Page 4 of 5 CREDIT BUBBLE BULLETIN Debt trap
Commentary and weekly watch by Doug Noland
tumbled 90% last month as the credit crunch damped world trade and made it
harder for shipping lines to borrow money, according to Lloyd's Registers
Group."
November 7 - MarketNews International: "There was a sharp rise in insolvencies
in the UK in the third quarter, the latest government data showed. There were
4,001 compulsory corporate liquidations and creditors voluntary liquidations in
England and Wales in the third quarter, a rise of 10.5% on the quarter and an
increase of 26.3% on a year ago."
November 6 - Bloomberg (Brian Swint): "U.K. house prices fell at
the fastest pace in at least 25 years ... The average cost of a home dropped
14.9% from a year earlier in October ... "
November 5 - Bloomberg (Svenja O'Donnell): "U.K. factory production fell for a
seventh month in September, the worst streak for almost three decades ... "
November 5 - Bloomberg (Colm Heatley): "Irish unemployment rose in October to
the highest in more than 11 years, as a construction slump continued and the
economy entered a recession ... On an unadjusted basis, applications have
increased by 94,502 in the last year, the biggest increase since records began
in 1967."
November 5 - Bloomberg (Ian Guider): "Ireland's budget deficit almost tripled
in the 10 months through October from a year earlier as a slump in home sales
and consumer spending cut tax revenues. The shortfall of 11 billion euros
($14.3 billion) ... compared with a deficit of 3.94 billion euros a year
earlier ... Total tax income fell 10% to 31.4 billion euros."
November 7 - Bloomberg (Gabi Thesing): "Industrial production in Germany
declined the most in almost 14 years in September, increasing the likelihood of
a recession in Europe's largest economy. Output dropped a seasonally adjusted
3.6% from August ... "
November 4 - Bloomberg (Emma Ross-Thomas): "The number of Spanish companies in
bankruptcy proceedings more than tripled in the third quarter as the credit
crunch deepened the decline in the construction industry and edged the economy
toward a recession."
November 4 - Bloomberg (Ben Sills): "Registered unemployment in Spain surged in
October as the economy headed toward its first recession in 15 years. The
number of people claiming unemployment benefits rose 7.3%..."
November 3 - Bloomberg (Emma Ross-Thomas): "Spain will allow unemployed workers
to put off paying half their monthly mortgage payments for two years, Prime
Minister Jose Luis Rodriguez Zapatero said ... "
November 3 - Bloomberg (Johan Carlstrom): "Swedish manufacturing shrank at a
record pace in October as the financial crisis sapped demand at home and abroad
and companies reduced jobs ... "
November 7 - Bloomberg (Nathaniel Espino and Marta Waldoch): "Iceland may
receive a $6 billion financial aid package from a group led by the
International Monetary Fund after the collapse of the island's banking system
paralyzed much of its foreign exchange market."
November 6 - Bloomberg (Tracy Withers): "New Zealand's jobless rate rose to the
highest in almost five years in the third quarter ... The unemployment rate
increased to 4.2% from 3.9%..."
November 4 - Bloomberg (Nasreen Seria and Mike Cohen): "South African vehicle
sales fell an annual 30.1% in October ... "
Bursting Bubble Economy Watch
November 7 - Bloomberg (Bob Willis and Rich Miller): "The US unemployment rate
rose to the highest level since 1994 as companies slashed payrolls, setting the
stage for the steepest economic decline in decades ... The jobless rate rose to
6.5% in October from 6.1% the previous month ... Employers fired 240,000
workers after a loss of 284,000 in September."
November 5 - Bloomberg (Timothy R. Homan): "Service industries in the US
contracted the most on record in October as credit dried up and consumers
reined in spending. The Institute for Supply Management's non-manufacturing
index, which covers almost 90% of the economy, fell to 44.4 ... the worst
result since records began in 1997."
November 5 - United Press International: "The number of US states in a
recession or poised to fall into one has grown to 30 ... At the end of
September, with Hawaii, Minnesota and Utah joining the list, 30 states have
declining economies and five more Colorado, Massachusetts, Montana, New
Hampshire and Texas have economies at risk, Moody's Economy.com said ...
'There's no way around the map. It says the nation is in recession. The
recession is coast to coast,' said Mark Zandi, chief economist and co-founder
of Moody's Economy.com. 'One of the unique features of this downturn is how
broad-based it is, regionally ... '"
November 7 - New York Times (Stephanie Rosenbloom): "Sales at the nation's
largest retailers fell off a cliff in October, casting fresh doubt on the
survival of some chains and signaling that this will probably be the weakest
Christmas shopping season in decades. The remarkable slowdown hit luxury chains
that sell $5,000 designer dresses as badly as stores that offer $18 packs of
underwear, suggesting that consumers at all income levels are snapping their
wallets shut ... Of the more than two dozen major retailers that reported on
Thursday, most had sales declines at stores open at least a year, the majority
of the decreases in double digits."
November 5 - Wall Street Journal (Kate Linebaugh and Matthew Dolan): "The
dismal US auto market took a turn for the worse in October, with sales plunging
by about a third as the financial crisis and tightening credit kept buyers away
from showrooms ... General Motors Corp. said it was the worst October in 25
years. When adjusted for increases in the US population, last month was 'the
worst month in the post-World War II era,' Michael DiGiovanni, GM's top sales
analyst, said ... 'This is clearly a severe, severe recession.'"
November 6 - Bloomberg (Josh Fineman and Christine Harper): "Citigroup Inc. and
Goldman Sachs Group Inc., faced with a weakening economy and the prospect of
mounting losses, began firing workers as part of the firms' plans to cut more
than 12,000 jobs, people with knowledge of the matter said."
November 5 - Wall Street Journal (Ben Casselman): "The sudden end to the energy
boom is sending a shock through resource-rich regions of the US that until now
had been bright spots amid the nation's financial turmoil. The torrid pace of
oil and gas exploration pumped billions of dollars into regions such as North
Texas, bringing stronger housing prices, lower unemployment and soaring tax
revenue ... 'We were all sitting over here in a kind of blissful stupor
enjoying a great market compared to the rest of the United States,' said
commercial-real-estate broker Jack Huff. 'Until 30 days ago, there was no
feeling at all that anything going on in the rest of the country affected us.'
Not anymore."
November 5 - Bloomberg (Cotten Timberlake): "Luxury retailers may suffer the
industry's biggest reversal of fortune during the holidays as the global
financial crisis dents the wealth of the richest Americans. Sales at Saks Inc.,
Nordstrom Inc. and Neiman Marcus Group Inc. stores open at least a year may
decline as much as 3% in November and December ... according to the
International Council of Shopping Centers trade group ... The drop in demand
may signal that America's wealthiest consumers are retrenching more than the
rest of the country, avoiding luxury purchases while the US loses more jobs and
home foreclosures rise. 'Conspicuous consumption is less fashionable,' said
Melissa Otto, a senior investment analyst at American Century Investments ...
'There is a psychological ethos now that people don't want to jump out and be
big spenders.'"
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
November 7 - Bloomberg (Jeff Kearns): "Business schools must change their
teaching to embrace more empirical models instead of the risk management models
that failed to foresee the worst market meltdown since the Great Depression,
according to Nassim Taleb, the options trader turned 'Black Swan' author.
Universities must change because they teach mathematical theories, such as the
Black-Scholes model of pricing options, that don't express risk properly ...
Options are derivatives that give the right but not the obligation to buy an
underlying security at a set price and date. 'Recent events have proved that
all risk management was wrong,' Taleb said. 'We need to do something drastic
immediately to stop quantitative risk managers from inflicting more damage.'"
November 3 - Wall Street Journal (Carrick Mollenkamp, Serena Ng, Liam Pleven
and Randall Smith): "Gary Gorton, a 57-year-old finance professor and jazz
buff, is emerging as an unlikely central figure in the near-collapse of
American International Group Inc. Mr. Gorton, who teaches at Yale School of
Management, is best known for his influential academic papers, which have been
cited in speeches by Federal Reserve Chairman Ben Bernanke. But he also has a
lucrative part-time gig: devising computer models used by the giant insurer to
gauge risk in more than $400 billion of devilishly complicated deals called
credit-default swaps. AIG relied on those models to help figure out which swap
deals were safe. But AIG didn't anticipate how market forces and contract terms
not weighed by the models would turn the swaps, over the short term, into huge
financial liabilities."
November 3 - Bloomberg (Bradley Keoun and David Scheer): "UBS AG, Switzerland's
largest bank, faces dozens of claims in the US from clients who bought '100%
principal protected notes' issued by Lehman Brothers ... that are now almost
worthless ... State regulators are fielding so many calls about Lehman's notes
they're considering a task force to investigate the sales, said Rex Staples,
general counsel for the North American Securities Administrators Association
Inc ... "
Real Estate Bust Watch
November 7 - Bloomberg (Sarah Mulholland): "Commercial real estate borrowers
are running out of options as asset-backed markets dry up and alternative
financing comes to an 'abrupt halt,' RBS Greenwich Capital Markets Inc.
analysts said. Regional banks and insurance companies, which had become the
primary source of financing since credit markets seized up, have stopped
lending ... Sales of bonds backed by commercial mortgages slumped to $12.2
billion in 2008, compared with a record $237 billion last year, according to
JPMorgan ... "
November 4 - Bloomberg (David M. Levitt): "New York City commercial real estate
transactions plunged 61% in 2008 through October as the global credit crisis
roiled lending and sidelined buyers ... 'The banks are not lending, and most of
them are saying we're done for the year,' said Scott Latham, executive vice
president for ... Cushman & Wakefield ... 'In all likelihood, you will
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