Page 2 of 3 CREDIT BUBBLE BULLETIN UK sets pace for US woes
Commentary and weekly watch by Doug Noland
historic 19-wk increase of $1.161 Trillion. Fed Credit expanded $1.188 TN over
the past 52 weeks (138%). Fed Foreign Holdings of Treasury, Agency Debt last
week (ended 1/21) jumped $13.3bn to a record $2.541 TN. "Custody holdings" were
up $446bn over the past year, or 21.3%.
International reserve assets (excluding gold) - as accumulated by Bloomberg's
Alex Tanzi - were up $495bn y-o-y, or 7.9%, to $6.768 TN. International
reserves have declined $178bn over the past 14 weeks.
Global Credit Market Dislocation Watch
January 23 - Bloomberg (Jennifer Ryan): "The UK economy shrank more than
economists forecast during the fourth quarter in
the biggest contraction since 1980 as the financial crisis crippled the banking
industry and mired Britain deeper in the recession. Gross domestic product fell
1.5% from the previous quarter ... 'This is undeniably grim,' said Stewart
Robertson, an economist at Aviva Investors ... 'Two or three quarters more like
this and you're talking about depression, not recession. This should hasten
activity to address the credit and money market issues.'"
January 20 - Bloomberg (Jon Menon and Andrew MacAskill): "Royal Bank of
Scotland Group Plc, facing the biggest loss in British history, promised to
make 6 billion pounds ($8.7 billion) available to UK borrowers as the lender
took another step toward full government control. In exchange for government
guarantees on losses from toxic debt, the bank will have to sign a binding
agreement with the Treasury on how much it will lend and on what terms.
Auditors will move in to check the bank is following the government directive.
'We'll be one of the first guinea pigs," RBS Chief Executive Officer Stephen
Hester told reporters ... Loans will only be made 'on commercial terms and to
creditworthy people,' he said."
January 19 - Bloomberg (John Fraher and Gonzalo Vina): "Prime Minister Gordon
Brown's government tightened its grip on Britain's financial system,
guaranteeing toxic assets and giving the Bank of England unprecedented power to
buy securities. The plan will increase the cost of bailing out the nation's
banks by at least 100 billion pounds ($147 billion), the Treasury said in a
statement today. The government raised its stake in Royal Bank of Scotland
Group Plc to 70% and said it would use Northern Rock Plc to spur mortgage
lending."
January 22 - Bloomberg (Robert Schmidt and Rebecca Christie): "Timothy
Geithner, President Barack Obama's nominee for Treasury secretary, pledged an
expanded and prolonged government role in everything from stabilizing banks to
ensuring credit for small businesses. Geithner ... told lawmakers ... 'we're at
the beginning of this process of repairing the system, not close to the end.'
He committed to much more substantial action' on a 'very dramatic scale.'"
January 23 - Bloomberg (Ari Levy): "The US government's decision to pledge
billions of additional dollars with strings attached to Citigroup Inc. and Bank
of America Corp. may be nationalization by another name, according to former
bankers and regulators. Faced with pressure from lawmakers, banks have shaken
up management, eliminated executive bonuses and staff and canceled conventions.
They'll be forced to do monthly reports on how they've boosted lending while
slashing quarterly dividends to one cent a share for three years. 'When the
Treasury tells a bank to pay a penny a share vs. its old dividend, you know
who's calling the shots,' said Jon Bruss, a 40-year industry veteran and
founder of ... Fortress Partners Capital Management Ltd ... 'It may not be de
jure nationalization but I think it's de facto nationalization.'"
January 21 - Bloomberg (Dara Doyle): "The bloodletting may be far from over for
Ireland's banks as the wheels come off what was once Europe's fastest-moving
economy ... 'Nobody can stop what's happening," said Ken Murray, CEO of Blue
Planet Investment Management ... 'It's going to carry on, and governments are
going to have to come up with the capital because the market doesn't have it.'"
January 20 - Bloomberg (Abigail Moses): "The cost of hedging against losses on
government bonds around the world soared to records, according to CMA
Datavision. Credit-default swaps on UK debt rose 9 bps to 134, and contracts
linked to Spain climbed 11.5 to 154."
January 21 - Bloomberg (Patricia Lui): "Foreign direct investment in developing
nations will drop by $180 billion, or 31%, this year as a global recession
prompts multinationals to cut spending on factories and mines, according to the
World Bank."
January 22 - Bloomberg (Alex Nicholson and Emma O'Brien): "Russia's
international reserves declined $30.3 billion last week, the second-biggest
decline on record, as the central bank sold currency to slow the ruble's
decline."
January 21 - Bloomberg (Tasneem Brogger): "Icelandic police used pepper spray
on protesters yesterday after a crowd of more than 1,000 people gathered
outside parliament demanding the government step down, Reuters reported, citing
local police."
January 21 - Bloomberg (Adam Majendie): "Average art prices at auction will
drop by as much as 40% this year as many art speculators exit the market, said
Daniel Komala, president and co-founder of Jakarta-based Larasati Auctioneers."
January 21 - Bloomberg (Esteban Duarte): "Companies in Europe have already sold
almost half the bonds expected for the year as they rush to raise funds before
the credit crisis worsens, according to analysts at Societe Generale SA.
Non-financial firms issued 31 billion euros ($40 billion) of debt so far this
month, already making it the busiest on record, Societe Generale data show."
Currency Watch
The dollar index gained 1.7% this week to 85.61. For the week on the upside,
the Japanese yen gained 2.1%, the Canadian dollar 0.8%, and the Norwegian krone
0.3%. On the downside, British pound declined 6.3%, the Swiss franc 3.2%, the
New Zealand dollar 2.8%, the Australian dollar 2.7%, the South African rand
2.6%, the South Korean won 2.3%, the Danish krone 2.1%, and the Euro 2.1%.
Commodities Watch
January 20 - Bloomberg (Lee J. Miller and Glenys Sim): "During George W. Bush's
eight years as US president the price of gold tripled and the cost of a barrel
of crude oil ... ended comparatively little changed. 'It's a totally different
world from when he took office," said Tetsuya Yoshii, vice president for
derivative products at Mizuho Corporate Bank ... 'Gold has done well because of
the different stages the world has been at: first because of its safe-haven
status during geopolitical uncertainties, then as a hedge against inflation and
now as a store of value.'"
Gold surged 6.6% this week to $899 (up 1.9% y-t-d), and silver gained 6.4% to
$11.94 (up 5.7% y-t-d). March Crude rose $3.13 to $45.70 (up 2.5% y-t-d).
February Gasoline slipped 1.7% (up 8.1% y-t-d), and February Natural Gas
dropped 6.2% (down 19.9% y-t-d). March Copper fell 3.6% (up 4.4% y-t-d). March
Wheat rallied 0.8% (down 4.6% y-t-d), while Corn was little changed (down 4.1%
y-t-d). The CRB index rallied 2.1% (down 1.6% y-t-d). The Goldman Sachs
Commodities Index (GSCI) recovered 2.2% (up 0.4% y-t-d).
China Watch
January 19 - Bloomberg (Yanping Li): "China faces a 'very grim' job market in
2009 and the government must pay more attention to public welfare and social
stability, Premier Wen Jiabao said…"
January 22 - Bloomberg (Kevin Hamlin and Li Yanping): "China's economy expanded
at the slowest pace in seven years ... Gross domestic product grew 6.8% in the
fourth quarter from a year earlier, after a 9% gain in the previous three
months ... 'It's an astonishingly steep slowdown,' said Paul Cavey, an
economist with Macquarie Securities ... 'We haven't yet seen all of the pain.'"
January 20 - AFP: "More than half a million Chinese people were thrown out of
work in the last three months of 2008 as the impact of the global financial
crisis deepened, the government said ... As of Dec. 31, 8.86 million urban
residents were registered as jobless, up 560,000 from the end of the third
quarter…"
January 20 - Bloomberg (Li Yanping): "China's official urban unemployment rate
jumped for the first time since 2003 and may climb to an almost 30-year high as
exports slump and a slowdown deepens ... Registered unemployment rose to 4.2%
as of Dec. 31…"
January 19 - Bloomberg (John Liu): "Shanghai office rents, which fell in 2008
for the first time in eight years, are expected to decline further this year as
almost 10 million square feet of new property comes onto the market."
Japan Watch
January 22 - Bloomberg (Jason Clenfield): "Japan's exports plunged by a record
in December ... Exports plummeted 35% from a year earlier, the sharpest decline
since 1980…"
January 21 - Bloomberg (Masumi Suga and Yoshifumi Takemoto): "Japan's steel
production fell 28% in December, the steepest decline in six decades, as the
global economic recession slashed demand."
January 21 - Bloomberg (Megumi Yamanaka): "Japan's industrial power sales fell
the most in more than three decades, plummeting 13% in December from a year
earlier, as automakers such as Toyota Motor Co. and steel companies shut plants
and scale back output."
January 20 - Bloomberg (Toru Fujioka): "The Japanese government said the
economy is 'worsening rapidly' and the collapse in exports and production is
likely to prompt companies to fire more workers."
January 20 - Bloomberg (Toru Fujioka): "Japan's consumers became the most
pessimistic in at least 26 years, indicating households are likely to keep
cutting back as the recession deepens."
Asia Bubble Watch
January 22 - Bloomberg (William Sim): "South Korea's economy shrank a
larger-than-expected 5.6% last quarter, the biggest decline since the Asian
financial crisis a decade ago as exports, business investment and consumer
spending plunged."
January 21 - Bloomberg (Shamim Adam and Chen Shiyin): "Singapore said its
economy may shrink an unprecedented 5% this year, fanning speculation the
government will announce record spending in its budget tomorrow to help
companies hurt by the global recession."
Latin America Watch
January 23 - Bloomberg (Jonathan J. Levin and Jeb Blount): "Bolivian President
Evo Morales signed a decree today nationalizing BP Plc-controlled Empresa
Petrolera Chaco SA 'in its entirety,' according to remarks he made today that
were broadcast on Bolivian state television."
Unbalanced Global Economy Watch
January 21 - Bloomberg (Theophilos Argitis): "Canadian factory owners posted
their biggest monthly sales decline on record in November, led by tumbling
prices for petroleum manufacturers. New orders dropped 13%."
January 21 - Bloomberg (Jennifer Ryan): "Britain had a 14.9 billion-pound
($20.5 billion) budget deficit in December, the second highest for any month
since records began in 1993, as the deepening recession pummeled tax receipts
and jobless claims climbed. The shortfall doubled from 7.4 billion pounds a
year earlier ... Tax income fell 5.5% and spending increased 6%."
January 19 - Bloomberg (Brian Swint and Fergal O'Brien): "The euro-area economy
will contract this year for the first time since the currency was introduced a
decade ago, the European Commission forecast, cutting its outlook for the
region. The economy of the 16 countries sharing the euro will shrink 1.9% in
2009…"
January 19 - Bloomberg (Gabi Thesing): "Germany's Bundesbank said it sees few
signs of a credit crunch in Europe's largest economy. While German banks have
reported a 'significant tightening of lending standards' since the outbreak of
the financial- market crisis, "this is less than across the euro area," the
Frankfurt-based Bundesbank said in its monthly report published today. Based on
the Bank Lending Survey for Germany, "there are no signs of a supply-side
shortage of credit" across the banking system."
January 19 - Bloomberg (Neil Unmack): "Ratings downgrades on European bonds
backed by home loans and consumer payments are likely to be 'limited' this year
because rising defaults are already factored in, according to Moody's ... 'For
most asset sectors and geographies, performance is not expected to deteriorate
beyond Moody's assumptions,' the…company said…"
January 21 - Bloomberg (Emma Ross-Thomas): "Spain plans to increase net debt
issuance by 69% this year in a bid to help plug a growing budget deficit that
prompted Standard & Poor's to remove the country's top AAA credit rating.
Spain will issue a net 86.5 billion euros ($111.8 billion) of debt…"
January 20 - Bloomberg
(Flavia Krause-Jackson): "Italian industrial
orders and sales in November suffered their worst
collapse since 1991, adding to evidence that
Europe's fourth-biggest economy is in its worst
recession in more than 30 years."
January 20 - Bloomberg (Johan Carlstrom): "Sweden's economy will shrink by 1.5%
in 2009, prompting the central bank to cut the benchmark interest rates to a
record, Nordea Bank AB forecast."
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