Page 3 of 4 CREDIT BUBBLE BULLETIN The Wall Street bust
Commentary and weekly watch by Doug Noland
as measured by the Reuters/Jefferies CRB Index of 19 raw materials, have
tumbled 9.9% this week."
Gold dropped 4.7% to $837, and Silver sank 16.7% to $11.13. November Crude
declined $13.97 to $92.92. November Gasoline fell 15.3% (down 10.6% y-t-d), and
November Natural Gas declined 3.5% (down 1.6% y-t-d). December Copper sank 15%.
December Wheat declined 10.6% and Corn fell 16.4%. The CRB index dropped 10.4%
(down 9.0% y-t-d). The Goldman Sachs Commodities Index (GSCI) fell 11.2% (down
4.4% y-t-d).
China Watch
September 28 - Bloomberg (Nadine Elsibai): "China's Premier
Wen Jiabao said the impact from the current financial crisis in the US may
'affect the whole world.' 'US finance is closely connected with Chinese
finance,' Wen said ... 'If anything goes wrong in the US financial sector, we
are anxious about the safety and security of Chinese capital,' Wen
said."
October 2 - Bloomberg (Nipa Piboontanasawat): "China's manufacturing activity
contracted for a second month, a CLSA Asia-Pacific Markets survey of purchasing
managers showed."
Japan Watch
September 30 - Bloomberg (Jason Clenfield and Toru Fujioka): "Japan's
industrial production fell at the fastest pace in at least five years in
August, the unemployment rate rose and household spending tumbled, deepening
the slump in the world's second-largest economy. Factory output dropped 3.5%
from July ... The jobless rate climbed to a two- year high of 4.2% and
purchases by households slumped 4%, the most since September 2006, the
government said."
October 1 - Bloomberg (Makiko Kitamura): "Japan's fiscal first-half auto sales
slumped to the lowest in 34 years as rising unemployment and decade-high
inflation sapped demand for new vehicles. Sales in the six months through
September fell 2.9% to 1.54 million vehicles."
India Watch
October 1 - Bloomberg (Kartik Goyal): "India's manufacturing grew at the
slowest pace in 14 months in September as demand for goods eased because of
higher costs, a key gauge showed."
October 3 - Bloomberg (Anil Varma): "India's rupee slumped to the lowest since
2003 as Asian stocks slid, adding to speculation investors will take money out
of the region. The currency is set for its eighth weekly loss, the longest drop
since December 2005."
Asia Bubble Watch
September 30 - Bloomberg (Netty Ismail): "Asia hedge-fund closures jumped 19%
this year, with the industry set to shrink for the first time as clients
withdraw more money after funds in the region underperformed rivals in the US
and Europe. 'It is likely that we'll see a net reduction in the number of Asian
hedge funds through this current year,' Peter Douglas, principal of ... GFIA
Pte ... said ... 'Almost without exception, the managers that we talk to in
Asia are seeing capital outflows, some of it is minor, some of it major.'"
Latin America Watch
October 2 - Bloomberg (Joshua Goodman and Sebastian Boyd): "Latin America's
fastest economic expansion in 30 years may be coming to an end as the global
credit crunch stunts investment and squeezes demand for the region's
commodities. 'We're in a serious economic crisis,' Colombian Vice President
Francisco Santos said ... 'Financing is going to get scarcer and scarcer, and
that means that investment is going to be difficult to attract.'"
Central Banker Watch
October 2 - Bloomberg (Scott Lanman): "Commercial banks and bond dealers
borrowed $348.2 billion from the Federal Reserve as of yesterday, an increase
of 60% from the prior week amid a worsening credit freeze. Loans to commercial
banks through the traditional discount window rose about $10 billion to $49.5
billion ... The total surpassed the previous record after the 2001 terrorist
attacks. Borrowing by securities firms totaled $146.6 billion, up from $105.7
billion. Under a new emergency program announced Sept. 19, banks borrowed
$152.1 billion as of yesterday to buy commercial paper from money-market mutual
funds, more than double a week ago."
October 3 - Bloomberg (Brian Swint and Svenja O'Donnell): "The Bank of England
said it will extend the range of collateral it accepts ... 'In these
extraordinary market conditions, the Bank of England will take all actions
necessary to ensure that the banking system has access to sufficient
liquidity,' Governor Mervyn King said."
Unbalanced Global Economy Watch
September 30 - Bloomberg (Jennifer Ryan): "The U.K. economy grew at the weakest
annual pace since 1992 in the second quarter as the financial crisis curbed
investment, construction and industrial production. Gross domestic product rose
1.5% from a year earlier."
October 2 - Bloomberg (Brian Swint): "U.K. financial institutions plan to scale
back loans to companies and households in the final three months of the year,
threatening to deepen the economic slump. Banks reduced the availability of
credit in the third quarter by more than they had anticipated and predict
credit will become scarcer as both supply and demand for loans drops, the Bank
of England said."
September 29 - Bloomberg (Jennifer Ryan): "U.K. mortgage approvals slid in
August to the lowest since at least 1999 as the global credit squeeze prompted
banks and building societies to curtail loans."
October 2 - Bloomberg (Svenja O'Donnell): "U.K. house prices had the biggest
annual drop since at least 1991 in September as the financial crisis
intensified, Nationwide Building Society said. The average cost of a home
plunged 12.4% from a year earlier to 161,797 pounds ($287,658)."
October 1 - Bloomberg (Brian Swint): "U.K. manufacturing contracted at its
fastest pace in 16 years last month, adding to concerns about a recession as
the financial crisis cripples lending."
October 2 - Bloomberg (Brian Swint): "U.K. labor unions clinched bigger pay
raises for employees in the three months through August as record oil prices
pushed inflation to the fastest pace in a decade, Incomes Data Services said.
The median salary settlement rose to 3.8%..."
October 1 - AFP: "Ireland's 12-month unemployment rate surged to 6.3% in
September, the highest rate since November 1998, official figures showed
Wednesday."
October 3 - Bloomberg (Simon Packard): "The slump in Europe's commercial real
estate market will be deeper and more protracted than expected, JPMorgan Chase
& Co. analysts said, as an 'explosion' of 340 billion euros ($471 billion)
in property sales hits the market by next year. Publicly traded real estate
developers plan to sell about 20 billion euros of shops, offices and warehouses
mostly in forced sales, according to estimates ... The sales represent 7.3% of
the companies' assets ... "
October 1 - Dow Jones (Neil Unmack): "Spanish car registrations fell 32% on the
year in September, Spanish car manufacturers' association Anfac said
Wednesday."
October 1 - Bloomberg (Maria Ermakova): "Moscow's decade-long building boom is
falling victim to the global credit crunch as record high interest rates
squeeze developers in the world' third most expensive property market. 'Loan
rates have climbed to ridiculous heights and the terms are very short,' said
Dmitry Lutsenko, a board member at Mirax Group, the ... company that's building
the Federation Tower, which will be Europe's tallest skyscraper."
September 28 - Bloomberg (Denis Maternovsky): "Russian developers are cutting
apartment prices in the regions as a decline in mortgages lowers demand for
housing, Vedomosti repoted. Sales of new apartments in Rostov-on-Don are down
40% this month from August, while sales in St. Petersburg have fallen by half
since the spring."
September 30 - Bloomberg (Jacob Greber): "Australian home-buyers increased
borrowing at the slowest pace since 1986 and house-building approvals fell for
a second month, stoking speculation the central bank will cut interest rates by
half a point next week."
September 30 - Bloomberg (Mike Cohen and Nasreen Seria): "South African credit
growth eased to an annual 18.6% last month, the slowest pace in more than three
years, as higher interest rates crimped consumer spending on cars and
furniture."
Bursting Bubble Economy Watch
September 28 - Wall Street Journal Asia (Bob Davis): "The success of the
pending rescue of the US financial system probably depends as much on the
central banks of China and the Middle East as on the US Congress and Federal
Reserve. The US is turning to foreign governments and other overseas investors
to buy a good chunk of the as much as $700 billion in Treasury debt that would
be sold to finance the bailout. Foreign investors are also needed to shore up
the depleted capital of the nation's financial institutions, as evidenced by
the plan of Japan's Mitsubishi UFJ Financial Group to buy a large stake in
Morgan Stanley, which is weighed down by bad debt and market distrust. This is
a bittersweet moment in US economic history."
October 2 - Bloomberg (Sharon L. Lynch): "Home prices dropped in 24 of 25 US
metropolitan areas in July from a year earlier ... Las Vegas had the biggest
drop on a per-square foot basis, falling 33%... Radar Logic Inc. said ... Los
Angeles, Phoenix, Sacramento and San Francisco each dropped about 28%. Three of
the five worst-performing markets were in California. 'Buyers are increasingly
reluctant,; Radar Logic CEO Michael Feder said."
October 2 - Bloomberg (David Wilson): "US homeowners may end next year with the
least amount of equity in their houses since 1984, according to Michael R.
Widner, a Stifel Nicolaus & Co. analyst. Widner projected that home equity,
as tracked by the Federal Reserve, will decline to $4.23 trillion in 2009,
after adjusting for inflation. The estimate is less than half of the record
$8.63 trillion in March 2007."
October 2 - Wall Street Journal (Matthew Dolan, John D. Stoll and Sharon
Terlep): "US auto sales reached a 15-year low with a double-digit decline in
September as tightening credit and a financial system in crisis appeared to
overwhelm any optimism about moderating gas prices. Sales of cars and light
trucks fell 27% to 964,873 last month, down from 1.31 million a year earlier,
according to Autodata Corp. The seasonally adjusted annualized selling rate was
12.5 million units down from 16.19 million in September 2007, the research firm
said."
September 30 - Bloomberg (Alex Lange): "US new-vehicle dealership closures may
rise as much as 40% this year as slumping sales and surging borrowing costs cut
into profits, the National Automobile Dealers Association said today. As many
as 600 may shut down or consolidate with other dealers, equal to about 3% of
the total ... That compares with 430 a year ago."
October 2 - Dow Jones (Shara Tibken): "Sixty-one US companies defaulted on
their debt in the first three quarters of 2008, nearly quadruple the number
last year. More than half were since late May, according to ... S&P. Nine
US companies defaulted in September, including Lehman Brothers ... and
Washington Mutual ... Through the first five months of 2008, the year-to-date
total was 28, which was already more than the 16 seen all of last year and the
22 from 2006. The US speculative-grade default rate climbed to 2.68% in
September from 2.5% in August."
October 2 - New York Times (Louis Uchitelle): "Some small companies say they
are no longer able to get loans from newly cautious banks as credit tightens
across the country, and even those who do qualify are increasingly reluctant to
borrow and expand, fearful of overextending themselves in the midst of the
financial crisis. Alan Petrucci, whose small factory near Chicago makes metal
molds that other manufacturers buy to form plastic parts, says his bank
recently offered him an additional loan. Though orders for his molds are still
plentiful, Mr. Petrucci says he will borrow only to upgrade existing machinery,
not to expand. 'We are bracing for the downturn that is coming,' Mr. Petrucci
said. 'It is coming; there is no question about that.'"
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