Page 2 of 3 CREDIT BUBBLE BULLETIN A divergence
Commentary and weekly watch by Doug Noland
Bank Credit dropped $37.7bn to $9.844 TN (week of 1/7). Bank Credit rose $575bn
year-over-year, or 6.2%. Bank Credit jumped $452bn over the past 18 weeks. For
the week, Securities Credit sank $45.8bn. Loans & Leases increased $8.1bn
to $7.133 TN (52-wk gain of $295bn, or 4.3%). C&I loans added $0.3bn, with
52-wk growth of 8.7%. Real Estate loans declined $6.4bn (up 5% y-o-y). Consumer
loans rose $5.9bn, and Securities loans increased $5.8bn. Other loans added
$2.6bn.
M2 (narrow) "money" supply jumped $64bn to a record $8.188 TN (week of 1/5).
Narrow "money" expanded $749bn over the past
year, or 10.1%. For the week, Currency added $2.0bn, and Demand & Checkable
Deposits surged $47.1bn. Savings Deposits increased $6.5bn, while Small
Denominated Deposits rose $6.5bn. Retail Money Funds gained $5.0bn.
Total Money Market Fund assets (from Invest Co Inst) surged $91.8bn to a record
$3.922 TN, with a 52-wk expansion of $733bn, or 23% annualized.
Reversing part of last week's large gain, total Commercial Paper outstanding
dropped $45.8bn this week to $1.719 TN, with CP down $130bn over the past year
(7.0%). Asset-backed CP declined $8.4bn to $771bn, with a 52-wk decline of
$56bn (6.7%).
Federal Reserve Credit dropped $108bn to $2.069 TN, with a historic 18-wk
increase of $1.181 Trillion. Fed Credit expanded $1.202 TN over the past 52
weeks (139%). Fed Foreign Holdings of Treasury, Agency Debt last week (ended
1/14) increased $3.5bn to a record $2.528 TN. "Custody holdings" were up $456bn
over the past year, or 22%.
International reserve assets (excluding gold) - as accumulated by Bloomberg's
Alex Tanzi - were up $543bn y-o-y, or 8.7%, to $6.813 TN.
Global Credit Market Dislocation Watch
January 14 - Bloomberg (Tomoko Yamazaki): "Hedge funds posted their biggest
decline on record last year, losing $350 billion globally, as the credit crisis
crippled returns and forced investors to pull money out, an industry report
showed. About 90% of the money was lost in the three months to the end of
November, according to ... Eurekahedge Pte. Funds that invested in North
America declined the most, posting a drop of $183 billion for the year, the
report said."
January 16 - Bloomberg (Robert Schmidt and Craig Torres): "Renewed questions
about US banks' viability are pushing regulators toward a new plan that would
remove toxic assets from bank balance sheets, in what may become the biggest
effort yet to unfreeze lending. President-elect Barack Obama's advisers see an
increasingly grave banking crisis and are considering proposals far more
sweeping than any steps that have been taken so far…"
January 16 - Bloomberg (David Mildenberg and Linda Shen): "Bank of America
Corp., the largest US bank by assets, posted its first loss since 1991 and cut
the dividend after receiving emergency funds from the government to support the
acquisition of Merrill Lynch & Co. The fourth-quarter loss of $1.79
billion…"
January 16 - Bloomberg (Bradley Keoun and Josh Fineman): "Citigroup Inc. posted
an $8.29 billion fourth-quarter loss, completing its worst year, as the credit
crisis eroded mortgage-bond prices and customers missed more loan payments."
January 14 - Bloomberg (Bradley Keoun and Lisa Kassenaar): "Vikram Pandit is
unraveling his empire to save his bank. Citigroup Inc.'s chief executive
officer said yesterday he would cede control of the Smith Barney brokerage to
Morgan Stanley. Pandit may also dump the CitiFinancial consumer-lending unit,
tag Tokyo-based Nikko Asset Management Co. for eventual sale and rein in
trading with the bank's own capital, people familiar with the matter said."
January 14 - Bloomberg (Howard Mustoe): "Small-cap technology companies from
Silicon Valley to Israel, struggling to raise enough money to survive amid the
credit crisis, are selling prized patents to stay in business. VocalTec
Communications Ltd. Chief Executive Officer Ido Gur said he needed to sell 15
of the Israeli company's 22 inventions to raise money ... Irvine Sensors Corp.,
whose infrared camera technology is used by the US military, and TurfTrax Plc,
a U.K. owner of patents for monitoring horseraces, are also selling or
considering a sale of rights to stem a slump in revenue."
January 16 - Bloomberg (Alex Nicholson): "Russian net capital outflow may reach
$160 billion this year if the price of oil remains below $40 per barrel,
Renaissance Capital said."
January 14 - Bloomberg (Alaric Nightingale): "As many as half of publicly
traded commodity shipping lines may breach their loan covenants by April after
a record collapse in hire rates, according to Royal Bank of Scotland Group ...
The cost of second-hand capesizes, the largest group of commodity carriers,
plunged 70% last year, according to the Baltic Exchange…"
Currency Watch
January 16 - Bloomberg (Li Yanping): "A Chinese central bank official attacked
reported comments by US Treasury Secretary Henry Paulson that China's high
savings rate helped trigger the global credit crisis. ‘This view is extremely
ridiculous and irresponsible and it's ‘gangster logic,'' Zhang Jianhua, the
bank's research head, said."
The dollar index gained 1.9% this week to 84.21. For the week on the upside,
Norwegian krone increased 1.0%. On the downside, the the New Zealand dollar
declined 7.7%, the Canadian dollar 5.0%, the Australian dollar 4.3%, the
Brazilian real 3.3%, the Swedish krona 2.9%, the British pound 2.8%, the
Mexican peso 1.9%, the Euro 1.3% and the Danish krone 1.1%.
Commodities Watch
January 15 - Bloomberg (Todd Zeranski and Alaric Nightingale): "Morgan Stanley
is seeking a supertanker to store crude oil, joining Citigroup Inc. and Royal
Dutch Shell Plc in trying to profit from higher prices later in the year ...
‘There's a lot of people looking for storage,' Denis Petropoulos ... head of
tankers at Braemar Shipping Services Plc ... said…"
January 14 - Bloomberg (Tony C. Dreibus): "Lumber fell the most allowed by the
Chicago Mercantile Exchange, dropping to the lowest price in almost 18 years…"
Gold declined 1.5% this week to $842 (down 4.6% y-t-d), while silver was little
changed at $11.29 (unchanged y-t-d). February Crude sank $4.83 to $36 (down
19.3% y-t-d). February Gasoline rose 4.9% (up 9.8% y-t-d), while February
Natural Gas sank 13% (down 14.6% y-t-d). March Copper declined 2.5% (up 7.8%
y-t-d). March Wheat dropped 8.1% (down 5.3% y-t-d), and Corn was hit for 4.8%
(down 3.9% y-t-d). The CRB index fell 3.8% (down 3.7% y-t-d). The Goldman Sachs
Commodities Index (GSCI) declined 1.9% (down 1.7% y-t-d).
China Watch
January 14 - Bloomberg (Nipa Piboontanasawat and Kevin Hamlin): "China's
economy overtook Germany's in 2007 to become the world's third largest,
underscoring the nation's increasing economic and political clout. Gross
domestic product expanded 13% from a year earlier…"
January 13 - Bloomberg (Li Yanping and Nipa Piboontanasawat): "China's exports
fell the most in almost a decade in December as the deepening global recession
cut demand for the nation's toys, clothes and electronics. Shipments dropped
2.8%, the customs bureau said ... That compares with a 21.7% gain a year
earlier. Exports grew 17.2% for all of 2008, down from 25.7% in 2007."
January 14 - Bloomberg (Judy Chen): "The increase in China's foreign- exchange
reserves "masked" about $100 billion in capital outflows in the fourth quarter,
RBC Capital Markets said. China's currency reserves ... climbed $40 billion
last quarter to $1.95 trillion….The slower pace of accumulation is partly
because foreigners dumped local assets and reversed bets on yuan gains,
according to strategists led by Nick Chamie, RBC's head of emerging-markets
research."
January 13 - Bloomberg (Li Yanping and Kevin Hamlin): "China's money supply and
loans jumped more than economists estimated in December ... M2 ... climbed
17.8% from a year earlier, the fastest pace in seven months…"
January 14 - Bloomberg (Chia-Peck Wong): "Home prices in Macau may fall by
between 10% and 20% this year amid rising unemployment as casino operators halt
construction projects and fire workers to cut costs, Jones Lang LaSalle said…"
January 14 - Bloomberg (Chia-Peck Wong): "Hong Kong's sales of new private
homes fell to the lowest level since 1996 last year ... The number of new
non-government-built residential units changing hands last year fell 47%..."
Japan Watch
January 13 - Bloomberg (Toru Fujioka): "Japan's corporate bankruptcies rose the
most in eight years in 2008 ... Bankruptcies climbed 11% from a year earlier to
15,646 cases last year, the fastest pace since 2000, Tokyo Shoko Research Ltd.
Said…"
Asia Bubble Watch
January 15 - Bloomberg (Patricia Kuo and Aaron Pan): "Bond markets in the
Asia-Pacific region are having their busiest January for at least a decade,
with $32.3 billion in sales, as government guarantees and stimulus plans help
boost investor appetite. New issues almost tripled compared with the first two
weeks of last year, and more than doubled the $12.4 billion of January 2007…"
January 13 - Bloomberg (Leony Aurora): "Indonesia more than doubled its budget
deficit target to 132 trillion rupiah ($11.8 billion) for this year to spur
growth in Southeast Asia's biggest economy. Finance Minister Sri Mulyani
Indrawati expects the economy to expand 5% this year…"
Latin America Watch
January 13 - Bloomberg (Andres R. Martinez): "Mexico will postpone construction
of its planned Punta Colonet port on the Pacific coast, and may scrap the
project entirely, as interested bidders struggle to find financing for the
$4.88 billion complex."
Unbalanced Global Economy Watch
January 13 - Bloomberg (Theophilos Argitis): "Canada's trade surplus narrowed
to the lowest in more than a decade as energy exports plunged. The surplus
shrank to C$1.28 billion ($1.04 billion)…"
January 14 - Bloomberg (Colm Heatley): "Irish house prices fell almost 15% in
2008 from a year earlier as rising unemployment and the global credit crisis
deterred buyers, according to ... Daft.ie."
January 13 - Bloomberg (Matthew Brown): "The pound fell against the dollar and
the euro as reports showed the U.K. economy slumped the most in two decades and
home sales dropped to the lowest level since at least 1978."
January 14 - Bloomberg (Robert Hutton and Mark Deen): "Business Secretary Peter
Mandelson said the U.K. government will guarantee as much as 20 billion pounds
($29 billion) of bank loans to medium-sized companies in order to keep credit
flowing during the recession."
January 14 - Bloomberg (Chris Bourke): "U.K. real-estate companies may need to
be rescued by shareholders this year to stay afloat. The largest
commercial-property firms need to raise as much as $20 billion this year to
restore their balance sheets at a time when financing is scarce, according to
... Bernd Stahli, an analyst at Merrill Lynch…"
January 14 - Bloomberg (Sharon Smyth): "House prices in Spain fell 8.8% in
December from a year earlier, according to Tasaciones Inmobiliarias SA, the
country's biggest home valuer."
January 14 - Bloomberg (Lorenzo Totaro): "Industrial production in Italy fell
more than expected in November as the global economic
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