Page 4 of 4 CREDIT BUBBLE BULLETIN Misdirected credit runs unabated
Commentary and weekly watch by Doug Noland
deficit widened more than economists expected in August as the deepening slump
eroded tax receipts, putting Prime Minister Gordon Brown at risk of breaking
his own borrowing rules. The 10.4 billion-pound ($18.5bn) shortfall was up from
8 billion pounds a year earlier and the largest August deficit since records
began in 1993 ... "
September 18 - Bloomberg (Brian Swint): "U.K. money supply increased twice as
much as economists forecast last month, Bank of England data show. M4 ... rose
1.4% from July ... From a year earlier, it rose 11.5%."
September 16 - Bloomberg (Brian Swint): "U.K. inflation
accelerated to the fastest pace in at least 11 years last month, putting
pressure on the Bank of England to refrain from cutting interest rates as the
economy slides toward a recession. Consumer prices rose 4.7% in August from a
year earlier ... "
September 16 - Wall Street Journal (Alex Frangos, Darren Lazarus and Conor
Dougherty): "The blast furnace known as the finance industry that has stoked
the economies of New York and London for decades is rapidly cooling. Both
cities have relied heavily on the securities industry for jobs, taxes and a
prosperity that has lifted restaurants, stores, auto sales, fashion,
entertainment and a wide range of other businesses. The future of that largess
is in doubt a year into the credit crunch, with the bankruptcy filing of Lehman
... and the sale of Merrill ... adding to the thousands of jobs already lost --
and the likelihood that more will come."
September 16 - Bloomberg (Laurence Frost): "European car sales tumbled 16% last
month, the fourth straight decline, as higher fuel prices and slowing economies
hurt demand for models from General Motors Corp. and Toyota Motor Corp."
September 15 - Bloomberg (Kati Pohjanpalo): "Finnish inflation unexpectedly
accelerated to 4.7% in August, the fastest pace in more than 17 years, led by
higher food prices. The rate increased from 4.4% in July ... "
September 18 - Bloomberg (Firat Kayakiran and Ali Berat Meric): "Turkey's
energy-markets regulator today approved a 9.1% increase in residential
electricity prices to take effect in October."
Bursting Bubble Economy Watch
September 18 - Bloomberg (Alan Purkiss): "The US government will probably have
to spend between $1 trillion and $2 trillion, or five to 10 times as much as it
has so far, to halt the spreading contagion of the financial crisis, said
Kenneth Rogoff, an economics professor at Harvard and a former chief economist
at the International Monetary Fund."
September 18 - Bloomberg (Alan Ohnsman and Mike Ramsey): "US auto sales were
hobbled in the first half as gasoline prices jumped to record highs. Now, a
financial crisis ... has toughened new-vehicle loan terms ... 'The panic over
fuel prices this year brought the quickest shift from trucks and SUVs to cars
I've ever seen,' said Dave Zuchowski, vice president of sales for Hyundai ...
'The new story is access to credit. That will impact us more in the second
half.'"
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
September 18 - Bloomberg (Neil Unmack): "Standard & Poor's may cut the
credit ratings on 381 European asset-backed bonds linked to Lehman Brothers
Holdings Inc., the collapsed US investment bank. The notes relied on Lehman as
a counterparty for hedges against swings in currencies and interest rates, or
pooled assets created by the ... bank, S&P said ... "
GSE Watch
September 19 - Bloomberg (Dawn Kopecki): "The US Treasury will use Fannie Mae
and Freddie Mac, the two largest mortgage-finance companies, to pump money into
the home loan market by 'immediately' increasing their purchases of mortgage
bonds. The Federal Housing Finance Agency, which seized control of the
companies this month, directed them to start increasing their purchases of
loans and mortgage-backed securities as part of Treasury's plan to absorb
illiquid and underperforming assets from financial companies ... "
September 19 - Bloomberg (Dawn Kopecki): "Fannie Mae, the mortgage-finance
company taken over by the US government this month, said bankrupt securities
firm Lehman Brothers Holdings Inc. owes it 'very substantial sums.' The exact
amounts 'change on a nearly daily basis,' Fannie said in a filing ... Lehman
was one of the company's frequent business partners in servicing home loans and
the mortgage bonds Fannie and fellow government-sponsored enterprise Freddie
Mac guarantee."
Speculator Watch
September 18 - Bloomberg (Saijel Kishan): "Hedge-fund liquidations worldwide
rose about 16% in the first half of the year amid turmoil in the financial
markets, according to Hedge Fund Research Inc. About 350 funds shut down
compared with 303 in the first six months of last year ... An estimated 700
funds may go out of business by the end of 2008, an increase of 24% from last
year ... "
September 16 - Dow Jones (Marietta Cauchi): "Hedge funds' main concern
following the collapse of Lehman Brothers Holdings Inc. is their exposure to
unsettled trades, experts say. Following its bankruptcy filing overnight
Sunday, Lehman's prime brokerage business is no longer trading, leaving hedge
fund clients in the lurch. Like other prime brokers, Lehman offered a
smorgasbord of services to hedge funds - most importantly securities and money
lending, as well as settling and clearing. 'There is a great deal of confusion
in the market over the counterparty risk attached to dealing with Lehman,' one
hedge fund adviser said."
Fiscal Watch
September 19 - Bloomberg (Sandra Hernandez): "The US may have to borrow an
extra $700 billion to $1 trillion to fund the biggest rescue of the financial
system since the Great Depression, according to Barclays Capital Inc.'s Michael
Pond."
Muni Watch
September 19 - Bloomberg (Jeremy R. Cooke): "Borrowing by US states and local
governments stalled this week as officials delayed most planned offerings amid
an unprecedented rise in benchmark yields."
September 19 - Bloomberg (Jeremy R. Cooke): "US state and local government debt
grew at the slowest pace in almost five years during the second quarter, as the
auction-rate bond collapse in February forced borrowers to focus on refinancing
deals."
September 18 - Bloomberg (Jeremy R. Cooke): "US municipal bonds plummeted,
driving up benchmark yields by the most in more than four years, on concern
soaring short-term interest rates may be forcing investors to liquidate
holdings financed through borrowing. Average weekly variable rates shot above
5%, the highest in eight years, as bond dealers sought to entice investors and
hoard capital after Lehman ... declared bankruptcy."
California Watch
September 18 - Bloomberg (Dan Levy): "San Francisco Bay Area home prices fell a
record 32% in August from a year earlier as sales declined and buyers struggled
to get mortgages. The median price tumbled to $447,000, the lowest since
January 2004 ... DataQuick said ... "
Crude Liquidity Watch
September 18 - Bloomberg (Glen Carey): "United Arab Emirates real-estate
developers ... declined on concern borrowing costs will rise in a market that
has seen property prices double over the last two years ... 'The cost of
borrowing money is going up substantially,' Ali Khan, head of equity trading at
Arqaam Capital Ltd. in Dubai, said ... 'It is simply not possible that the
U.A.E. can be cocooned from the US credit problems.'"
September 16 - Bloomberg (Matthew Brown): "Qatari inflation accelerated to a
record 16.6% in the second quarter as the cost of food and housing soared."
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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