Page 4 of 5 CREDIT BUBBLE BULLETIN Just the facts
Commentary and weekly watch by Doug Noland
October 31 - Wall Street Journal (Greg Hitt and Brad Haynes): "The US has led
the way in efforts to lower barriers to global trade since World War II,
despite opposition from unions and voters hurt by foreign competition. This
election could put trade-liberalization on ice for a while. A slumping economy,
years of stagnating wages for many workers and unease about the rise of China
as an economic power are fueling popular skepticism toward free trade and
buoying Democratic candidates who are seizing on anxieties about
globalization."
October 30 - Bloomberg (Jeremy R. Cooke and Michael B. Marois): "US state and
local governments may have trouble
persuading voters to approve $66 billion in planned borrowing for schools,
sewers and other projects as a faltering economy and rising costs reduce
taxpayers' appetite for debt. Voters in 41 states will decide Nov. 4 on the
second- largest amount of municipal-bond measures after November 2006's $78.6
billion ... Referendums in California make up the bulk, with almost $42
billion, led by a $9.95 billion measure to fund a high-speed rail network."
October 29 - Bloomberg (Michael Janofsky, Mark Drajem and Alaric Nightingale):
"Richard Burnett's lumber company had started loading wood onto ships heading
for China. More was en route to the docks. It was all part of an order that
would fill 100 40-foot cargo containers. Then Burnett got a call from his buyer
at Shanghai VIVA Wood Products Co. The deal was dead. He told Burnett ... he
couldn't get a letter of credit to guarantee payment for at least six months.
'It was like a spigot got cut off,' Burnett said ... The inability of buyers in
China and Vietnam to get letters of credit has cost his company as much as $4
million this year, a third of projected revenue, forcing him to lay off 15 of
35 employees, he said. Suppliers of oil, coal, grains and consumer products
from Chicago to Mumbai are losing sales as the credit crisis spreads beyond
financial institutions, and banks refuse financing or increase the fees for
buyers."
October 29 - Bloomberg (Julie Ziegler): "Costs rose 5.9% this year at private
four-year colleges in the US , outpacing the biggest gain in inflation in 17
years and increasing the demand for financial aid. Tuition and fees rose 0.3
percentage point more than inflation at those schools, to an average of
$25,143, according to ... the College Board…"
Oct. 30 - Bloomberg (Lauren Berry): "Hedge funds might cut spending on
technology as much as 39% next year because of declining revenue, a study
found. Hedge funds may reduce technology budgets to as little as $882 million
next year from $1.45 billion this year, according to a study ... by research
firm The Tabb Group LLC…"
October 29 - Bloomberg (Alex Duff): "America's Cup teams will cut their budgets
by up to 80% under plans for sailing's richest event in 2010 as financial
turmoil makes it harder to find sponsors, Alinghi team owner Ernesto Bertarelli
said. 'We need to adapt to the times,' the Swiss billionaire said…"
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
October 28 - Bloomberg (Jody Shenn): "Subprime, Alt-A and prime-jumbo mortgage
securities fell this month as bond holders were forced to sell assets, driving
some prices to record lows. The least protected bonds originally rated AAA and
backed by Alt-A mortgages with five years of fixed rates slipped to about 15 to
25 cents on the dollar ... 'Super-senior' bonds from the same groups of loans
were selling in the 'mid-50s to mid-60s,' down from 60 to 70 cents. The
non-agency US home-loan bonds, an almost $2 trillion market, fell from 100
cents on the dollar last year as foreclosures soared and home values tumbled."
October 29 - Wall Street Journal (Kate Haywood): "Barclays Capital sold more
than 30% of the $970 million of mostly leveraged loans it put up for sale to
liquidate positions linked to a derivatives agreement with hedge fund Black
Diamond Capital Management LLC ... The bank received bids for 75% of the loans
and other debt ... The small percentage of assets sold suggests that bidders
drove too hard a bargain on the price of the assets. The loan market has fallen
about 13 cents since the beginning of October, trading on average at around 70
cents on the dollar…"
GSE Watch
October 31 - Bloomberg (Craig Torres): "Federal Reserve Chairman Ben S.
Bernanke said the market for mortgage-backed bonds will require some form of
government support through either guarantees or insurance programs to weather
times of heightened stress. The Fed chief also said Fannie Mae and Freddie Mac
... should retain some form of government support and oversight even if the
companies are transformed from their current federal conservatorship to the
status as private companies."
October 30 - Bloomberg (Jody Shenn): "Fannie Mae's portfolio of home loans and
bonds grew at a 2.3% annual rate last month as federal regulators seized
control of the mortgage-finance company. The portfolio rose by $1.4 billion to
$761.4 billion, after expanding at a 3% pace in August ... Freddie Mac last
week said its portfolio contracted by $24 billion to $737 billion in September,
after falling $37.4 billion the previous month. Fannie's slowing growth and
Freddie's shrinkage came during the month in which as the US took over the
companies ... A jump in the companies' borrowing costs this month is now
hindering their buying."
Real Estate Bust Watch
October 28 - Bloomberg (Timothy R. Homan): "House prices in 20 US cities
declined at the fastest pace on record as foreclosures climbed before the
credit crisis deepened this month. The S&P/Case-Shiller home-price index
dropped 16.6% in August from a year earlier, as forecast, after a 16.3% decline
in July ... The decrease in property values ... will probably intensify in
coming months as the latest tightening of credit markets threatens to dry up
mortgage financing."
October 30 - Bloomberg (Kathleen M. Howley): "Home prices in the Hamptons, the
summer resort of Wall Street bankers and Hollywood celebrities, plunged a
record 19% in the third quarter from a year earlier ... The median price for a
home on the eastern tip of New York's Long Island fell to $830,000 from $1.03
million…"
October 27 - Bloomberg (David M. Levitt): "Manhattan office rents may fall by
about 25% between now and mid-2010, Colliers ABR predicted, as the city sheds
tens of thousands of jobs in a financial industry-led recession."
October 29 - Wall Street Journal (Jonathan Karp): "Underscoring the deepening
woes in commercial real estate, a high-profile British developer has defaulted
on a $365 million loan for prime land it bought in Beverly Hills last year as
part of a plan to build luxury condominiums. In recent weeks, CPC Group ... has
been roiled by the collapse of its partner in the project, Iceland's Kaupthing
Bank, which was taken over by the Icelandic government."
October 31 - Bloomberg (Denis Maternovsky and Ellen Pinchuk): "Russia's
real-estate market is 'in trouble' as the 'difficult' economic situation slows
lending and high prices plummet, Alfa Bank President Petr Aven said. 'Real
estate is in trouble and will be in trouble,' Aven ... told Bloomberg ... 'That
was one of the bubbles and bubbles have to disappear someday.' An average
Russian would need to work 150 years to buy a high-end apartment covering 100
square meters (1,100 square feet) in central Moscow, compared with 30 years in
Poland and six years in Germany, Aven said…"
Speculator Watch
October 27 - Dow Jones (Sandra Hernandez): "In the latest sign of how the
financial crisis and steep drop in commodity prices since July have blindsided
some of the most prominent investors, energy crusader T. Boone Pickens said he
and his BP Capital investment firm have lost some $2 billion since oil and
natural-gas prices started tumbling in July. The figure, released on '60
Minutes,' is sharply higher than the most recent estimates of Pickens' losses."
October 29 - Financial Times (Kate Burgess): "Hedge funds are scrambling to
assess the damage done to portfolios after bets on Volkswagen's shares have
turned sour. Estimates of the losses suffered by funds that went short -
borrowed shares and sold them in the expectation they could buy them back more
cheaply - run into several billions of euros. After Porsche declared it held
sway, directly or indirectly, over more than 74% of VW's shares this week, fund
managers have been struggling to buy back shares to cover their short
positions, pushing the carmaker's share price ever higher. There is widespread
speculation that the losses nursed by some hedge funds may be enough to force
them under."
Oct. 30 - Dow Jones: "Knight Capital Group ... said ... that its asset
management unit suspended redemptions from its Global Multi-Strategy Funds
after investors sought to withdraw about $480 million. The financial services
firm said its Deephaven Capital Management LLC unit took the step to protect
investors from the 'current extreme and unprecedented market conditions.'
…Knight Capital said the GMS Funds had assets under management of nearly $1.6
billion at Oct. 1…"
October 27 - Bloomberg (Doug Alexander): "Desjardins Group, Canada's biggest
credit union, stopped selling two guaranteed investment products tied to hedge
funds as declining stock prices curbed their appeal. 'They actually haven't
been popular since the beginning of the year,' Desjardins spokesman Andre
Chapleau said…"
Muni Watch
October 29 - Bloomberg (Angela Greiling Keane): "US city and regional transit
providers may be at risk of defaulting on as much as $16 billion in financing
unless the US Treasury and Federal
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