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Credit News by Lou Barnes 6/26/20

Written each Friday by Lou Barnes in Boulder, CO. Also available online. Reprinted with permission. Lou typically provides background and context to what's happening in the credit/bond world along with topical events that some readers appreciate.

     The quality of general information about the economy and the virus is deteriorating. It seems hardly possible, but is so. If the world is quiet, with little change, then information doesn’t matter much. During sleepy times, financial salespeople and political propagandists struggle to fabricate news, especially scary news. But in a time of rapid and unprecedented change, game on!
      The economy is doing better, turning sharply upward, if unlikely to form a full “V.” The virus is either not under control or under control, depending on your desire for tidiness or panic. The virus is not surging or raging or spiking or any of the other horrifying ‘ings except spreading, which is what it has done from the outset, until each location on the globe has become frightened enough to pay attention. Then in different places and cultures, at different speeds the virus becomes an annoyance.
     First the economy, in two parts: new data and evaluating damage.
     Economic reports are always in the rear-view mirror, often a couple of months behind the current moment. The US economy entered intentional shutdown in mid-March and began to reopen in May. Our understanding of the economy and markets is always based on detecting changes in trend -- shifts in the rate of change. That approach does not include walking into an open manhole and then trying to get out.
     So, only the most descriptive data here, housing first. Sales of new homes in May returned to normal, measured by new contracts written. Sales of existing homes lag, based on closings of contracts written in April and May, when showings were not allowed in many states, but in June urban and suburban markets have been on fire.  
     New requests for mortgage payment forbearance have stopped, many of the forborne still making payments. Overall delinquent payments have risen to an 8-year high, but preliminary figures for June show new delinquencies falling, and there is no increase in foreclosures -- too early for that. High in the “go figure” category, rent payments in June are running 92.2%, the same as June 2019.
     Orders for durable goods in May were forecast to rebound by 10.0%, and instead rose 15.8%, a “V.” Real personal expenditures ran $13.4 trillion monthly annualized pre-virus, to $12.6 in March, and $11.2 in shutdown April. In May almost back to $12 trillion, and June will be better yet (the report one month away), another “V.” The non-V categories are all the slow-to-rise reciprocals of virus hazard: indoor commerce. The unknowns are enormous, especially the self-sustaining capacity for recovery as federal assistance wanes.
     When overwhelmed by fear-mongering, remember this crucial difference between this bad economic patch and all previous: nothing is broken. We fell into a manhole, but when we climb out the economic world around us will be as it was. A lot of people hurt in the fall, a lot of people casualties before their time, but the means of production undamaged. The restaurants, stores, airplanes, stadiums, ships, hotels, offices, resorts and the skilled people who made them work -- all still here. No ten million foreclosures to plow through for six years, no millions of construction workers who left the trade, other supply chains wrecked. A lot of indoor things are mothballed, but undamaged.
     To the virus....
     1. The sudden increase in Covid CA-AZ-TX-FL involves two patterns which will be followed by a third one. Every spate of infection everywhere has steepened after a long period of smoldering, usually months, and the exact mechanism for sudden geometric growth not clear. Probably some form of virus critical mass together with unprotected high-risk places and groups, and knuckleheads. Smolder, go geo, then the third pattern likely soon ahead: three weeks after knuckleheads either become frightened enough to behave or are forced to, the geometric phase retreats in nice symmetry. In all the places which have graduated from geo-up through geo-down, none have returned to geo-up. Lesson learned. Mask and distance, be very careful indoors.
     2. New infantry learn from sergeants how to get out of bed on time, and then to march in straight lines. Later, the first command in combat training: keep your head and butt down. Second and forgotten when shot at: don’t bunch up. Bunches of infantry attract fire. Individuals are too hard to hit and not worth the trouble. The virus works the same way.
     3. Deception identifiers. If the scare story of the day includes a photo of a beach down the beach, parallel to the water’s edge, you’re being kidded (and probably by the companion article). Telephoto foreshortening down any beach makes it look like an anthill. Same for all crowds. Second, grammatical tenses today are garbled by modern usage of the present tense to describe the past. Covid stories often say “32,476 people are infected.” No. Have been infected, cumulative total, past. Not now.
     4. Perhaps the worst failing of US society since March: the failure to identify fellow citizens most at risk, and to protect them. Some are beyond help, for example those compelled to party, or to commune with the almighty in bunches. Many others are unable to help themselves: nursing homes. Many others would help themselves if they knew how, or had the resources, or help from the rest of us, but most of us are too preoccupied by our own hysterics to aid those who really need it.
     I am embarrassed to re-report from the NYT today: “Millions of Latinos kept the economy running, at food-processing plants, as farm hands, as hospital orderlies, food preparers, supermarket workers... and brought the virus home to often cramped living quarters.” Latinos are 15% of San Francisco’s people and suffer half of its Covid. Cal’s Dr. Bibbins-Domingo “Sheltering is a luxury.” The same pattern is everywhere.
     5. The authorities are not going to like history’s evaluation of their leadership. Granted a hard job with anti-leadership at the top. However, Ouchy Fauci this week at the temporary ignition CA-AZ-TX-FL: "Something's not working." Sir, try the mirror. Epidemiologist Larry Brilliant: "If you let everybody out without face masks and without social distancing in the middle of a pandemic...." Another cause of these new outbreaks... did you ever visit LA, Miami, Houston, or Phoenix in June? HOT, so go inside. Where the virus is.
     6. Good news data accumulates. Protests outdoors did not spread the virus. When community Covid falls to a low level, under 5% new-test positive, it tends to stay there if knuckleheads behave. Not gone, just low. An experiment in Oslo: reopen gyms, one meter distance, no masks. New infections were the same as the no-gym control group.

 

A helpful visual for new and confusing economic reports. Some give absolute values, like the “V” in consumer spending. Many others do not, especially diffusion studies which measure direction and vigor but not level. The Chicago Fed publishes one of those for the whole economy, which looks like a “V” but is not -- it shows only a return to positive growth in May from April bottom, but not the extent of recovery:

 

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Colorado Covid -- we were hit hard in ski areas, then crosspollinated to our flatland cities, then allowed spread to nursing homes, but since have achieved reasonable “control.” Our newest problem is the same everywhere: not so much knuckleheads in general, but youth resistant to disciplined behavior under the best circumstances. Despite new, youth party contagion, and testing still concentrated among hot spots and people symptomatic or exposed, all through June Colorado has tested between 2% and 4% positive.

 

4 Replies
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Participant ○○○

Re: Credit News by Lou Barnes 6/26/20

It takes me less than a minute to read this weekly post - I just read the sentence that includes data and ignore everything else.  But today as I was looking for data, the word "Fauci" caught my eye.  It is quite unfortunate how the author perceives Dr. Fauci.   

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Contributor ○○○

Re: Credit News by Lou Barnes 6/26/20

"Lesson learned. Mask and distance, be very careful indoors."

Good reminder.

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Explorer ○○○

Re: Credit News by Lou Barnes 6/26/20


@Anitya wrote:

It takes me less than a minute to read this weekly post - I just read the sentence that includes data and ignore everything else.  But today as I was looking for data, the word "Fauci" caught my eye.  It is quite unfortunate how the author perceives Dr. Fauci.   


I agree. Dr. Fauci has worked for years under both ideological (barely different economically, only social differences) political administrations and has done a remarkable job. He has also been honest and forthright during the pandemic. His vilification is a matter of kill the messenger attitude that inflicts almost everyone at the moment including Lou Barnes. Interesting that this supposedly intelligent person can't see their own bias.

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Participant ○○○

Re: Credit News by Lou Barnes 6/26/20

I presume the posts about Dr. Fauci are referring to the following paragraph (reference to Fauci in bold red):

  1. The authorities are not going to like history’s evaluation of their leadership. Granted a hard job with anti-leadership at the top. However, Ouchy Fauci this week at the temporary ignition CA-AZ-TX-FL: "Something's not working." Sir, try the mirror. Epidemiologist Larry Brilliant: "If you let everybody out without face masks and without social distancing in the middle of a pandemic...." Another cause of these new outbreaks... did you ever visit LA, Miami, Houston, or Phoenix in June? HOT, so go inside. Where the virus is.

'Sir, try the mirror' does not make clear whether it is intended for the overall leadership from the Trump administration, or to leadership at lower levels, or to just Dr. Fauci himself. But taken literally it would appear to be directed at Dr. Fauci.

Add: And I generally agree with the sentiment that Dr. Fauci is a straight shooter who I would praise rather than criticize.

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