Page 2 of 2 CREDIT BUBBLE BULLETIN Just the facts
Weekly watch by Doug Noland
the recession intensifies, the National Institute for Economic and Social
Research said. Gross domestic product fell 1% in the three months through
November and will probably plunge more than that in the last three months of
the year ... "
December 9 - Bloomberg (Mark Gilbert): "Investing in UK government debt is
almost twice as risky as buying bonds sold by McDonald's Corp., based on prices
in the credit-default swap market."
December 9 - Bloomberg (Brian Swint): "UK home sales declined to the lowest
level since at least 1978 as Britain plunged deeper
into a recession, the Royal Institution of Chartered Surveyors said."
December 9 - Bloomberg (Simon Packard): "Values of shops, offices and
warehouses in the UK fell at a record pace in November, CB Richard Ellis Group
Inc. said, as banks curbed their lending amid a recession. The estimated value
of commercial buildings declined 6.6% from the previous month ... "
December 12 - Bloomberg (Fergal O'Brien): "European industrial production
plunged the most in 15 years in October as orders weakened and the region's
biggest companies cut investment. Output fell 5.3% from a year earlier ... "
December 12 - Bloomberg (Mark Deen and James G. Neuger): "European Union
leaders trimmed a proposed stimulus package to halt the slide into a recession,
as Germany warded off calls by France and Britain for deficit- boosting
programs. EU leaders pledged economy-boosting steps worth 'about' 1.5% of gross
domestic product ... The figure is equal to 200 billion euros ($266 billion)."
December 12 - Bloomberg (Simon Kennedy): "French manufacturing confidence fell
faster than forecast to a 21-year low in November, suggesting the economy will
suffer a bigger contraction in the fourth quarter than previously anticipated,
the Bank of France said."
Bursting Bubble Economy Watch
December 11 - Bloomberg (Timothy R. Homan and Shobhana Chandra): "The number of
Americans filing first- time claims for unemployment benefits surged more than
forecast last week to a 26-year high ... Initial jobless claims increased
58,000 to 573,000 ... the highest level since November 1982 ... The number of
workers staying on benefit rolls reached 4.429 million, also the most since
1982."
December 11 - Bloomberg (Kevin Reynolds and David Mildenberg): "Bank of America
Corp., the third- largest US bank, said it plans to cut 30,000 to 35,000
positions over the next three years because of its acquisition of Merrill Lynch
& Co. and the weak economic environment."
December 11 - Bloomberg (Bob Willis and Timothy R. Homan): "US exports slid to
a seven-month low ... The export slump ... spurred a widening in the trade
deficit to $57.2 billion in October ... "
December 10 - Bloomberg (Beth Jinks): "Las Vegas Strip casino gambling revenue
declined for the 10th straight month in October ... Gambling proceeds from the
Strip fell 26% to $475 million from a year earlier, Nevada's Gaming Control
Board said ... "
December 10 - Bloomberg (Shobhana Chandra and Andy Burt): "The biggest slump in
US consumer spending since 1942 will extend the recession and push the jobless
rate to the highest level in a quarter century, according to economists
surveyed by Bloomberg News. Household spending will drop 1% in 2009, the
biggest decline since after the attack on Pearl Harbor ... By the middle of
next year, the economy will have shrunk for a record four consecutive quarters,
the survey showed."
December 8 - Bloomberg (Alex Nicholson): "Standard & Poor's Ratings
Services lowered Russia's long-term sovereign credit rating to negative because
of the 'rapid depletion' of the country's financial reserves. The rating was
cut one level to BBB, the second-lowest investment grade, from BBB+ ... "
Central Banker Watch
December 11 - Bloomberg (William Sim and Janet Ong): "South Korea and Taiwan
cut interest rates today to shore up economies ... The Bank of Korea reduced
its key rate to a record low of 3% from 4%. Taiwan's central bank cut its
benchmark by the most in 26 years to 2% from 2.75%."
GSE Watch
December 10 - Bloomberg (Dawn Kopecki): "Fannie Mae and Freddie Mac ... are
considering waiving a requirement for new appraisals on refinanced loans, their
regulator said."
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
December 10 - Bloomberg (Neil Unmack and Oliver Suess): "Catastrophe bonds,
unshaken by a decade of hurricanes and earthquakes, are buckling in this year's
financial tsunami. The bonds promise investors as much as 10 %age points more
than benchmark interest rates unless insurers reclaim money to pay disaster
claims. That happened only once before, and so- called cat bonds were posting
annualized returns of as much as 8.3% as recently as August ... All that
changed with the Sept. 15 collapse of ... Lehman ... which sold contracts to
protect returns on four cat bonds. Lehman's bankruptcy nullified the guarantees
... "
Real Estate Bust Watch
December 11 - Bloomberg (Dan Levy): "US foreclosure filings climbed 28% in
November from a year earlier and a brewing 'storm' of new defaults and job
losses may force 1 million homeowners from their properties next year,
RealtyTrac Inc. said. A total of 259,085 properties got a default notice, were
warned of a pending auction or were foreclosed on last month ... 'We're going
to see a pretty significant storm next year,' Rick Sharga, executive vice
president of marketing for ... RealtyTrac, said ... "
Speculator Watch
December 12 - Bloomberg (Bradley Keoun, Josh Fineman and Katherine Burton):
"Hedge funds, already heading for their worst year on record, may lose at least
$10 billion from investing with a New York firm that founder Bernard L. Madoff
called "a giant Ponzi scheme.' The biggest loser may be Walter Noel's Fairfield
Greenwich Group, whose $7.3 billion Fairfield Sentry Ltd. invested with
Madoff's eponymous firm ... Another client was Kingate Management Ltd., whose
$2.8 billion Kingate Global Fund Ltd. invested with Madoff ... Investors,
ranging from hedge funds that depend on outside managers to wealthy
individuals, entrusted their money with the 70-year-old Madoff, who told
employees before his arrest yesterday that his firm was 'one big lie' and may
have cost clients as much as $50 billion. His confession comes with hedge fund
assets poised to fall as low as $1.1 trillion by Jan. 1 from $1.9 trillion in
June, reflecting market losses and customer redemptions, analysts at Morgan
Stanley estimate. 'If the losses were $50 billion or even half that amount, it
would be the biggest Ponzi scheme in history,' said Mark Schonfeld, the former
head of the US Securities and Exchange Commission's New York office ... "
December 11 - Bloomberg (Tomoko Yamazaki): "The global hedge-fund industry lost
$64 billion of assets in November, with an index tracking its performance
declining for a sixth month ...Eurekahedge Pte said. 'It's very clear that
there is going to be significant consolidation in the hedge-fund industry,'
said Duncan Smith, a partner in Hong Kong at Ogier ... 'Conditions are quite
difficult and that really goes without saying. Underlying liquidity is very
hard for funds.'"
December 8 - Bloomberg (Bei Hu and Tomoko Yamazaki): "Citadel Investment Group
LLC, the hedge fund manager founded by Kenneth Griffin, will close down its
Tokyo office and Asian principal investments operations, cutting more than half
of jobs in the region."
Muni Watch
December 10 - Bloomberg (Jerry Hart): "Florida state senators were told to
delay adjourning and work next week to tackle a $2 billion budget deficit
projected to increase in 2009 as revenue from sales and real estate taxes
slide. 'This is not simply another budget exercise,' Senate President James
Atwater told a special briefing for lawmakers ... 'There has been a tectonic
shift in the structural underpinnings of our economy.'"
California Watch
December 10 - Bloomberg (William Selway): "California's budget deficit has
widened to $14.8 billion for the next seven months amid lawmaker disagreement
on how to address the shortfall, Governor Arnold Schwarzenegger said. During a
press conference in Sacramento, Schwarzenegger said the size of the gap grows
by $28,000 every minute that the Legislature fails to act. The governor's
office estimated last month that the state had an $11.2 billion deficit for the
current fiscal year, which ends in June."
December 8 - Associated Press (Tomoko Yamazaki): "California's budget deficit
will reach $41.8 billion over the next 18 months, a figure far worse than
already abysmal previous estimates, Gov. Arnold Schwarzenegger's office said
... An earlier projection by the Legislature's nonpartisan analyst had pegged
the gap at $28 billion through June 2010 ... California is projected to run out
of cash in February and may have to issue IOUs for its bills."
December 11 - Bloomberg (Joseph Galante and William Selway): "California may
have its debt rating cut by S&P on more than $56 billion in bonds. S&P
lowered its rating on some of the state's debt, the first downgrade for
California in five years. S&P said it may lower the rating on California's
$46.6 billion of general obligation debt and $7.8 billion in bonds backed by
lease payments. It also reduced its rating on $5 billion of short-term debt to
'SP-2' from 'SP-1' that the state had sold to cover its tax shortfalls."
December 9 - Bloomberg (Michael B. Marois): "California will be unable to sell
public works bonds and will have to halt financing of projects such as schools
and roads if lawmakers fail to take immediate action to abate a widening
deficit, the state's Treasurer said. As much as $5 billion of infrastructure
spending scheduled this fiscal year may have to be suspended within two weeks
... That's because the pooled money investment account, which he uses to park
bond money until its needed, is about to run dry. He said he can't sell more
bonds amid the credit crisis on Wall Street until lawmakers assure investors
the state is solvent."
Crude Liquidity Watch
December 11 - Bloomberg (Tim
Barwell): "Abu Dhabi, armed with oil wealth and a
$500 billion spending plan, is providing the
escape route for British engineers as their bets
on Dubai's construction boom turn sour. Dubai's
focus on financial services, luxury homes and mass
tourism attracted UK skyscraper designers and
road-network planners ... Abu Dhabi, where 1
million people sit atop 8% of the world's oil
reserves, is pumping money into developing tourist
attractions and manufacturing to break away from
its dependence on crude ..."
Note: The
Prudent Bear team has relocated to Pittsburgh and
is now part of Federated Investors, Inc. I’m
hoping to return to a more normal posting schedule
soon. Thanks for your patience.
Doug Noland is a market strategist for the Prudent Bear Funds.
(Republished with permission from PrudentBear.com.
Copyright 2005-2008 David W Tice & Associates. All rights reserved.)
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