Page 3 of 5 CREDIT BUBBLE BULLETIN Only cure for a bubble
Commentary and weekly watch by Doug Noland
below zero. The third-quarter net loss widened to $25.3 billion ... after
writing down tax assets and providing for bad mortgages and securities ... "
November 10 - Bloomberg (Hugh Son): "American International Group ... got an
expanded government rescue package valued at more than $150 billion after
posting a fourth straight quarterly loss. The US will reduce the original $85
billion loan that saved ... AIG in September to $60 billion, buy $40 billion of
preferred shares, and purchase $52.5 billion of mortgage securities owned or
backed by the company ... The insurer lost a record $24.5
billion ... in the period ended Sept. 30 ... "
November 12 - Bloomberg (John Glover): "The US Treasury's $700 billion Troubled
Asset Relief Program will have to be increased to meet the 'phenomenal' demand
for government bailouts, according to Deutsche Bank AG strategist Jim Reid. The
extra $150 billion pledged to support insurer American International Group Inc.
this week and the prospect of a financial package to rescue General Motors
Corp., the largest US automaker, from bankruptcy may drain the TARP fund, Reid
wrote ... 'It does feel that the $700 billion TARP fund is going to have to be
increased at some point in the not-too-distant future,' wrote Reid ... Either
that, 'or another acronym will have to be formulated to deal with the
phenomenal amount of government spending that's still likely as this crisis
escalates.'"
November 10 - Bloomberg (Craig Torres and John Brinsley): "The US Treasury will
take a $40 billion stake in American International Group Inc., and the Federal
Reserve will open two new emergency loan units to finance the company's
securities ... "
November 11 - Bloomberg (Mike Ramsey): "General Motors Corp., burning cash as
US sales slide, is being pushed closer to bankruptcy as it waits to learn
whether the auto industry will win a new round of government loans. Only
federal aid can prevent a collapse by the largest US automaker, analysts ...
said ... "
November 11 - Bloomberg (Erik Holm and Stephanie Luke): "American International
Group Inc.'s losses from the collapsing mortgage market account for almost half
the $123.6 billion inflicted on North American insurers, helping push the tally
for the world's biggest financial firms toward the trillion-dollar mark."
November 10 - Bloomberg (Hugh Son, Craig Torres and Erik Holm): "American
International Group Inc. got a $150 billion government rescue package, almost
doubling the initial bailout of less than two months ago as the insurer burns
through cash at a record rate. AIG will get lower interest rates and $40
billion of new capital from the government to help ease the impact of four
straight quarterly deficits, including a $24.5 billion third- quarter loss ...
"
November 12 - Dow Jones (Jessica Holzer): "Moody's ... now predicts the global
speculative-grade corporate default rate will rise to 4.3% by the end of the
year and to 10.4% a year from now. The figures compare with September's
predictions of 4.9% and 7.4%, respectively ... "
November 12 - Bloomberg (John Glover): "European companies acquired in
leveraged buyouts violated loan restrictions and requested waivers from debt
conditions in the past year at almost twice the pace of the previous 12 months,
according to S&P."
November 11 - Bloomberg (John Glover): "Companies in Europe face 'substantial
refinancing risk' as a total $2.1 trillion of debt matures though 2011,
according to an S&P report. Ninety percent of the total coming due is
investment-grade bonds and loans, with 72% issued by financial firms, S&P
said ... Outside of financial services, telecommunications companies have $121
billion of debt maturing and utilities must repay $79 billion."
November 12 - Dow Jones (Jessica Holzer): "US government officials, Fannie Mae
and Freddie Mac ... unveiled a new effort for modifying delinquent
home-mortgage loans, the latest attempt to stem the foreclosure crisis. Under
the plan, Fannie and Freddie have agreed to adopt a streamlined approach to
modifying mortgage loans, including reducing their principal in some cases.
Officials predicted that the program will have a powerful impact, becoming the
industry standard ... The new plan will target homeowners who are 90 days or
more past due ... It will aim to bring the ratio of mortgage payments for these
homeowners to 38% of their income by modifying interest rates and in some cases
forgiving portions of the principal debt."
November 10 - Bloomberg (Emma O'Brien and Ye Xie): "Russia's currency reserves,
the third-biggest in the world, are no match for tumbling oil prices and an
exodus of capital that may force the central bank to accept a devalued ruble.
Just 10 years ago, Russia let the ruble fall as much as 71% as the government
defaulted on $40 billion of debt ... Now, the combination of a 61% drop in oil
prices from their peak in July, slowing economic growth and increasing investor
concern about emerging markets are draining Russia's foreign reserves, which
fell 19% to $484.6 billion in the 12 weeks through Oct. 31."
November 11 - United Press International: "October inflation in Pakistan soared
to nearly 25% from 9.31% in October of last year, further aggravating the
country's current economic crisis. Data supplied by the Federal Bureau of
Statistics said the October jump in consumer prices was largely brought on by a
31.7% surge in food prices and a hike of over 39% in transportation costs, Dawn
reported."
November 11 - Bloomberg (Christopher Swann): "The World Bank will almost triple
lending this year to help prevent a 'human crisis' in developing countries as
the turmoil in financial markets weakens economic growth in rich nations.
Lending to middle-income nations may reach $35 billion in the 12 months to June
30 ... "
Currency Watch
The dollar index gained 0.5% to 86.4. For the week on the upside, the Japanese
yen gained 1.1% and the South African rand 0.4%. On the downside, the New
Zealand dollar declined 6.5%, the British pound 5.8%, the South Korean won
5.1%, the Canadian dollar 3.9%, the Australian dollar 3.9%, the Brazilian real
3.5%, the Mexican peso 2.0%, and the Swiss franc 1.4%. In the so-called
emerging currencies, the Indonesian rupiah declined 5.2%, the Turkish lira
4.2%, the Iceland krona 4.2%, and the Indian rupee 2.8%.
Commodities Watch
November 13 - Bloomberg (Jens Erik Gould and Hugh Collins): "Mexico hedged oil
exports for 2009 at $70 per barrel to protect fiscal revenues against a drop in
oil prices linked to the global economic slowdown, Mexico's Finance Minister
Agustin Carstens said ... The government began buying put options from
international financial institutions in late July, Carstens said ... "
November 11 - Bloomberg (Xiao Yu and Helen Yuan): "Chinese steelmakers, the
largest producers in the world, may cut output by 20% next year even with
China's 4 trillion yuan ($586 billion) stimulus plan, Shougang Corp. said. 'The
steel market needs time to recover even with the stimulus plan,' Shougang's
Chairman Zhu Jimin said ... "
November 10 - Bloomberg (Winnie Zhu): "China, the world's second-largest energy
user, increased crude-oil imports by 28% last month, said the government."
Gold rallied 0.8% to $742, while Silver declined 4.7% to $9.49. December Crude
sank $4.68 to $56.36. December Gasoline fell 9.2% (down 50.5% y-t-d), and
December Natural Gas dropped 6.5% (down 15.5% y-t-d). December Copper was
little changed. December Wheat rallied 6.4% and Corn 1.3%. The CRB index
declined 3.6% (down 31% y-t-d). The Goldman Sachs Commodities Index (GSCI) also
fell 3.6% (down 33.6% y-t-d).
China Watch
November 10 - Bloomberg (Li Yanping and Chia-Peck Wong): "China, the biggest
contributor to world growth, unveiled a 4 trillion
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