Page 4 of 5 CREDIT BUBBLE BULLETIN The 'arb' game is over
Commentary and weekly watch by Doug Noland
money-supply growth slowed for a fourth month even after the central bank
loosened lending restrictions to stimulate economic growth. M2, the broadest
measure, rose 15.3% to 45.3 trillion yuan ($6.6 trillion) at the end of
September from a year earlier ... after gaining 16% in August."
October 14 - Bloomberg (Chia-Peck Wong and Theresa Tang): "The Hong Kong
Monetary Authority will use its foreign exchange reserves to guarantee bank
deposits ... The government will also set up a fund from which banks can access
additional capital if
needed, John Tsang, Hong Kong's financial secretary, told reporters ... "
Asia Bubble Watch
October 17 - Bloomberg (Bomi Lim): "Taesan LCD Co., which makes back- light
units for computer screens, was ranked as South Korea's third-biggest start-up
in June after posting record sales. Three months later, the supplier...
collapsed after accumulating 80.6 billion won ($62 million) in losses on
currency options that soured as the won slumped against the dollar ... Hana
Bank... assumed the losses when Taesan failed. Korean banks may lose billions
of dollars on similar contracts and face lawsuits from exporters who say the
options were sold without an explanation of the risks ... The won fell 9.7%
against the dollar yesterday, its biggest drop in 11 years ... "
Latin America Watch
October 13 - Bloomberg (Matthew Craze): "Argentine farmers face bankruptcy
because of falling prices and rising costs, soybean producer Gustavo
Grobocopatel told Radio 10 ... Grobocopatel called on the government and
farmers to restart talks aimed at resolving a conflict over taxes and export
restrictions that began in March this year ... "
Central Banker Watch
October 15 - Bloomberg (John Fraher and Gabi Thesing): "European Central Bank
President Jean-Claude Trichet said officials reshaping the world's financial
system should try to return to the 'discipline' that governed markets in the
decades after World War II. 'Perhaps what we need is to go back to the first
Bretton Woods, to go back to discipline,' Trichet said ... 'It's absolutely
clear that financial markets need discipline: macroeconomic discipline,
monetary discipline, market discipline.'"
October 13 - Bloomberg (Craig and Scott Lanman): "Federal Reserve officials
must be wary of concentrated risk and the rise of a new 'financial oligarchy'
as banks merge amid the credit crisis, Kansas City Fed President Thomas Hoenig
said. Regulators ... should consider 'the degree to which we should be
concerned and address the rising levels of concentration of financial resources
among, if you will, a financial oligarchy that will wield vast powers in the
future,' Hoenig said ... "
Unbalanced Global Economy Watch
October 15 - Bloomberg (Chris Reiter): "European car sales fell for the fifth
consecutive month in September, the longest stretch since 2005, as higher fuel
prices and financial-market turmoil reduced demand for General Motors Corp. and
Bayerische Motoren Werke AG models. Registrations declined 8.2% to 1.3 million
vehicles ... "
October 14 - Bloomberg (Svenja O'Donnell): "U.K. home sales fell in September
to the lowest level in at least three decades, led by London, as the financial
crisis prompted price drops across the nation, the Royal Institution of
Chartered Surveyors said."
October 14 - Bloomberg (Jennifer Ryan): "U.K. inflation quickened to the
fastest pace in at least 11 years in September, squeezing consumers with higher
living costs as the financial market crisis curbed the availability of credit.
Prices rose 5.2% from a year earlier, the most since records began in 1997, the
Office for National Statistics said ... "
October 15 - Bloomberg (Warren Giles and Elena Logutenkova): "Switzerland gave
UBS AG, the European bank with the biggest losses from the credit crisis, a
$59.2 billion bailout and pushed Credit Suisse Group AG to raise funds, joining
authorities around the world in shoring up banks."
October 16 - Bloomberg (Benedikt Kammel): "Swedish unemployment rose to 5.9% in
September as companies including Volvo ... and Ericsson AB slashed their
workforce to battle the fallout from the global financial crisis. The ... rate
rose from 5.2%..."
October 14 - Bloomberg (Kati Pohjanpalo): "Finland's inflation rate was
unchanged at 4.7% in September, the highest in more than 17 years, led by the
high cost of food. Inflation compares with 2.6% in September a year earlier ...
"
October 16 - Bloomberg (Alex Nicholson): "Russia's international reserves, the
world's third largest, fell $15.5 billion last week after the central bank sold
currency to prop up the ruble as investors pulled money out of the country. The
value of the reserves slipped to $530.6 billion ... after a $16.7 billion
decline the previous week ... "
October 15 - Bloomberg (Maria Levitov): "Russia's inflation rate in the year
through Oct. 13 reached 11% as egg, poultry and hot dog prices rose."
October 14 - Bloomberg (Niklas Magnusson and Chad Thomas): "Karl Karlsson, a
Reykjavik taxi driver, has canceled his winter vacation. The money he saved is
being eaten up by his car loan payment, which has jumped more than 20% since
June. Like thousands of Icelanders, Karlsson borrowed in foreign currencies to
get a cheaper loan as the benchmark domestic interest rate soared to 15.5% this
year. With trading in the krona virtually suspended after it plunged against
the euro, dollar and yen, debtors now face skyrocketing bills."
October 14 - Bloomberg (Massoud A. Derhally): "Jordan's economy faces threats
from accelerating inflation and a current-account deficit that has widened
almost 50% in the past three years, Moody's ... said. 'The most immediate
economic risks are the high and rising inflation and the very wide current
account deficit, the rating firm said ... "
Bursting Bubble Economy Watch
October 17 - Bloomberg (Bob Willis): "Housing starts in the US fell more than
forecast in September as construction of single-family homes plunged to the
lowest level in 26 years, indicating the three-year real-estate slump is
intensifying ... Building permits, a sign of future construction, dropped 8.3%
to a 786,000 pace, matching the lowest level since November 1981."
October 14 - Bloomberg (Greg Bensinger): "US auto sales this month may fall to
their lowest rate in at least 25 years as showroom traffic slows ... Deutsche
Bank AG analyst said. October's seasonally adjusted annual rate, or SAAR, will
probably decline to 11 million vehicles, Rod Lache wrote ... That would be the
first time the rate has gone below 12 million since April 1983 ... 'Several
automakers have commented on a dramatic falloff in customer traffic during the
final week of September, and we believe that has continued,' Lache said."
October 14 - Bloomberg (Greg Bensinger and Alex Ortolani): "GMAC ... may deepen
the automaker's 18% US sales slide this year by limiting car and truck loans to
people with the best credit scores. GMAC said yesterday it's granting financing
only to buyers with scores of at least 700, who represent about 58% of US
consumers."
October 17 - Bloomberg (Peter Robison and Pham-Duy Nguyen): "Weeks before
Washington Mutual Inc.'s bankruptcy, Seattle arts philanthropist Jim Tune met
with his staff at a wooded retreat to discuss how a lagging economy might hurt
donations. The company that donated the meeting space: WaMu, the city's
homegrown thrift. WaMu's collapse last month has sent chills through the city's
charities ... The 119- year-old bank sponsored an annual Fourth of July
fireworks show, gave money to food and shelter programs, and supported the
Seattle Symphony and theater groups ... Philanthropy is one of the first things
cut when companies get into trouble, said Tom Pollak, program director at the
National Center for Charitable Statistics ... "
October 14 - Dow Jones (Patrick Fitzgerald): "Petters Co. Inc. filed for
bankruptcy protection Saturday amid allegations of massive fraud involving
company founder Thomas Petters, who was arrested earlier this month on federal
charges of mail and wire fraud, money laundering and obstructing justice.
Petters Co., the venture capital arm of Thomas Petters' group of companies,
filed for Chapter 11 protection Saturday ... listing debts between $500 million
and $1 billion. Federal authorities raided Petters' Minnesota headquarters last
month seeking evidence of a Ponzi scheme orchestrated by Petters, who is
accused of bilking individual investors and hedge funds out of as much as $3
billion ... Based in Minnetonka, Minn., Petters Co.'s investments include
Fingerhut, Polaroid and Sun Country Airlines."
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
October 15 - Bloomberg (Shannon D. Harrington): "Iceland's collapsed banks pose
a 'substantial' risk to collateralized debt obligations that made bets on
corporate debt, according to S&P. Kaupthing Bank hf, Landsbanki Islands hf
and Glitnir Bank hf were included in 376 CDOs worldwide, S&P said. Another
297 made bets on two of the three banks. The CDOs sold credit-default swaps
that pay investors if there is a default, and the government's placement of the
banks into receivership triggered a settlement of the contracts. Because the
so-called synthetic CDOs also bet heavily on bankrupt Lehman Brothers Holdings
Inc. and Washington Mutual Inc., 'the impact of these exposures is likely to be
significant, S&P said ... "
October 15 - Bloomberg (Jody Shenn): "S&P may downgrade $280.1 billion of
Alt-A mortgage securities from 2006 and 2007."
GSE Watch
October 13 - Bloomberg (Dawn Kopecki): "Fannie Mae and Freddie Mac are ready to
start purchasing $40 billion a month of underperforming mortgage bonds as the
US government expands its options to remove troubled assets from the slumping
financial markets, according to three people briefed about the plan. Fannie and
Freddie began notifying bond traders last week that each company needs to buy
$20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage
securities, according to the people, who asked not to be identified because the
plans are confidential. The purchases would be separate from the US Treasury's
$700 billion Troubled Asset Relief Program."
October 14 - Bloomberg (Jody Shenn): "Yields on Fannie Mae and Freddie Mac
corporate debt rose to the highest on record relative to Treasuries as the
government said it would guarantee borrowing by banks, providing bond buyers
competing US -backed investments. The difference between yields on
Washington-based Fannie's five-year debt and similar-maturity Treasuries rose
15 bps to 117.2 bps ... "
Real Estate Watch
October 15 - EconoPlay.com (Gary Rosenberger): "The housing
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
