Page 3 of 3 CREDIT BUBBLE BULLETIN Just the facts
Weekly watch by Doug Noland
Australia dropped 10.1% in seasonally adjusted terms in August, from July, hit
by high petrol prices and sagging consumer confidence ... "
Bursting Bubble Economy Watch
September 3 - Wall Street Journal (Jacqueline Palank): "The high cost of fuel
and difficulty accessing credit continue to batter both businesses and
individuals, bringing last quarter's new bankruptcy filings to their highest
point in the past 2 1/2 years. From April 1 through June 30, federal-court data
show, 276,510 individuals and businesses sought bankruptcy protection, the
highest quarterly
total since 667,431 companies and consumers raced to file in the last three
months of 2005 before more-restrictive bankruptcy laws took effect. In the 12
months that ended June 30, the total number of bankruptcy filings was 28.9%
greater than the previous year's total, climbing to 967,831 from 751,056 ... "
Central Banker Watch
September 2 - Bloomberg (Scott Lanman): "One-quarter of the Federal Reserve's
regional district banks lobbied to raise the discount rate in July, signaling
rising pressure to increase borrowing costs to banks even as economic growth
slows. Citing a rising danger of inflation, the boards in Chicago, Dallas and
Kansas City sought a quarter-point increase in the discount rate from 2.25%,
according to minutes of officials' discussions prior to the Aug. 5 policy
meeting ... "
September 2 - Bloomberg (Jacob Greber): "Australia's central bank cut its
benchmark interest rate for the first time in seven years amid signs the
nation's $1 trillion economy is slowing. Governor Glenn Stevens and his board
reduced the overnight cash rate target by a quarter point to 7%... The biggest
slump in retail sales in six years, a slide in business confidence and concern
about the global credit squeeze meant 'there was now scope for monetary policy
to become less restrictive,' Stevens said."
September 4 - Bloomberg (Johan Carlstrom): "Sweden's central bank raised its
benchmark interest rate to a 12-year high to head off faster inflation and said
it expects to keep rates steady for the remainder of the year as the economy
slows. The Stockholm-based bank increased the one-week repo rate by a quarter
point to 4.75% today ... "
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
September 2 - Dow Jones: "Fitch Ratings said ... that U.S. pay-option
adjustable-rate mortgages face dramatically increasing defaults in the coming
year and beyond. Option ARMs allow the borrower to make a low minimum monthly
payment, usually for five years, and the difference between the minimum payment
and the full payment is added to the mortgage balance. At the five-year mark,
the loan terms reset and the mortgage payment increases to ensure full payment
of the loan by maturity. The higher payments mean many option ARM borrowers
will be left unable to afford their homes, and increased defaults will likely
exert more downward pressure on house prices. Of the $200 billion of option
ARMs outstanding, Fitch expects $29 billion to recast by the end of 2009 and
another $67 billion to recast in 2010. The potential average payment increase
on those recasting loans is 63%, or an extra $1,053 a month, on top of the
current payment."
Real Estate Bust Watch
September 2 - Bloomberg (Bob Ivry): "Home prices fell in 23 of 25 U.S.
metropolitan areas in June from a year earlier for the second straight month as
foreclosures pushed down values. Las Vegas had the biggest price drop, falling
30.8%... Radar Logic said ... Prices per square foot declined 27.8% in
Sacramento, California, 26.9% in Phoenix, 26.5% in Los Angeles and 25.6% in San
Diego. Motivated sellers, who need to recoup losses on unpaid home loans,
typically cut prices about 20% compared with other homeowners, according to
Lehman Brothers Holdings Inc. economists Ethan Harris and Michelle Meyer. Those
discounts are responsible for dragging down values in many communities, said
Radar Logic Chief Executive Officer Michael Feder."
GSE Watch
September 3 - Bloomberg (Dakin Campbell): "Foreign central-bank holdings of
so-called agency debt and agency-backed mortgage bonds headed for the first
monthly decline since April 2004 as speculation about the solvency of Fannie
Mae and Freddie Mac led them to seek the safety of Treasury bonds. There has
been a big switch in terms of behavior,' said David Ader, the head of U.S.
government bond strategy at RBS Greenwich Capital ... 'This was a big buyer who
seems to have changed their mood.' Over the past year, foreign central banks
had increased their holdings of agency debt by 27%, while boosting their
Treasuries holdings by 18%... That trend has changed."
Speculator Watch
September 3 - Bloomberg (Katherine Burton, Saijel Kishan and Christine Harper):
"Ospraie Management LLC ... will close its biggest hedge fund after losing
38.6% this year because of bad bets on commodity stocks. The Ospraie Fund fell
26.7% in August after a 'substantial sell-off' in energy, mining and resource
equity investments ... That New York-based Ospraie, once the largest commodity
hedge fund firm, has shut its flagship fund underscores how the sudden swing in
commodities caught even experienced managers off-guard ... "
September 4 - Bloomberg (Tom Cahill): "RAB Capital Plc said Chief Executive
Officer Philip Richards will step down after almost seven years to ``focus
exclusively'' on running RAB Special Situations, the hedge fund that has lost
38 percent of its value this year. Richards, 48, who co-founded RAB in 1999,
will be replaced by Stephen Couttie, 50, who has been chief operating officer
of the London-based hedge-fund manager since July 2005 ... "
Muni Watch
September 4 - Bloomberg (William Selway and Martin Z. Braun): "JPMorgan Chase
& Co. will stop selling interest-rate swaps to government borrowers in the
$2.6 trillion U.S. municipal bond market roiled by an antitrust probe and the
near bankruptcy of Alabama's most-populous county. At least seven former
JPMorgan bankers are under scrutiny in a Justice Department criminal
investigation of whether banks conspired to overcharge local governments on
swaps and other derivatives. The bank also is embroiled in negotiations over
how to resolve a debt crisis with Jefferson County, Alabama, where the county's
former adviser says a group of firms led by JPMorgan ... overcharged it by as
much as $100 million for financing a new sewer system. Banks marketed
unregulated derivatives as a way for municipalities to save money. The
financing, which local officials across the country have said they didn't
understand, backfired this year as fallout from the global credit crisis caused
borrowing costs to rise more than fourfold in some cases to as high as 20%."
California Watch
September 1 - Los Angeles Times (Marc Lifsher): "With joblessness at a 12-year
high and expected to head higher, California's fund for paying unemployment
benefits is about to go broke. The fund, sustained mainly by taxes on
employers, is projected to be deeply in the red as soon as March. And the
administration of Gov. Arnold Schwarzenegger is alarmed that it may have to
keep the fund afloat by borrowing from the federal government and using state
money to pay nearly $100 million in interest over two years. At stake is the
stability of a 73-year-old program that began during the Depression. In July,
California paid unemployment benefits worth $567.4 million and received 267,000
new claims for jobless benefits ... According to the latest projections, which
already appear optimistic, the hole in the fund could exceed $1.6 billion at
the end of 2009 and $3.5 billion by December 2010 ... "
Crude Liquidity Watch
September 1 - Bloomberg (Haris Anwar): "Saudi Arabian inflation accelerated to
11.1% in July from 10.6% in June, Saudi Press Agency reported. Inflation has
accelerated since the middle of last year, when it was at about 3%, and has
reached more than 10% in the past three months."
September 1 - Bloomberg (Matt Brown and Haris Anwar): "Inflation in Abu Dhabi,
the largest of the seven sheikhdoms that make up the United Arab Emirates,
accelerated to 13% in the second-quarter, led by rent and fuel prices,
according to the emirate's planning and economy department."
September 1 - Bloomberg (Arif Sharif): "Personal consumer loans in the United
Arab Emirates, the second-biggest Arab economy, were 48% higher in the second
quarter than in the year-earlier period ... In the first quarter, personal
loans grew by 47 percent ... Overall, second-quarter bank loans increased by
69% from a year earlier ... "
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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