Page 4 of 5 CREDIT BUBBLE BULLETIN Froth comes off latte economy
Commentary and market watch by Doug Noland
consumers are used to deflation, not inflation,' said Kyohei Morita, chief
economist at Barclays Capital. 'Consumers are suffering because of
rising prices and household spending is going to stall.'"
India Watch
July 4 - Bloomberg (Kartik Goyal): "India's inflation accelerated to the
fastest pace in more than 13 years, strengthening the case for the central bank
to increase borrowing costs this month. Wholesale prices rose 11.63% in the
week to June 21. Faster inflation has eroded the popularity of Prime
Minister Manmohan Singh's government, which is struggling to survive as its
communist allies consider withdrawing their support over a
nuclear
deal with the US A nationwide truckers' strike may have added to inflation.
'Miseries don't come alone,' said Dharmakirti Joshi, an economist at
Crisil Ltd. 'The political disharmony, inflation and the
truckers' strike have disrupted the smooth functioning of the economy.' India's
10-year bonds fell for a fifth day, pushing yields to the highest in seven
years."
June 30 - Bloomberg (Anoop Agrawal): "India's rupee completed its biggest
quarterly loss in a decade as the slide in local stocks prompted overseas
investors to reduce equity holdings and record oil prices spurred demand for
dollars. The rupee is the second worst performer of the 11 most- actively
traded Asian currencies this quarter as global funds sold shares on concern
accelerating inflation will slow economic growth. The currency fell to the
lowest since April 2007 as a doubling in oil over the past 12 months widened
the current- account deficit, a broad measure of trade and investment flows.
'India is not favored by global investors any more, which is why they are
selling stocks and the dollar supply is drying up,' said Indrajit Sengupta, a
currency trader. 'Oil's steep rise has only added to the rupee's
worries. The rupee is still under pressure to fall.'"
July 1 - Bloomberg (Kartik Goyal): "India's exports grew at the slowest pace in
14 months in May as weakening global expansion hurt shipments of clothes, steel
and electronic goods. Overseas sales rose 13% from a year earlier to $13.8
billion, slower than April's 31.5% gain. Imports increased 27% to $24.5
billion, widening the trade deficit to a record $10.76 billion."
Asia Bubble Watch
July 3 - Bloomberg (William Sim): "Foreign direct investment into South Korea
rose by the most in more than three years in the first six months of 2008 as US
and Japanese companies boosted spending, the Ministry of Knowledge Economy
said. Foreign investment jumped 35% to $4.5 billion in the six months to June
30 from the same period a year earlier, the ministry said. That's the
biggest gain since the second half of 2004."
July 1 - Bloomberg (William Sim): "South Korea's consumer prices rose by the
most in almost 10 years in June, adding to speculation the central bank may
have to raise interest rates this year. The consumer price index climbed 5.5%
from a year earlier."
July 1 - Bloomberg (Suttinee Yuvejwattana): "Thailand's inflation accelerated
to the fastest pace in a decade in June, heightening expectations the central
bank will need to raise interest rates before an increase in fuel costs further
spurs price gains. Consumer prices gained 8.9% from a year earlier."
July 3 - Financial Times (Roel Landingin): "Consumer prices in the Philippines
rose by 11.4% from a year ago in June, the highest in 14 years, amid soaring
global fuel and food prices, and a string of devastating typhoons that
restricted food supply in many across the country in the last two months."
July 1 - Associated Press: "Indonesia's inflation rate climbed to 11% after
government fuel hikes caused the price of food and other basic goods to
skyrocket."
July 3 - Bloomberg (Aloysius Unditu and Arijit Ghosh): "Indonesia's central
bank raised its benchmark interest rate for the third month in a row after
record oil and food prices drove inflation to the fastest in almost two years.
Governor Boediono and his seven colleagues increased the key rate to 8.75% from
8.5%..."
Latin America Watch
July 4 - Bloomberg (Heloiza Canassa): "Brazilian new-vehicle sales rose 29% in
June as a declining unemployment rate and growth in incomes encouraged
consumers to make large purchases."
July 3 - China Knowledge: "Brazil's imports of goods from China jumped 73.1%
year-on-year in the first half, according to Brazilian Ministry of
Development, Industry and Commerce."
July 3 - Bloomberg (Sebastian Boyd): "Chile's annual inflation rate accelerated
to the fastest pace since 1994 in June, cementing expectations that the central
bank next week will raise interest rates for a third time in 2008. Consumer
prices in the 12 months through June rose 9.5%..."
Unbalanced Global Economy Watch
July 3 - International Herald Tribune (David Jolly): "A housing market in
shambles, inflation at the highest level in years and signs that the economy is
headed for, or already in, recession. Sound familiar? The British economy, like
its counterpart across the Atlantic, has fallen on hard times, and in many ways
the experience appears to be mirroring that in the United States. Indeed, the
run last September on a British mortgage lender, Northern Rock, was one of the
events that helped to embed the terms 'credit crisis' firmly into the global
consciousness."
July 1 - Bloomberg (Svenja O'Donnell and Jennifer Ryan): "U.K. house prices
fell by the most since 1992 and manufacturing unexpectedly contracted in June
as banks starved the economy of loans and commodity prices soared, bringing the
nation closer to a recession. The price of an average home declined 6.3% from a
year earlier to 172,415 pounds ($343,278), the biggest drop since November
1992."
June 30 - Bloomberg (Jennifer Ryan): "U.K. consumer confidence dropped in June
to the lowest level since the London riots 18 years ago that preceded Margaret
Thatcher's downfall, as house prices fell across the nation."
July 3 - Bloomberg (Svenja O'Donnell and Jennifer Ryan): "U.K. services from
airlines to the finance industry contracted last month by the most since
October 2001 and banks said they'll curb lending further in the third quarter,
as Britain edges closer to a recession."
June 30 - Bloomberg (Fergal O'Brien): "Ireland's economy contracted for the
first time in more than a decade in the first quarter as a housing-market slump
curbed investment and consumer spending cooled. Gross domestic product fell
1.5% from a year earlier."
July 2 - Bloomberg (Fergal O'Brien): "European producer prices jumped a record
7.1% in May as energy costs surged, adding to the European Central Bank's
concerns that faster inflation will become embedded in the economy. The annual
increase in factory-gate prices in the euro region was the biggest since the
series began in 1990 and followed a 6.2%t gain in April."
July 3 - Wall Street Journal (Roman Kessler): "More European companies are
raising prices to pass higher costs on to customers, increasing the risk of an
accelerated inflation spiral. High energy and commodities costs boosted
producer prices in the euro-zone by 7.1% in May from a year earlier, the
largest year-over-year increase since the European Union's Eurostat statistics
office began collecting records in 1990. With May producer prices also up 1.2%
from April, the jump presages higher consumer-price inflation in the months
ahead, economists said. Companies say they can't avoid raising their
prices as the cost of inputs such as energy, raw materials and transportation
continue to rise. Car-makers, airlines and consumer-products companies have all
announced price increases or plans to raise prices in recent weeks. 'We can't
go against the grain amid rising prices,' said spokeswoman Claudia Fasse at
Beiersdorf AG, which makes Nivea skin-care products."
June 30 - Bloomberg (Ben Sills): "Inflation in Europe accelerated more than
economists forecast, eroding consumers' spending power and adding to pressure
on the European Central Bank to increase borrowing costs even as economic
growth cools. The inflation rate in the euro area rose to 4% this month, the
highest in more than 16 years, from 3.7% in May."
July 1 - Wall Street Journal (Emma Charlton and Joel Sherwood): "European
recession fears grew Tuesday as Denmark became the first European Union country
to slip into a technical recession and a raft of weak data indicated others
could soon follow. The Purchasing Managers Index for the euro zone's
manufacturing sector contracted in June for the first time in three years,
dropping to 49.2 in June from 50.6 in May, research group Markit Economics
said. A PMI reading above 50 signals an expansion in manufacturing, while a
level below 50 indicates a contraction. Europe's economies are currently facing
a toxic combination of elevated inflationary pressures, higher oil prices,
strong exchange rates, weakening global growth and tight credit conditions.
Denmark, Spain, the U.K. and Ireland also face falling housing prices after a
recent boom, trailing a trend set in the US after a two-year lag."
June 30 - Bloomberg (Tasneem Brogger): "Norway's domestic credit growth slowed
to 14% in May, indicating interest rates at a five-year high are deterring some
consumers from taking on more debt. Credit growth for households, companies and
municipalities slowed from a revised 14.4% in April. 'The growth in
household debt decreased, while the growth in non-financial enterprises debt
was still high,' the statistics office said."
July 1 - Bloomberg (Mike Cohen): "South African house prices fell an annual
11.3% in June, the fourth consecutive decline, after borrowing costs rose and
stricter lending laws came into effect."
Bursting Bubble Economy Watch
July 4 - Reuters: "The United States service sector shrank unexpectedly in
June, according to a closely watched survey released on Thursday, while
inflation pressures soared to a record high for the survey's 11-year history.
The Institute for Suppy Management's measure of employment in the vital service
sector hit a record low, which could fan fears of a return to low growth and
high inflation, known as stagflation, that was last seen in the late 1970s and
early 1980s. The data also points up the quandary facing the Federal Reserve,
which cut benchmark interest rates to support the weak economy at the risk of
adding to price pressures."
July 2 - Bloomberg (Hugh Son): "Consumers fell behind on loans secured by their
homes at the fastest pace in two decades in the first quarter, signaling deeper
distress in the US economy, the American Bankers Association reported.
Home-equity lines of credit at least 30 days past due rose 14 bps to 1.1% of
accounts for the quarter, the Washington-based group said today in a statement.
Delinquent credit-card accounts increased 13 bps to 4.51%, the highest level
since 2006. 'People are looking for any source of funds to pay their daily
expenses,' Carol Kaplan, spokeswoman for the bankers' group, said. 'It's
a sign of the overall condition of the economy that people are having trouble
making their payments.'"
July 3 - Wall Street Journal (Michael R. Crittenden): "Cash-strapped US
consumers hurt by the weak economy continued to fall behind on credit payments
during the first quarter, a trend one financial-industry group said is likely
to continue. The American Bankers Association Wednesday said several loan
categories showed an increase in the percentage of accounts at least 30
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