From All Bad Comes Some Good

From Quora, comes this:

“Rodrigo Dauster, Senior Director at Carlsberg (2018-present)

The French have the expression "un mal pour un bien" (a bad for a good) and Brazilians have "há males que vêm para bem" (there are bads that come for the good).

In English, I don't think there is something that conveys this feeling as directly.

The best I can think of (all with subtle differences) are:

A blessing in disguise
Every cloud has a silver lining
Every rose has a thorn
Good medicine tastes bitter”

Or, as my mother always said and per the title, “From all bad comes some good.” So, okay, I think she mainly used this phrase during trips to the dentist, when a bone was broken, or when I got grounded, but … let’s go with it.

Where are we going? We’re headed down the aisle of the most discussed current topic--the Coronavirus. Yes, it’s here and it's horrible. Scores are dying internationally and the rest of us are partly living in fear and fully scrubbing the skin off our hands. What could possibly be good about this hideous pandemic?

Forgive the selfishness, but this is a mortgage site blog. The Coronavirus has been great for mortgage rates. There! I’ve said it! I’m horrible. But I’m not the first one who did say it!

The great Rob Chrisman and a few others can take credit for that in, “How Epidemics Impact Lending.” Well, sort of.

The virus began in China which represents over 1/5th of the world's GDP. Due to the virus, there are quarantines, factory shutdowns, travel restrictions, trading halts, school and community closings. People are worried for their lives, not about sending orders on time or manufacturing junk we think we need. Disruptions abound. Consumer confidence is shaky.

All of that might adversely affect oil prices which may result in lower gas investments. That leads to less capital spending, which causes manufacturing pain, which creates trouble, right here in River City. (just scroll past the first 56 seconds).

Actually, NOT in River City or, at least not just in River City. Get this, per Rob.

“Tennessee has the highest percentage of state GDP tied to the value of exports and imports to China, followed by California, Washington, South Carolina, Illinois and Kentucky. But to some extent, producers in every state have a connection to China. There are several exposed sectors, notably the computer and electronics, automotive, and industrial machinery sectors.”

Even though I used the word “junk” previously (thinking of kazoos, adult onesies, or fairy lights), per World’s Top Exports, The Top Ten Chinese imports are actually:

“Electrical machinery, equipment: US$521.5 billion (24.4% of total imports)
Mineral fuels including oil: $347.8 billion (16.3%)
Machinery including computers: $202.3 billion (9.5%)
Ores, slag, ash: $135.9 billion (6.4%)
Optical, technical, medical apparatus: $102.5 billion (4.8%)
Vehicles: $81.5 billion (3.8%)
Plastics, plastic articles: $74.9 billion (3.5%)
Organic chemicals: $67.4 billion (3.2%)
Gems, precious metals: $62 billion (2.9%)
Copper: $47.6 billion (2.2%)”

That’s a whole lot more than junk. That’s cars, fuel, medical supplies, computers, etc. Some of us might be able to live without adult onesies, but no cars, computers, medical supplies or fuel is a much bigger problem.

Looping back, interest rates are, however, excellent! Investors are globally selling stocks and investing in the relatively safe U.S. Treasury. Yes, these savvy international financiers are snapping up these assets. So interest rates are cheaper for all kinds of U.S. borrowers, pushing the average 30-year mortgage rate down to 3.51% as I type. Mortgage applications recently jumped 5% from the previous week, reaching their highest level since May 2013. Refi applications spiked 15% to their highest level since June 2013!

When many bonds get purchased, bond prices go up. That pushes bond yields — essentially the interest rate attached to them--lower. That makes it cost less to borrow. Since the beginning of 2020 the yield on the 10-year Treasury note, the one that banks generally look to in setting mortgage rates, has slipped to 1.54% from 1.88%.

But if this trend escalates, it could unfortunately backfire. Long-term bond prices could sink below short-term bond rates and result in an inverted yield curve. Banks could then slow or shut down lending. Bad news.

Rob brings us back to reality by ending with, “But if there truly is an economic drag from any epidemic, the coronavirus or something else, a slower U.S. economy is not something to look forward to.” UGH!

Let’s do a mini recap … mortgage rates are low! People are buying houses! What could go wrong? Well, quite a bit unfortunately.

We’ve had a problem with low housing inventory for quite a while. With everyone scrambling to secure low interest rates and buy new homes, that inventory issue gets worse.

In addition, much home building material comes from China. But not lately.

A quote on Yahoo Finance illustrates a key factor affecting everything. “Uncertainty over the spread, severity, and length of the coronavirus outbreak adds to the challenge of estimating the impact on the housing market,” said Frank Nothaft, chief economist for CoreLogic.” Yes, uncertainty commonly results in FEAR and fear can make us do strange things.

For example, check this out on bankrate.

“Fed signals openness to rate cuts as coronavirus outbreak fuels economic uncertainty.”

If the virus’s effect on the US economy is persistent and material,

“Traders are betting that the Fed will cut rates at all of its remaining meetings in 2020, according to CME Group’s FedWatch. The majority (or 87 percent) are pricing in a 50 basis point rate reduction when the Fed next meets in less than three weeks, while nearly 13 percent are betting on a 25 basis point cut.”

Well, yikes. Where IS the good? Here’s some!

According to Forbes, “Global Stocks Rebound On Bet Central Banks Will Offer Coronavirus Relief.” What’s this all about?

Investors believe that world governments and central banks will create and release stimulus packages to support a global economy impacted by the coronavirus.
US Stock exchanges are starting to open higher after falling due to coronavirus cases.
Japan and England's banks are monitoring markets, and may be able to provide some liquidity.
The Bank of Japan indicated it would “strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases.”
The Bank of England says it is working with international partners to “protect financial and monetary stability.”
China’s Shanghai Composite Index closed higher as did Hong Kong’s Hang Seng and Japan's Nikkei.

If you’re into the stock market (and understand all those bullets), that’s a YAY!!!. For the rest of us, how about this from Money?

“More Americans are applying for new mortgages than at any time in almost seven years … and a big reason for the surge is the coronavirus that has gripped China and sparked fears of a worldwide pandemic.”

So, per the title and my mom, from all bad comes some good? If you’re still not convinced, here are some (hopefully) good virus funnies. Poor Corona beer. Perhaps the line, “There is no such thing as bad publicity” is not exactly true for Corona beer these days. See below.

I can't believe all these viruses and bacteria invade my body without permission. That just makes me sick!
Where do viruses come from? Germany

I don’t get why y’all complain about hand sanitizer only killing 99.9% of germs. Just take two squirts and it’ll kill 199.8% of the germs on your hand!