rural versus urban. Each region at the local level seems to be working well. It’s the Federal level only in unattractive chaos, at risk to oscillate from one base to the other and back. Many friends who are normally politically aware and self-informed seem to have de-emphasized the Federal show. They care, but DC is alarming, frustrating, and boring all at once. Here in CO we have an effective governor -- gay, married, and father -- but sent Lauren Boebert to the House, and the state is at remarkable political peace. Reagan’s left-wing opponent, Speaker of the House Tip O’neill, “All politics is local.”
The doings of the Federal government are consequential on Main Street, but at the moment too badly managed to watch. Trump himself will be gone soon, but the people for whom he has been sword and buckler will still be here. Biden is in bad trouble -- when SNL gets a gale of laughter and applause at a joke involving Biden’s failing mind, he’s in trouble.
Maybe if we pay less attention to the bases, de-emphasize the Feds in general, when they notice that the audience has left they’ll become tired of themselves.

This 10-year T-note chart, five years back... looks as though it’s waiting for something to happen. And it may be a while:

1860. Since then Dixiecrats have joined Republicans, and northern liberal Republicans became Democrats, neither group changing its mind in the slightest. Political culture runs deep:

US Army inductees in 1917:

And on the way to Vietnam. Do you suppose that the sergeant shooting the juice-blower has been to medical school? Even RNs were lieutenants.