Page 4 of 4 CREDIT BUBBLE BULLETIN Just the facts
Market watch by Doug Noland
advances, said customers are falling behind on their debt at a faster-than-
anticipated pace, signaling the economy is worsening. 'Business conditions
continue to weaken in the US and so far this month we have seen credit
indicators deteriorate beyond our expectations,' Chief Executive Officer
Kenneth Chenault said."
June 25 - Bloomberg (Josh P. Hamilton and Erik Holm): "Billionaire
investor Warren Buffett says he's concerned about 'stagflation,' or slowing in
the US economy while inflation accelerates. 'We're right in the middle of it
right now,' said Buffett. 'I think the 'flation' part will heat up and I
think the 'stag' part will get worse.'"
June 24 - Bloomberg (Josh Fineman and Deirdre Bolton): "The
world's biggest financial firms may lose as many as 175,000 jobs by this time
next year as Citigroup Inc. and other banks shed workers executive
recruiters say. Financial companies have announced plans to trim more than
83,000 jobs since last July. As more employees are fired, workforce
reductions may exceed those from the market slump of 2000 to 2003 when
technology-related shares collapsed, recruiters said. 'The worst is yet to
come,' Russ Gerson, head of Gerson Group, said. 'We are going to
have a major contraction. This is affecting all areas of the investment banking
universe and it's affecting all areas globally.'"
June 24 - Bloomberg (Ian Katz): "Wall Street securities firms and
brokerages paid chief executive officers an average of $16.9 million in 2007,
down a third from a year earlier on reduced stock awards, according to a
Citigroup Inc. study."
June 26 - Bloomberg (Angela Greiling Keane): "The number of travelers
over the US Fourth of July holiday will decline for the first time this decade
after gasoline rose to a record, AAA said."
Central Banker Watch
June 25 - Bloomberg (Christian Vits): "European Central Bank council
member Axel Weber said the bank must fight inflation risks 'proactively.'
'There is the concrete risk that longer-term inflation expectations will start
creeping up more strongly,' Weber said. 'A stability-oriented central
bank is well advised to fight the risk of broad-based second-round effects
decisively and proactively.'"
June 27 - Financial Times (Krishna Guha): "Overheating emerging markets
are fuelling inflation around the world by pushing up commodity prices, Don
Kohn, vice-chairman of the Federal Reserve, suggested Mr Kohn appeared
to call on these nations to loosen their exchange rate pegs to the dollar and
adopt more independent monetary policies - so they no longer import Fed
monetary policy that is not suited to their own economic outlook. The Fed
number two said: 'In those countries where strong commodity demands are
associated with rapid growth in aggregate demand that outstrips potential
supply, actions to contain inflation by restraining aggregate demand would
contribute to global price stability.' Mr Kohn's comments came in a
speech in which he said there was still relatively little evidence that high
headline inflation - pushed up by energy and food prices - was contaminating
underlying inflation and inflation expectations. He said: 'For the moment,
higher headline rates of inflation have shown only a few tentative signs of
embedding themselves in core inflation or in longer-term inflation
expectations.'"
June 23 - Bloomberg (Rich Miller): "What's good news for US businesses
may turn out to be bad news for Federal Reserve Chairman Ben S. Bernanke's
fight against inflation. The surging oil prices that are raising exporters'
costs to ship everything from steel to sofas to America are encouraging
customers to buy more domestically made goods -- and giving the producers of
those goods more room to raise their prices. The result: As Bernanke and fellow
policy makers meet in Washington this week, they may find themselves starting
to lose the benefit of the flow of inexpensive imports the chairman cited in a
June 3 speech as a key force holding down living costs. 'It's changing global
costs,' says Jeffrey Rubin, chief economist at CIBC World Markets. 'It's
a huge inflationary threat.'"
June 25 - Bloomberg (Tasneem Brogger): "Norway's central bank raised its
benchmark interest rate to 5.75%, the second increase this year, as it seeks to
prevent accelerating wage and price growth."
Mortgage Finance Bubble Watch
June 27 - Bomberg (Jody Shenn): "The US home-price declines
most associated with lower-priced properties may accelerate among more
expensive houses, according to analysts at JPMorgan.The increasing odds that the
US will enter a recession and a wave of payment spikes on option
adjustable-rate mortgages make the larger percentage drops more likely,
ortgage-bond analysts wrote.
Real Estate Bubble Watch
June 27 - Bloomberg (David M Levitt and Daniel Taub): "Manhattan
office rents fell 2.2% in the second quarter, the first decline in the most
expensive US office market since 2005, according to Studley Inc. The decline
was 4.4% for Class A office space.he broker blamed a 'malaise' among Wall
Street securities firms. We're really starting to see the culmination
of what people have been expecting to occur since the fourth quarter of last
year. t's the result of the whole chain of events, from the subprime to
financial jobs being lost in the city. In some cases, it's starting to affect
secondary industries. We're starting to see a slowdown in advertising and
publishing.'"
GSE Watch
Fannie and Freddie combined for May "book of business" (portfolio and
guarantees) growth of $56.9bn, or 13.3% annualized, to $5.200 TN. This likely
exceeds total net household mortgage debt growth for the month. Freddie's
retained portfolio surged $32.8bn, or 53% annualized, to $770.4bn (surpassing
Fannie!). Combined with Fannie, GSE retained portfolios expanded $41.4bn, or
34% annualized, the strongest month of portfolio growth since 2003.
Year-to-date, Freddie's "book of business" has expanded almost $89bn, or 7.9%
annualized. Fannie's "book" has increased $120bn, or 10.3%, annualized.
June 24 - Bloomberg (Dawn Kopecki): "Three months after Fannie Mae and
Freddie Mac won the freedom to step up home-loan purchases, the
government-chartered mortgage-finance companies are doing what critics
had predicted. Instead of using powers granted by Congress to buy jumbo loans
for the first time, Freddie Mac and Fannie Mae are purchasing their own
mortgage-backed securities, helping reduce losses. The large loans,
above $417,000, made up almost a third of the US market last year. Since
the rule change took effect in March, Fannie Mae has packaged $24 million of
jumbo loans into securities, while Freddie Mac added $220 million, according to
Inside Mortgage Finance."
California Watch
June 25 - Bloomberg (Alan Mirabella): "The median price of an existing
home in California fell 35% in May from the same period a year ago, the
California Association of Realtors said. Home sales increased 18% and exceeded
400,000 last month for the first time since early 2007."
Crude Liquidity Watch
June 26 - Bloomberg (Maria Levitov): "Russia's foreign currency and gold
reserves, the world's third largest, rose to a record $558.7 billion last
week. The value of reserves increased by $7.2 billion in the
week."
June 26 - Bloomberg (Matthew Brown): "Saudi Arabian M1 money supply
growth, an indicator of future inflation, accelerated to 27% in May from 23% in
April."
June 23 - Bloomberg (Matthew Brown): "Qatar's M2 money supply
growth accelerated to an annual 53% in March from 33% in December, the
Qatar Central Bank reported. Commercial banks' domestic lending grew an annual
60% in March, up from 52% in December."
Doug Noland is a market strategist for the Prudent Bear Funds.
(Republished with permission from PrudentBear.com.
Copyright 2005-2008 David W Tice & Associates. All rights reserved.)
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