Page 4 of 4 CREDIT BUBBLE BULLETIN Riddle of the burst bubble
Commentary and market watch by Doug Noland
growth ... accelerated to 24.4% in June as investment boosted demand for
workers ... Central bank Governor Mugur Isarescu said yesterday that wages are
rising too fast, helping boost the inflation rate above 9.1% in July ... "
August 5 - Bloomberg (Alex Nicholson): "Russia's July inflation rate fell from
the highest in 5 1/2 years to 14.7% as fruit and vegetables costs declined."
August 6 - Bloomberg (Jacob Greber): "Australian home-loan
approvals fell to a four-year low in June, stoking speculation the central bank
will cut interest rates for the first time since 2001 ... The nation's property
market is mirroring housing slumps in the US and U.K., with prices falling and
lending to Australian home buyers plunging by 25% since January."
Bursting Bubble Economy Watch
August 6 - Dow Jones (Marshall Eckblad): "On Wednesday, Morgan Stanley added
some of its well-heeled clients to the long list of customers whose lenders
have frozen or reduced their home equity loans ... 'A segment of clients was
recently notified of a change in the status of their home-equity line of credit
due to a change in the value of their property and/or their credit profile,' a
spokeswoman for Morgan Stanley said. Many other lenders, including JPMorgan
Chase & Co. and Washington Mutual Inc., have recently made similar
statements as they've moved to reduce the credit available to borrowers in
declining housing markets."
August 6 - Dow Jones (Conning Chu): "American Express Co. said it plans to
place greater emphasis on the general housing climate of areas where applicants
for its card live when deciding to whom it will issue credit cards. As a
result, applicants living in housing markets such as California and Florida,
where home prices have dropped dramatically, may be considered more risky,
President Al Kelly said ... "
August 5 - Bloomberg (Bill Koenig): "US auto sales may total 14.1 million next
year, 'bottoming out' as fuel prices and the US economy hold down the total,
consulting firm A.T. Kearney Inc. said ... US auto sales tumbled 13% in July
and may be headed to their lowest level in 15 years ... The consulting company
also said US-based auto-parts suppliers will need to find an additional $38
billion in capital to stabilize their operations and may have trouble getting
it. 'There is no single source of capital,' Cheng said."
August 6 - Bloomberg (Leon Lazaroff): "Four cities in Ohio and two in Michigan,
all former manufacturing centers, topped the list of the 'fastest-dying' urban
centers in the United States, according to a list compiled by Forbes magazine.
Youngston, Canton, Dayton and Cleveland, Ohio joined Detroit and Flint,
Michigan on the list of cities with rapidly declining populations and high
rates of unemployment as lost industrial jobs haven't been replaced by new
opportunities, the magazine said."
August 7 - Bloomberg (Shobhana Chandra): "US consumers borrowed more than twice
as much as economists forecast in June as a decline in home equity forced
Americans to fund purchases with credit cards and other loans. Consumer credit
rose by $14.3 billion, the most since November, to $2.59 trillion ... Consumers
are using credit cards and loans to cover expenses as falling home values cause
banks to restrict access to home- equity lines."
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
August 7 - Wall Street Journal (Ruth Simon): "Mortgages issued in the first
part of 2007 are going bad at a pace that far outstrips the 2006 vintage,
suggesting that the blow to the financial system from US housing woes will be
deeper than many people earlier estimated ... Freddie Mac reported ... that
1.38% of the 2007-vintage loans it purchased were seriously delinquent after 18
months compared with 0.38% of 2006 loans at the same point in their life ...
Last month, J.P. Morgan Chase & Co. said it expects losses on prime
mortgages that weren't securitized and remain on its books to triple from
current levels. The increase in bad loans is driven mostly by jumbo mortgages
originated in the second half of 2007, a company spokesman said."
August 8 - Bloomberg (Sarah Mulholland): "Yields on commercial real estate
securities relative to benchmark rates rose to the highest since March on
concern that retailers won't be able to repay debt as consumers cut spending.
Spreads on AAA rated commercial mortgage-backed bonds widened 10 bps during the
week ... to 250.5 bps more than 10-year swap rates ... Demand for commercial
real estate securities is waning as retailers are forced into bankruptcy during
the economic slowdown."
August 7 - Bloomberg (Sarah Mulholland): "Almost two-thirds of mortgage-related
collateralized debt obligations sold last year have experienced so-called
events of default, according to Wachovia ... signaling a deepening
deterioration of the market. Of the 168 CDOs backed by home loans sold in the
US in 2007, 64% are in default, representing 70% of the total dollar volume,
analysts David Preston and Justin Pauley ... wrote ... "
Real Estate Bust Watch
August 6 - Bloomberg (Jerry Hart): "Florida homes, businesses and other real
estate lost $153 billion in value between 2007 and 2008, the Miami Herald
reported, citing state economists who appraise property for tax purposes."
August 6 - Bloomberg (Hui-yong Yu): "Home sales in the Seattle area fell 31% in
July while the median home price dropped 5.5%, according to the Northwest
Multiple Listing Service ... The median home price fell to $401,500 from
$425,000."
GSE Watch
August 8 - Bloomberg (Jody Shenn): "Fannie Mae, the largest US mortgage-
finance company, will stop buying or guaranteeing Alt-A mortgages because of
surging losses from home loans to borrowers without proof of their finances.
Fannie won't accept new Alt-A loans after Dec. 31 ... "
Speculator Watch
August 5 - Bloomberg (Katherine Burton): "Dow Kim, the former head of trading
and investment banking at Merrill Lynch & Co., dropped plans to start a
hedge fund after investors backed out ... Kim had been in discussions with
institutions that had agreed to invest about $1 billion ... 'Investors don't
want to put new money to work, much less give it to a new entity,' said Brad
Balter, managing partner of Balter Capital Management LLC ... "
Muni Watch
August 8 - Bloomberg (Jeremy R. Cooke): "US state and local governments led by
New York City sold about $5.5 billion of bonds this week, below average for the
year, as benchmark tax-exempt yields rivaled or exceeded those available on
taxable Treasuries."
Crude Liquidity Watch
August 7 - Bloomberg (Matthew Brown): "United Arab Emirates mortgage loan
growth increased by 55% to 64.9 billion dirhams ($17.7bn) in the year to March,
down from 90% in December. Loans, advances and overdrafts increased an annual
38% in March ... "
August 5 - Bloomberg (Matthew Brown): "Bahraini M3 money supply growth, an
indicator of future inflation, accelerated to 37% in June from 32% in May."
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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