Page 2 of 5 CREDIT BUBBLE BULLETIN Just the facts
Commentary and weekly watch by Doug Noland
telling an audience in Dubai that the US was eager for fresh investment from
the region. And British Prime Minister Gordon Brown asked nations enjoying big
budget surpluses ... for more money ... But the calls come as the Gulf's
handful of government investment funds face big paper losses amid recent global
stock-market carnage."
October 28 - Bloomberg (Maria Levitov): "Russian Prime Minister Vladimir Putin
urged China to move away from the dollar, saying a global economy based on the
US currency has 'serious problems.' 'Wider use of national currencies' is
needed, Putin said at the Russia-China Economic Forum ... China and Russia, the
largest and third-largest holders of dollars, have about $2.4 trillion between
them."
October 29 - Bloomberg (Gabi Thesing): "The European Central Bank's lending to
financial institutions surged to a record as it pumped extra cash into the
banking system to ease a funding gridlock. The ... central bank said its
outstanding euro loans to banks rose to 773.7 billion euros ($1.01 trillion)
yesterday, the largest amount ever ... The figure does not include the ECB's
dollar loans."
October 28 - Bloomberg (Julie Ziegler): "Billionaire investor George Soros said
the US risks losing global economic influence unless it quickly leads an
international effort to ensure that economies around the world remain stable.
The $700 billion bailout package approved by Congress this month had an
unintentional effect of drawing capital away from so-called peripheral
countries such as Brazil as investors sought a haven, said Soros. Failure to
protect such countries would lead to a bigger crisis that may result in the US
and the dollar losing clout, Soros told an audience ... 'There will be a
different system that will emerge and I think the US will not have the kind of
influence that it has,' he said."
October 30 - Wall Street Journal (Craig Karmin and Leslie Scism): "The credit
crisis is causing a contraction of the little-noticed but huge business of
securities lending, and financial players including pension funds, insurers and
hedge funds are paying a price. Losses are sparking lawsuits from customers who
pursued securities lending as a way to squeeze additional gains with seemingly
little risk."
October 30 - Wall Street Journal: "Corporate pension plans dug themselves out
of a deep hole between 2002 and 2007. Now, they are back in it. That presents
already rattled investors with yet another worry: Pension-plan shortfalls will
likely result next year in hits to earnings, shareholders' equity and possibly
cash at a number of companies. Given the prevalence of 401(k) plans in the US ,
many investors may think pension plans are a worry of the past. Yet there are
still more than 350 companies in the S&P 500 with defined-benefit pension
plans that show up on their books ... At the end of 2007, companies in the
S&P 500 had a combined pension-plan surplus of about $60 billion, according
to David Zion ... analyst at Credit Suisse. The market selloff in the nine
months to late September turned that into a combined deficit of about $75
billion, he estimated."
October 28 - The Wall Street Journal (Charles Forelle and Bob Davis):
"Iceland's central bank raised its benchmark interest rate by six percentage
points to 18%, and Hungary agreed to take a $25.1 billion loan package
organized by the International Monetary Fund, as the two countries tried to
rescue their currencies."
October 30 - Bloomberg (Alex Nicholson): "Russia's international reserves
dropped $31 billion last week, the biggest decline this year, as the central
bank struggled to prop up the nation's currency and a banking system under
threat from the global financial crisis. The reserves fell to $484.7 billion,
the lowest since the end of January, after dropping for four consecutive
weeks…"
Oct. 30 - Bloomberg (Steve Matthews and William Sim): "The Federal Reserve
agreed to provide $30 billion each to the central banks of Brazil, Mexico,
South Korea and Singapore, expanding its effort to unfreeze money markets to
emerging nations for the first time. The Fed set up 'liquidity swap facilities
with the central banks of these four large systemically important economies'
effective until April 30 ... The arrangements aim 'to mitigate the spread of
difficulties in obtaining US dollar funding.'"
October 28 - Bloomberg (Ari Levy): "GMAC ... will halt new vehicle loans
through its financial services unit in seven European countries as global
credit markets deteriorate. The company will stop originating loans in the
Czech Republic, Finland, Greece, Norway, Portugal, Slovak Republic and Spain…"
October 29 - Bloomberg (Ari Levy and Greg Bensinger): "GMAC LLC, the
money-losing auto finance and home-loan lender, is seeking to become a bank
holding company after gaining access to the Federal Reserve's new program
designed to unlock short-term commercial credit markets."
October 28 - Bloomberg (Aaron Kirchfeld and Jacqueline Simmons): "Teachers at
the Clara Zetkin Middle School in Freiberg, Germany, were counting on a budget
surplus to ease staff shortages across the state of Saxony. Those hopes have
faded as a result of bets made by state-owned Landesbank Sachsen Girozentrale
on structured investments backed by mortgages in the US. The German lender
loaded up on asset-backed securities and derivatives manufactured and sold by
Wall Street amounting to more than 27 times the bank's equity. Now Saxony,
which pledged taxpayer money as a guarantee against losses, is on the hook for
2.8 billion euros ($3.5 billion)."
Currency Watch
The dollar index slipped 0.9% to 85.63. For the week on the upside, the South
African rand increased 14.6%, the South Korean won 10.2%, the Australian dollar
7.3%, the Brazilian real 6.9%, the Canadian dollar 5.4%, the New Zealand dollar
4.7%, the Mexican peso 4.4%, the Norwegian krone 4.0%, the Swedish krona 2.1%,
and the Singapore dollar 1.6%. On the downside, the Japanese yen declined 4.2%.
In the emerging currencies, the Indonesian rupiah declined 7.8% and the
Argentine Peso 3.2%.
Commodities Watch
October 28 - Bloomberg (David Wethe): "As many as 20 of the 100 deepwater oil
rigs on order worldwide may be delayed or canceled as loan availability erodes,
possibly slowing developments including the biggest petroleum discovery in the
Americas in three decades."
Gold declined 1.4% to $725. Silver rallied 5.2% to 9.85. December Crude gained
$3.66 to $67.81. December Gasoline rose 3.2% (down 39.6% y-t-d), and December
Natural Gas gained 5.0% (down 9.4% y-t-d). December Copper recovered 8.4%.
December Wheat rallied 3.9% and Corn jumped 7.7%. The CRB index gained 4.7%
(down 25.3% y-t-d). The Goldman Sachs Commodities Index (GSCI) rose 5.0% (down
26.3% y-t-d).
China Watch
October 29 - Bloomberg (Lyubov Pronina and Greg Walters): "China may provide
Russian oil companies with a 'considerable' loan as the countries expand energy
cooperation. The size is being negotiated, Russian Deputy Prime Minister Igor
Sechin told reporters after a meeting between Prime Minister Vladimir Putin and
Chinese counterpart, Wen Jiabao, in Moscow ... Rosneft and pipeline monopoly
OAO Transneft may get as much as $25 billion in export-backed loans from China
as Russia seeks to expand into Asian energy markets ... 'For China, it's about
strategic access to energy,' said Ronald Smith, chief strategist at
Moscow-based Alfa Bank. 'For Russia, it's about the money.'"
October 28 - MarketNews International: "Chinese economic indicators such as
power production and port throughput are falling sharply, a leading economist
warned ... Xia Bin, an economist with the Development Research Center, a think
tank under the State Council, told a business audience here that the world
financial crisis is impacting China's economy and said that Beijing's response
so far has been too timid. 'If the policy adjustment is slow and small, the
government's concerns about an economic slowdown will become a reality in the
first half of next year,' he said."
October 29 - Bloomberg (Nipa Piboontanasawat): "China's wages in urban areas
rose 18.3% in the first nine months of 2008 from a year earlier, the National
Bureau of Statistics said. The average wage earned in the nine-month period
climbed to 19,731 yuan ($2,889)…"
Japan Watch
October 30 - Bloomberg (Sachiko Sakamaki and Toru Fujioka): "Japan said it will
pump 5 trillion yen ($51 billion) into the world's second-largest economy,
earmarking funds for households and local governments to help weather the
global financial crisis. 'We're facing a storm that comes once in every 100
years,' Prime Minister Taro Aso said ... 'While Japan's financial system
remains relatively sound there will surely be an impact on the real economy.'
October 28 - Wall Street Journal (Yuka Hayashi and Yumiko Ono): "Japan, seen as
a bastion of strength in the unfolding global economic turmoil, showed new
vulnerability Monday as the country's biggest bank announced plans to raise
fresh capital, the yen traded near its highest levels in more than a decade and
shares fell to lows not seen in 26 years. Mitsubishi UFJ Financial Group said
Monday it would raise as much as 990 billion yen, or $10.7 billion, in
capital."
October 29 - Bloomberg (Toru Fujioka): "Confidence among
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