Page 3 of 5 CREDIT BUBBLE BULLETIN Debt trap
Commentary and weekly watch by Doug Noland
suggesting they remain reluctant to lend to each other even as money-market
rates fall. Banks yesterday lodged 295.9 billion euros ($379.5 billion) in the
ECB's overnight deposit facility ... At the same time, the ECB continues to
pump additional cash into the banking system in an attempt to facilitate
interbank lending."
November 5 - Bloomberg (Christine Richard): "Ambac ... posted a third-quarter
loss as it set aside at least $3 billion to pay anticipated claims. The net
loss widened to $2.43 billion ... from $360 million ... "
November 5 - Bloomberg (Abigail Moses): "Sellers of credit-default
swaps on bonds sold by Glitnir Banki hf may pay almost 1.6 billion euros ($2
billion) to settle contracts triggered when the Icelandic government took
control of the bank last month. An auction by 14 dealers set a final value of 3
cents on the euro for Glitnir senior bonds today."
November 5 - Bloomberg (Bob Chen and Kyoungwha Kim): "Asian regulators may
limit currency derivatives after losses helped push the South Korean won to a
decade low, led to lawsuits in India and caused shares of China's Citic Pacific
Ltd. to collapse. South Korea will announce measures by December to restrict
company purchases of the contracts to a percentage of overseas earnings, Hyeon
Jung Gun, head of Korea's Financial Supervisory Services derivatives market
team, said ... 'There were companies that went over-hedging and banks that
failed to remind options buyers of the embedded risk,' Hyeon said. 'Under new
regulations, companies will have access to derivative products based only on
real demand.'"
November 5 - Bloomberg (Sebastian Alison and Maria Levitov): "Russian President
Dmitry Medvedev said it's 'time to act' to create a new global economic system
and blamed the US for the worst financial crisis since the 1930s. 'Radical'
reforms are needed, Medvedev told Russian lawmakers ... The US , the European
Union and the BRIC countries - Brazil, Russia, India and China - must work
together to create an economic system which will be 'more fair and more
secure,' Medvedev said in his first state of the nation address ... 'We must
radically reform the political and economic systems. Russia, at all events,
will insist on this.'"
Currency Watch
The dollar index added 0.3% to 85.91. For the week on the upside, the Canadian
dollar increased 2.0%, the New Zealand dollar 1.7%, the Australian dollar 0.9%,
the Taiwanese dollar 0.5%, and the Japanese yen 0.2%. On the downside, the
South African rand declined 3.8%, the South Korean won 2.9%, the British pound
2.7%, the Norwegian krone 2.6%, the Swedish krona 1.9%, the Swiss franc 1.8%,
and the Singapore dollar 0.9%. In the emerging currencies, the Iceland krona
fell 7.2%, the Hungarian forint 4.5%, the Czech koruna 4.3%, and the Polish
zloty 3.4%.
Commodities Watch
Gold recovered 1.8% to $737, and Silver rallied 3.0% to $10.02. December Crude
sank $6.79 to $61.02. December Gasoline dropped 9.7% (down 45% y-t-d), while
December Natural Gas was unchanged (down 9% y-t-d). December Copper declined
6.5%. December Wheat fell 2.8% and Corn 6.5%. The CRB index dropped 4.3% (down
28.4% y-t-d). The Goldman Sachs Commodities Index (GSCI) sank 6.5% (down 31%
y-t-d).
China Watch
November 6 - Bloomberg (Rob Delaney): "China's Deputy Finance Minister Li Yong
said his country will assist in a worldwide effort to provide liquidity to help
relieve a worldwide credit crisis. China will provide assistance through the
International Monetary Fund, Li said ... in Trujillo, Peru, where Asia- Pacific
Economic Cooperation finance officials are meeting this week."
November 3 - Bloomberg (Michael Dwyer): "India and China are accelerating
efforts to prop up growth as a global slump threatens the world's
fastest-expanding major economies. The Reserve Bank of India on Nov. 1 lowered
its benchmark interest rate for the second time in two weeks ... China's
central bank removed temporary controls over loans to maintain 'relatively
fast' growth, Xinhua News Agency reported ... "
November 5 - Wall Street Journal (Patricia Jiayi Ho): "Growth in China's
once-roaring auto market has slowed to a near-crawl ... Car-producing giants
such as General Motors Corp. and Ford Motor Co. have been looking to emerging
markets - mainly China and India - to provide a much-needed counterbalance to
declining sales in the US and Europe ... Until midyear, Chinese auto sales had
grown at 14% to 24% every month year-to-year ... "
November 5 - Bloomberg (Luo Jun): "Wang Yi, who employs 300 people making
children's raincoats on China's east coast, is worried his company won't
survive the next year as exports dry up. The apparel manufacturer ... needs a
600,000 yuan ($88,000) loan by Jan. 31 to stay afloat. China's state-owned
banks rejected his previous applications ... China's largest banks ... are
resisting government efforts to boost lending to 42 million small and
medium-size companies that drove the economic boom of the past decade ... Half
the nation's toy exporters have closed this year, and 67,000 smaller
enterprises filed for bankruptcy in the first half ... 'Their failure will lead
to unemployment and may threaten social stability,' says Frank Gong, JPMorgan
Chase's Hong Kong-based chief China economist."
November 5 - Wall Street Journal Asia (Jonathan Cheng): "The financial crisis
and China's slowing growth are hitting the cornerstones of Hong Kong's economy
... On Monday, Hong Kong reported its closely watched purchasing-managers index
fell to its lowest level in more than five years in October as business
activity contracted for the fourth straight month ... Hong Kong's retail sales
rose 6.9% in September from a year ago ... down from 10.2% in August ... "
November 4 - Bloomberg (Kelvin Wong and Nipa Piboontanasawat): "Hong Kong's
home sales posted the biggest drop by volume in almost nine years, as local
lenders tightened mortgage lending amid a slowdown in the economy."
Japan Watch
November 6 - Bloomberg (Naoko Fujimura and Tetsuya Komatsu): "Toyota Motor Corp
... forecast the biggest drop in profit in at least 18 years ... Net income
will likely be 550 billion yen ($5.6 billion) for the year ending March 31,
compared with an earlier forecast of 1.25 trillion yen ... The new forecast
will be a 68% drop from the 1.72 trillion yen Toyota earned last year."
November 5 - Wall Street Journal (John Murphy): "During Toyota Motor Corp.'s
rapid global expansion this decade, residents of the auto giant's hometown saw
their fortunes soar. Those days are quickly ending. Sales of Japan's biggest
company - widely seen as Japan's final bulwark against an economic slowdown -
are sputtering ... The auto maker has slashed production and cut its temporary
work force ... by more than 20%... That has sent a chill across the Toyota City
region, from its 400 car-related businesses to its real-estate market,
department stores and noodle shops."
India Watch
November 6 - Bloomberg (Sumit Sharma): "State Bank of India, which announced a
cut in its lending rate today, said credit growth is unlikely to slow in the
fiscal second half, requiring the government and the central bank to ensure
adequate cash in the financial system. Loan growth in the six months ending
March 31 is expected to match the 29% increase in the first half ... "
November 3 - Bloomberg (Kartik Goyal): "India's exports grew at the slowest
pace in 18 months in September ... Overseas shipments, which account for about
15% of the economy, rose 10.4% to $13.7 billion from a year earlier ... "
Asia Bubble Watch
November 5 - Bloomberg (Kim Kyoungwha): "South Korea's won fell after the
nation's foreign-exchange reserves slid by the most since its $57 billion
bailout by the International Monetary Fund in 1997."
November 3 - Bloomberg (Kyung Bok Cho): "Park Ji Eun's dream of buying her
first house in Seoul collapsed along with South Korea's shares and currency.
'I've never seen the economy so bad,' said freelance scriptwriter Park ...
'I've worked on this program for eight years, and this is the first time I've
ever had my pay cut.' From writers to builders to chief executives, the won's
26% slump and the Kospi stock index's 40% plunge this year has revived memories
of 1997, when the government was forced to turn to the International Monetary
Fund for a $57 billion bailout. Only this time, they say it will be worse."
November 7 - Bloomberg (Yu-huay Sun and Janet Ong): "Taiwan's exports fell by
the most in more than three years on weaker demand in the island's biggest
market, mainland China. Shipments dropped 8.3% in October from a year earlier,
compared with a 1.6% decline in September ... "
Latin America Watch
November 5 - Bloomberg (Brian McGee): "Argentina froze a 2.4 billion-euro
($3.1bn) project to build a high-speed train from Buenos Aires to Mendoza
because of a lack of financing, leaving contract winners Alstom SA and Grupo
Isolux Corsan SA until May to revive the deal, Cinco Dias reported ... "
Central Banker Watch
November 5 - Bloomberg (Christian Vits): "The European Central Bank lowered
interest rates for the second time in less than a month ... ECB policy makers
... reduced the benchmark lending rate by half a percentage point to 3.25%...
The Bank of England today lowered its key rate by 1.5 percentage points to 3%
and Switzerland's central bank lowered rates in an unscheduled move."
November 6 - Bloomberg (Elena Logutenkova): "The Swiss central bank cut its
main lending rate by 50 bps and said the economy may contract next year. The
central bank, led by Jean-Pierre Roth, lowered its three-month Libor target to
2% today from 2.5%..."
November 6 - Bloomberg (Christian Wienberg and Tasneem Brogger): "The Danish
central bank cut its benchmark interest rate by half a point ... Nationalbanken
lowered the lending rate to 5%... after the ECB cut its key rate to 3.25%."
November 4 - Bloomberg (Jacob Greber): "Australia's central bank cut its
benchmark interest rate by a larger-than-expected three quarters of a
percentage point, the third reduction in as many months ... Governor Glenn
Stevens lowered the ... target to a 3 1/2-year low 5.25%..."
Unbalanced Global Economy Watch
November 7 - Bloomberg (Daniel Whitten): "Canadian oil-sands developers are
cutting investment plans by 20% after a slew of delayed projects, an official
at the main trade group for Canada's oil producers said ... "
November 7 - Bloomberg (Wendy Leung): "Global ship orders
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