Page 2 of 2 CREDIT BUBBLE BULLETIN Just the facts
Weekly watch by Doug Noland
economy may shrink more than previously forecast in 2009, foreshadowing a
deepening slump throughout the region as exports and manufacturing contracted
further in China, South Korea and Australia ... 'Asia is facing a growth shock
with indicators suggesting the contraction will be as sharp as during the depth
of the Asian financial crisis,' said Frederic Neumann, an economist at HSBC ...
'There will be more fiscal pump-priming and monetary-policy loosening
forthcoming over the next three to four months.'"
January 2 - Bloomberg (William Sim): "South Korea's exports fell
by more than 15% for a second straight month in December, adding to signs the
economy is headed for its first recession since 1998."
India Watch
January 2 - Bloomberg (Kartik Goyal and Anil Varma): "India cut interest rates
for the fourth time since October and unveiled another stimulus package to
counter the effect of the global recession on Asia's third- largest economy.
The Reserve Bank of India lowered the repurchase rate by one percentage point
to 5.5%..."
Latin America Watch
January 1 - Bloomberg (Andre Soliani): "Brazil's trade surplus narrowed to a
six-year low in 2008 as accelerating economic growth and a strong local
currency powered demand for more imports. The surplus shrunk to $24.7 billion,
from $40 billion in 2007…"
Unbalanced Global Economy Watch
December 30 - Bloomberg (Svenja O'Donnell): "U.K. house prices fell in November
by the most in at least 12 years ... Home values in England and Wales ... fell
12.2% from a year earlier, the most since records began in 1996, the Land
Registry said…"
December 30 - Dow Jones (Nina Koeppen): "Broad money supply growth in the euro
zone slowed sharply in November ... while lending to the private sector also
eased ... The annual growth rate of broad M3 money supply declined to 7.8%,
from 8.7% in October ... Private sector loan growth eased to 7.1%, following a
7.8% annual growth in October, the ECB data showed."
December 30 - Bloomberg (Johan Carlstrom): "Swedish household credit grew at
the slowest pace in at least six years in November ... Household lending grew
an annual 8.7%, compared with 9.4% in October…"
December 29 - Bloomberg (Kati Pohjanpalo and Juho Erkheikki): "Finnish consumer
confidence fell to a record in December as concern mounted the economy is
heading for recession and unemployment is set to rise."
January 2 - Bloomberg (Torrey Clark): "Russian manufacturing shrank at a record
pace in December as slumping foreign and domestic demand led to production and
jobs cuts, VTB Bank Europe said."
Bursting Bubble Economy Watch
January 2 - Bloomberg (Shobhana Chandra): "Manufacturing in the US shrank in
December at the fastest pace in almost three decades ... The Institute for
Supply Management's factory index fell to 32.2…the lowest level since 1980,
from 36.2 the prior month…"
December 29 - Bloomberg (Heather Burke): "US retailers face a wave of store
closings, bankruptcies and takeovers starting next month as holiday sales are
shaping up to be the worst in 40 years. Retailers will close 12,000 stores in
2009, according to Howard Davidowitz, chairman of retail consulting and
investment- banking firm Davidowitz & Associates…"
December 30 - Wall Street Journal (Gary Fields): "At Society Hill Loan, a
pawnshop in a middle-class neighborhood here, a steady rain fell outside as a
fashionably dressed young man parked his Cadillac Escalade outside. Looking
around warily, he came in to speak with Nat Leonard, co-owner of the store. The
visitor was a 29-year-old engineer who was laid off earlier this year from one
of the local chemical companies. Since then, he's been cleaning planes at the
airport for less than half the salary he was earning a year ago. Now he needs a
$2,500 loan on his watch - a Movado Fiero with a diamond bezel - to pay his
mortgage note. 'I want to help,' said Mr. Leonard. But unlike Rolex and a few
other brands, 'there's no market' for Movado in his pawn universe."
January 2 - Wall Street Journal (Matthew Futterman): "For all the talk of
slumping ticket sales and sponsorships, the most troubling scenario for the
sports industry is the growing trend of team owners beset by financial problems
in their principal businesses. The issue crystallized last month when Tribune
Co., owner of the Chicago Cubs, filed for bankruptcy-court protection. The
problems have been spreading as the souring economy diminishes the fortunes of
team owners. That jeopardizes the essential ingredient of the sports business:
rich people who can afford a really expensive hobby. 'The willingness or
tolerance for future losses is very, very low,' says Allen and Co.'s Steve
Greenberg, an investment banker to the sports industry and former deputy
commissioner of Major League Baseball. 'More owners are looking to operate at
break-even or better. The problem is, it's hard to turn a $15 million to $25
million loss into break-even in a short period of time.'"
December 30 - Bloomberg (Terrence Dopp): "It's 3:45 a.m. in Atlantic City, New
Jersey, and Jimmy Panagiotou just walked away from the poker table after 5 1/2
hours, about $200 lighter. The 43-year-old professional gambler, wearing a
World Series of Poker baseball cap and leather jacket, is on a
cigarette-and-coffee break outside Caesar's casino, pondering his next move.
Looking around, he takes his loss in stride as he notes the eerie quiet of the
largest gambling district in the US after Las Vegas. Only diehards remain.
'It's not like it used to be,' Panagiotou said. 'All of the casinos are
struggling. People are not going to find money to gamble when they need to find
it just to live.'"
Central Banker Watch
December 30 - Bloomberg (Brian Parkin): "Interest-rate cuts by central banks to
counter the global financial crisis may repeat the problem that led the banks
to act in the first place, German Finance Minister Peer Steinbrueck said ...
Germany should forego spending its way out of the crisis by tapping cheap
consumer credit as interest rates fall, he is quoted as saying. 'We should
avoid letting a policy of cheap money create a new credit-financed growth
bubble,' Steinbrueck is cited as saying. Germany's ruling coalition should
focus its economic stimulus policy on infrastructure programs that offer
long-term benefits rather than fan private consumption, he said."
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
December 29 - Bloomberg (Craig Torres): "Federal Reserve researchers found that
169 independent mortgage companies ceased operations in 2007 ... Non-bank
lenders' share of the high- priced loan market, which includes subprime loans,
fell to 20.5% in 2007 from 50.6% in 2004 ... Most of the non-bank lenders sold
their home loans to investment banks which repackaged them into bonds."
Real Estate Bust Watch
December 30 - Bloomberg (Bob Willis): "Home prices in 20 major US cities
declined at the fastest rate on record ... The S&P/Case-Shiller index
declined 18% in the 12 months to October ... The gauge has fallen every month
since January 2007."
December 23 - Wall Street Journal (Gregory Meyer): "The tide of investors
demanding money back from hedge funds is washing into New York-area office
buildings, as funds that rented plush space when times were good adopt a sort
of austerity. After driving Manhattan office rents to nearly $200 a square
foot, hedge funds are struggling with stingier lenders, investor redemptions
and, in many cases, poor returns. As a result, in East Coast hedge fund
capitals New York City and Greenwich, Conn., several high-profile hedge funds
are scrambling to sublet office space."
Speculator Watch
January 2 - Financial Times (Deborah Brewster): "Investors pulled a net $320bn
from mutual funds in 2008, a record both in dollar terms and as a percentage of
assets, in one of the biggest flights to safety the industry has seen. The
shift from what were previously regarded as safe and stable investments
followed a record year of investor inflows in 2007. However, it appears
outflows stabilised and even reversed in the final weeks of the year. Investors
put a net $23bn into equity funds during December and withdrew only $3.5bn from
bond funds, less than in previous months. Equity funds had outflows of $233.5bn
in the year to December 29, with bond funds seeing outflows of $58.2bn and
balanced funds - which include both securities - having outflows of $28bn,
according to Emerging Portfolio Funds Research, which tracks fund flows in most
of the world."
December 24 - Wall Street Journal (Peter Lattman): "Cerberus Capital Management
suspended withdrawal requests from investors, joining a parade of hedge and
private-equity funds that have halted redemptions. Stephen Feinberg, the head
of the ... investment firm, told clients in a letter last week that the
flagship Cerberus Partners fund plans to pay 20% of year-end withdrawals in
cash and suspend the remaining withdrawals for investors for up to one year.
Separately, Blackstone Group LP said ... it will spin out Kailix Advisors, its
long-short equity hedge fund, into an independent firm."
Muni Watch
January 2 - Bloomberg (Jerry Hart): "More local governments face credit-rating
downgrades than during any recession in the past 40 years because of their
reliance on property taxes amid the housing market's collapse, Moody's ...
said. State and federal aid cuts, lower income from economically sensitive fees
and increased demand for services will also pressure local finances ...
Governments dependent on short-term financing may be denied credit-market
access ... 'The downturn in real estate values has exacerbated the general
economy's impact on municipal governments' budgets,' Moody's analysts including
Lisa Cole wrote ... Some local governments "will potentially face material
stress over the next few years.'"
California Watch
December 24 - Bloomberg (Michael Janofsky): "Just $5 million of work is needed
to complete a new California Court of Appeals building in Santa Ana. The state
may not have the money, and come July judges may be writing opinions in their
living rooms. 'I've been on the bench for 23 years, and I've never seen
anything like this," said David G. Sills, the presiding justice for the Fourth
District Court of Appeals…"
December 29 - Bloomberg (Michael McDonald): "The California Housing Finance
Agency remains under Moody's ... scrutiny amid rising delinquencies and falling
prices. Moody's said ... that it is still reviewing the credit rating on $1.4
billion in bonds the state agency sold to finance mortgages in California,
including $1.3 billion for multifamily projects."
New York Watch
December 29 - Bloomberg (Michael McDonald and Michael Quint): "Six years after
embarking on an effort to lower borrowing costs using derivatives, New York is
watching those savings evaporate. The state says it paid bankrupt Lehman ...
and other Wall Street banks at least $75.9 million since March to end
interest-rate swap contracts that were supposed to lock in below-market rates.
That money and the costs of issuing new debt to replace bonds linked to swaps
gone awry are eroding the $207 million in savings New York budget officials say
the derivatives produced since 2002. New York isn't alone."
Crude Liquidity Watch
December 30 - Bloomberg (Abdulla Fardan): "Gulf Cooperation Council's leaders
may defer a decision on the start of a monetary union to their biannual meeting
in May, Bahrain' Al-Wasat said, citing unidentified G.C.C. officials. Members
countries couldn't agree on which country would host the proposed central bank
for the group, the newspaper reported…"
December 29 - Bloomberg (Arif Sharif): "Banks in the United Arab Emirates face
the prospect of increasing loan defaults as the country's property boom loses
steam amid the global credit crisis. Small and medium-sized real-estate
developers are being hurt as home sales fall ... Banks are also cutting
lending, which is weighing on property values, bringing the fourfold increase
in residential real-estate prices over the last five years to an end."
Doug Noland is a market strategist for the Prudent Bear Funds.
(Republished with permission from PrudentBear.com.
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