My Mortgage Blog

This week was more about human nature than economics and markets.
     
When Fukushima looked catastrophic, the fearful bought Treasuries and 10-year  yields fell to 3.15% from 3.55% in six days, taking mortgages to 4.75%. Since Japan is now merely awful, the stock market drunks are back in charge, fright-money coming out of bonds and rates rising on the happy thought of war with Libya. Go figure.
     
In the US economy, little has changed. A spurt in manufacturing activity has the blind watchers of traditional patterns fondling their braille, and for once they may be right: it is possible that the US competitive gap with the world is closing. The rest of the economy... the Fed’s post-meeting statement said the “recovery is on firmer footing.” Fair enough. No footing is firmer than flat ground, and stripped of revisions that’s what the new-data trend was: core CPI, industrial production, starts and permits for new homes, mortgage applications, unemployment claims... flat.
     
The Fukushima story began without the benefit of competent media. Anybody with history compulsion, let alone nuclear OCD, knew Saturday morning that seawater injection and hydrogen explosion meant meltdown. CNN for the next four days chopped off any nuclear expert in the first sentence and went back to footage of crying babies and tsunami. Monday’s markets were quiet; not until Tuesday morning trading in Asia did nuclear glow dawn, and the Nikkei crash 15% in five minutes. I did not find the first capable TV account until Tuesday evening, on Rachel Maddow of all productions.
     
Compounding the media weakness is the historical inability of Japanese institutions to pass negative news from the field to leadership (who knew that Guadalcanal wasn’t going well?), and these guys are taking top trophy from Brownie and FEMA. Every bit as bad: the determined optimism near stock markets, an astounding number of analysts claiming that rebuilding will be good for Japan and the global economy.
     
All that you need to know: if not one CH-47 pilot could hover for the 15 seconds necessary to dump a bucket on target... that place is hot. However, that hard radiation is not moving: there is no Chernobyl graphite-fire volcano to move it. Long-term contamination will move, but not in human-harmful dose; yet, enough strontium and cesium to make plants and grazing animals inedible for a long time, in a large area.
     
Scale. Russia’s land area is 6,592,800 square miles. All of Japan is 145,903. The Chernobyl exclusion zone is 3,560 square miles. Fukushima’s extent cannot be known now, but there won’t be anybody on a beach towel near there for a long time.
     
Follow the money. Japan’s finances are the weakest of all large nations, in John Mauldin’s observation, “a bug in search of a windshield.” Debt 200% of GDP, going higher. Windshield found. Japan’s deepest financial problem is demography. It is one of the oldest of all nations, vaunted savings rate dropping to zero, and its population five years ago began to shrink outright. In the last week or so, prospects for immigration there have not improved, nor for conception.
     
In post-catastrophe we all tend to fall into counter-panic, desperate to prevent recurrence. Ban nuclear power altogether, when resistance to new-build is responsible for the hazards of so many overage plants? Embrace the rising price and environmental damage of fossil fuel, or the impoverishing mega-cost of renewables?
     
Rebuild... what? The towns on Honshu’s north shore lie on compact river deltas, the mountains beside them perfect magnifiers of tsunami. Re-build only above this apocalyptic high-water mark? Or live behind new 100-foot-high sea walls? How quaint. Lovely. Build for another 9.0? Or figure you’ve taken the once-a-millennium shot, and build (again) for 7.9? Or for 9.5?
     
Leadership everywhere, not just Japan, constantly fails to look around corners, freezes in emergencies, and then overreacts once it’s all over. Yet the individual collective keeps moving, goes to work, tends kids, brushes off, smiles, and looks to a better day. I could draw an allegory to a mortgage and housing meltdown, but... nah.