Page 4 of 4 CREDIT BUBBLE BULLETIN The Wall Street bust
Commentary and weekly watch by Doug Noland
October 1 - Bloomberg (Alexis Leondis): "More than one-third of US parents have
decreased or stopped saving for their children's college education because of
the economic decline, according to a survey by Fidelity Investments."
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
September 30 - Bloomberg (Bob Willis): "House prices in 20 US cities declined
in July at the fastest pace on record, signaling the worst housing recession in
a generation had yet to trough even before this month's credit crisis. The
S&P/Case-Shiller home-price index dropped 16.3% from a year earlier, more
than forecast, after a 15.9% decline in June. The gauge has fallen every month
since January 2007 ... Banks will probably stiffen
lending rules even more in coming months to limit losses, indicating
residential real estate will keep contracting and consumer spending will
continue to falter. 'The fact that house prices quickened their slide before
the worst point in credit markets hit this month does not bode well,' said
Derek Holt, an economist at Scotia Capital."
September 29 - Bloomberg (Bradley Keoun): "A brochure pitching $1.84 million of
notes sold by Lehman Brothers ... in August, a month before the firm filed for
bankruptcy, promised '100 percent principal protection.' Buyers had 'uncapped
appreciation potential' pegged to gains in the S&P's 500 Index, the
brochure said. In the worst case, they would get back their $1,000-per-note
investment in three years. Only the last in a list of 15 risk factors mentioned
the biggest danger: 'An investment in the notes will be subject to the credit
risk of Lehman Brothers.'"
Real Estate Watch<BR> October 3 - Bloomberg (Hui-yong Yu):
"Vacancies in US office buildings rose to 13.6% in the third quarter from 13.1%
in the second, the biggest one-quarter jump since the second quarter of 2002,
according to Reis Inc ... 'Rent growth has stalled in a broad cross-section of
the nation's markets and concessions have widened as demand for space has
weakened,'' said Sam Chandan, chief economist of Reis."
October 1 - Wall Street Journal (Maura Webber Sadovi): "The bankruptcy filing
by Lehman Brothers Holdings Inc. helped to spark the debate in Congress over
how the government should respond to the global financial crisis. It also had
repercussions in Washington, D.C., that went beyond the Capitol steps.
Uncertainty over the future of Lehman's real-estate holdings in the city is
casting a shadow over the future of the area's commercial-building sales. For
years Washington had been one of the country's hottest commercial real-estate
markets ... Today, values of Washington-area commercial buildings are tumbling
as they are in most parts of the country due to the financing drought and
deteriorating economy. The impact there likely will be magnified as Lehman's
properties get dumped on the market. 'D.C. was certainly one of [Lehman's] main
targets,' said Dan Fasulo, managing director at Real Capital Analytics."
Speculator Watch
October 2 - Bloomberg (Chanyaporn Chanjaroen and Tom Cahill): "Funds of hedge
funds will need to pull more than $100 billion before year-end to meet
investors' demands for cash, exacerbating market drops as hedge funds sell
assets, according to London-based advisory firm Clontarf Capital. 'Certain
funds of hedge funds in Europe are fearing redemptions of up to 25% of assets
by the end of the fourth quarter,' said Aoifinn Devitt, founder of Clontarf ...
'There has been a wave of liquidating and de-leveraging and this is likely to
continue.'"
October 1 - Bloomberg (Warren Giles): "Gottex Fund Management Holdings Ltd., a
Swiss and U.K. money manager, will halt redemptions of its ABI Fund Ltd. and
unwind its ABL Portfolio Ltd. fund after fraud allegations at a unit of Petters
Group Worldwide. The allegations against Petters make it difficult to assess
'the value of investments by the ABI Fund in underlying funds exposed to the
Petters business,' Lausanne, Switzerland-based Gottex said ... Petters Group
Worldwide, the owner of Polaroid Corp. and Sun Country Airlines Inc. and
investor in companies including Enable Holdings Inc., was raided in Minnesota
by FBI and other federal agents last week. Gottex oversaw $15.6 billion for
clients as of June 30, down from $16 billion at the end of 2007."
October 2 - Dow Jones (Judith Burns): "A Chicago-area hedge fund is among those
saying it has been stung by an apparent fraud by Petters Co. Inc., a private
holding company whose investments include Fingerhut, Polaroid and Sun Country
Airlines. Lancelot Investment Management ... is the latest fund to say it has
been burned. It joins several normally tight-lipped hedge fund firms that have
come forward recently to claim they've been duped by ... Petters. Total
investor losses aren't known, but could exceed $2 billion, according to some
estimates."
October 1 - Bloomberg (Tom Cahill): "Lehman Brothers Holdings Inc.'s bankruptcy
probably means the end of hedge-fund manager Oak Group Inc. after 22 years in
business. John James, who runs the Chicago-based firm with $25 million of
assets, didn't buy Lehman stock or debt. Instead, his potentially fatal mistake
was to rely on the bank's prime brokerage in London, a unit that provides
loans, clears trades and handles administrative chores for hedge funds. He's
one of dozens of investment managers whose Lehman prime-brokerage accounts were
frozen ... 'We're probably going out of business and liquidate, game over,'
James said. 'We've lost 70% of our assets.' The list of funds trapped in the
Lehman morass keeps growing. London-based MKM Longboat Capital Advisors LLP
said last week it will close its $1.5 billion Multi-Strategy fund ...
LibertyView Capital Management ... told investors on Sept. 26 it had suspended
'until further notice' attempts to calculate the value of its funds ...
Managers with a smaller percentage of assets in Lehman limbo include Harbinger
Capital Partners, Amber Capital LP and Bay Harbour Management LLC, which are
each based in New York, and RAB Capital Plc and GLG Partners Inc., both in
London."
Muni Watch
October 3 - Bloomberg (Jerry Hart): "US states and municipalities from New York
to California are facing deteriorating finances as investors shun their bonds
in a credit market averse to all but the safest debt and a slowing economy
erodes revenue. New York Governor David Paterson called for a special
legislative session to confront a budget deficit that has ballooned to $1.2
billion and Massachusetts Governor Deval Patrick ordered spending cuts as
states and cities from Louisiana to Illinois canceled debt sales."
October 2 - Bloomberg (Michael McDonald): "Massachusetts Governor Deval Patrick
said he is seeking budget cuts amid financial market turmoil that forced the
state this week to cancel plans to borrow money to fund operations. The
governor, citing a $223 million shortfall in tax collections, ordered a
spending reduction of 7%... The state this week canceled the sale of commercial
paper as investors boycotted the markets."
October 1 - Bloomberg (Jerry Hart): "A Florida low-interest loan program for
counties stopped new financing after Wachovia Corp. refused to extend a letter
of credit and investors were slow to buy the notes that fund the program's
loans. The Florida Local Government Finance Program turned down loan requests
from Volusia, Holmes, Gadsden, Clay and Alachua counties, Cragin Mosteller,
communications director for the Florida Association of Counties ... said ...
The loans fund projects such as library and courthouse construction, landfills
and water and sewer plants. Officials running the program told counties this
month that Wachovia won't extend the letter of credit that supports the
commercial paper backing the program's loans. They also said Morgan Stanley was
having trouble remarketing the notes to investors. 'We're experiencing problems
rolling the paper over,' John Yonkosky, chairman of the Florida Local
Government Finance Commission, said ... 'Most of our buyers are mutual funds,
and people are looking to put money in cash or Treasuries now.'"
October 1 - Bloomberg (William Selway): "Jefferson County, Alabama, won't make
an $83.5 million payment on some of its $3.2 billion of sewer bonds, as it
continues to seek more time to negotiate an end to the debt crisis that has
pushed it close to bankruptcy."
New York Watch
September 29 - Bloomberg (Michael Quint): "New York state may lose as much as
$3.5 billion of tax revenue and 40,000 financial industry jobs because of
losses on Wall Street, according to state comptroller Thomas DiNapoli."
October 3 - Bloomberg (Adam L. Cataldo): "New York Mayor Michael Bloomberg said
taxes will 'probably' have to rise to help close the city's $2.3 billion budget
gap for the next fiscal year."
California Watch
October 2 - Los Angeles Times (Marc Lifsher and Evan Halper): "California Gov.
Arnold Schwarzenegger, alarmed by the ongoing national financial crisis, warned
Treasury Secretary Henry M. Paulson on Thursday that the state might need an
emergency loan of as much as $7 billion from the federal government within
weeks. The warning comes as California is close to running out of cash to fund
day-to-day government operations and is unable to access routine short-term
loans that it typically relies on to remain solvent. The state of California is
the biggest of several governments nationwide that are being locked out of the
bond market by the global credit crunch. If the state is unable to access the
cash, administration officials say, payments to schools and other government
entities could quickly be suspended and state employees could be laid off.
Plans by several state and local governments to borrow in recent days have been
upended by the credit freeze. New Mexico was forced to put off a $500-million
bond sale, Massachusetts had to pull the plug halfway into a $400-million
offering, and Maine is considering canceling road projects that were to be
funded with bonds. California finance experts say they know of no time in
recent history when the state has sought an emergency loan of this magnitude
from the federal government. The only other such rescue was in 1975, they said,
when the federal government lent New York City money to avoid bankruptcy."
Crude Liquidity Watch
September 28 - Bloomberg (Fiona MacDonald): "Kuwait's inflation rate
accelerated to 11.35% in June from 11.1% in May on increases in the cost of
housing and food."
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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