Mortgage Credit News by Louis S Barnes - October 8, 2021

In the spirit of a long holiday weekend, here is an effort to relieve anxiety. The business model of all media is to create alarm, so vaccinate by sorting the few things worthy of alarm and immunize against the long list of not.

Not the Debt Limit. This fools’ paradise never matters. No Congress is likely to crash the ship even for an hour. The entire thing is a game for political advantage which politicians like media think we can be frightened into caring about, and then admire the party gaining advantage. We don’t. All of you look like idiots. BTW, technical: the Democrats via weird reconciliation can raise the limit, but want Republicans aboard for sham bipartisanship. McConnell has Dems on a hook, and yesterday let out more line to keep them there.

Not Interest Rates. The 10-year T-note has broken upward quickly, today 1.61% from 1.20% just two months ago. However, most of the move is the routine shift from steady Fed to anticipating a tighter one. So far just anticipation. Mortgage rates have hardly moved, not yet even 3.25%. The spread to 10s is very tight, and we should move toward 3.50%, not enough to hurt anything.

We can always tell who has started a new hedge fund. Stephen Mnuchin, ex-SecTreasury and one of the few functional people in the prior admin said yesterday that the 10-year could go to 3.50%. Which would mean mortgages pushing well above 5.00% and violent recession. Yes, Steve has a new hedge fund. Frightened investors tend to pay big fees.

Democrats (only) Should Worry. Biden’s Big Binge is a Bust. Forced to trim, progressives are doing their best to drive Manchin and Sinema out of the party to the other one, which would instantly end all of this progressive nonsense. The White House no doubt thinks that Joe’s trouble is just Afghanistan and will fade, but Quinnipiac numbers are too deep for that. Approval has flipped from inauguration, now 39% vs 55% disapproval.

Here is a caretaker president, elected in relief to be rid of the last one, a very nice guy, odds huge for one term, and no mandate or majority to do anything except to calm things down. The progressive wing has adopted the thinking and tactics of the Tea Party, and last week Joe backed their play. If you are the party of big government, Job One is to make it work. Quinnipiac on Joe and the border: 23% approve vs. 67% disapprove; overall competence, 42% to 55%. As-is, fatal next year.

Not Climate. Of course it’s a big and dangerous deal. But the world does not have the means to do anything big about it in a hurry. Given current technology and economies, any large-scale action will explode the cost of energy. No matter what the long-term hazard, no philosophy advises us to worry about things that we can’t do anything about. Not even this progressive crew has pushed an increase in gasoline tax, although they are hysterical enough to impede fossil fuel supply without workable replacement.

More evidence came from Fed governor Lael Brainard, really smart and could be the next chair. She delivered a speech on climate this week, a brilliant exposition of care, and approaches to the effects of climate on the economy, markets, and financial institutions -- without a hint of action. She described work underway to model potential scenarios, the serious overwatch expected from government. It was kind of her not to alarm the alarmists by mentioning the impossibility of second-order modeling. We are not good at modeling the economy as it is, and adding a model of climate effects without any precedent will be busy-work, although reassuring to some.

Not China. Worrying about China is a lot like worrying about climate. Like climate we can’t do much, except to engage other friends, and we know even less about the effects of change in China than change in climate.

Not Covid. This week New Zealand gave up on Covid eradication. Once vaccination has reached 70%, most European nations are opening, dropping all restrictions except masking indoors. There’s a long adjustment still ahead, to get used to Covid as chronic presence, but we are likely to have more anti-virals soon, and to get more out of the tools we have. (I’ll get my Pfizer booster next Friday at 4:00.)

The One Thing To Worry About: Inflation. It’s here. And may not be transient in any sense of the word. My apolitical wife (sensible RN) observed last night over at-home dinner about its cost: “The price of everything is going up.”

This supply-chain stuff is very hard to figure, even to get decent data. There is some, buried in the monthly the ISM surveys purchasing managers, both manufacturers and the service sector. Survey results in September were the same for both sectors, itself an oddity and signal. Both are near-record strength, which says a lot of people are working on supply.

In the surveys, “50” signifies breakeven, while anything over 60 is wild heat, and in the aggregate both sectors are over 60. New orders, 66.7. The “supplier deliveries” component is an inverse, slow deliveries in an ordinary economy a sign of economic strength and thus a high number is good, but today is a bottleneck: 68.8 for services and 73.4 for manufacturing and rising(!). Production is running almost 60, but employment just above 50 -- either slim scale-up or nobody to hire.

Service sector prices in September were 77.5, and manufacturing 81.2(!!).
Instead of trying to make sense of supply chains, watch one thing: energy. During periods of calm we forget that oil and gas move everything, and are components of most things, from fertilizer to paint. Not even Mr. Volcker’s 22% prime cooled inflation -- it took a collapse in oil and gas to do that, as supply and conservation caught up with shortage.

Fossil energy costs have spiked in Europe and China to 10X US cost, in part due to premature climate action. For the time being (decades), light a candle every evening to high prices begetting supply. Frack on!

A High (very high) Moment for Baby Boomers. On Tuesday William Shatner, 90, will fly into space on the next Blue Origin. If Musk has a sense of humor and history, paint on the side of that ship, NCC-1710 and CV6.

Captain Kirk has been one of the few generational icons to morph along with the generation. In “Boston Legal” as the early-Alzheimer’s Denny Crain but still James T. Kirk, each show concluded on the bridge of a Boston office in marble captain’s chairs beside his new exec, James Spader as ethically slippery as Spock was rigid, the two sipping brandy with cigars. Just like us.

"I've heard about space for a long time now. I'm taking the opportunity to see it for myself," Shatner said.

Godspeed, comrade.

The 10-year T-note blew right past chart support at 1.50%, but there is very strong support at 1.7o%, enough to hold us through the taper announcement on November 3, and until we know more about inflation and actual rate hikes next year:

Natural gas... hug a fracker:

Oil... hug again, and harder: