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CREDIT BUBBLE BULLETIN New facts of
life
Commentary and weekly watch by Doug Noland
Goldman Sachs $1.6bn, Marathon Oil $1.5bn, Metlife $1.0bn, News America $1.0bn,
PACCAR $750 million, McKesson $700 million, Unilever $1.5bn, Oglethorpe Power
$350 million, and PepsiAmericas $350 million, and Connecticut Light & Power
$250 million.
February 13 - Bloomberg (Gabrielle Coppola and John Detrixhe): "High-yield,
high-risk bond sales almost tripled to $2.38 billion this week, the most in
seven months, as borrowers took advantage of a rally in corporate debt to
increase cash reserves and pay down credit lines."
Junk issuers included Chesapeake Energy $1.425bn, Cox
U.K. 10-year gilt yields sank 39 bps to 3.55%, and German bund yields dropped
26 bps to 3.11%. The German DAX equities index fell 5.0% (down 8.2%). Japanese
10-year "JGB" yields ended the week down 8 bps at 1.255%. The Nikkei 225
declined 2.1% (down 12.2%). Emerging markets were mixed to higher. Brazil's
benchmark dollar bond yields fell 4 bps to 6.78%. Brazil's Bovespa equities
index gave back 2.5% (up 11% y-t-d). The Mexican Bolsa dropped 5.2% (down 13.5%
y-t-d). Mexico's 10-year $ yields rise 5 bps to 6.64%. Russia's RTS equities
index rallied a notable 19.8% (down 1.2%). India's Sensex equities index gained
3.6% (down 0.1%). China's Shanghai Exchange jumped 6.4% (up 27.5%).
Freddie Mac 30-year fixed mortgage rates dropped 9 bps to 5.16% (down 56bps
y-o-y). Fifteen-year fixed rates fell 9 bps to 4.81% (down 44bps y-o-y).
One-year ARMs increased 2 bps to 4.94% (down 6bps y-o-y). Bankrate's survey of
jumbo mortgage borrowing costs had 30-yr fixed jumbo rates down 5 bps this week
to 6.90% (up 24bps y-o-y).
Federal Reserve Credit declined $10.3bn to $1.830 TN. Fed Credit expanded
$972bn over the past 52 weeks (113%). Elsewhere, Fed Foreign Holdings of
Treasury, Agency Debt last week (ended 2/11) increased $6.2bn to a record
$2.561 TN. "Custody holdings" were up $448bn over the past year, or 21.2%.
Bank Credit declined $6.0bn to $9.764 TN (week of 2/4). Bank Credit expanded
$430bn year-over-year, or 4.6%. Bank Credit jumped $372bn over the past 22
weeks. For the week, Securities Credit sank $74.2bn. Loans & Leases jumped
$68.2bn to $7.124 TN (52-wk gain of $242bn, or 3.5%). C&I loans added
$3.6bn, with 52-wk growth of 8.7%. Real Estate loans jumped $19.7bn (up 4.9%
y-o-y). Consumer loans slipped $0.5bn, while Securities loans rose $43.3bn.
Other loans increased $2.1bn.
M2 (narrow) "money" supply dropped $27.8bn to $8.250 TN (week of 2/2). Narrow
"money" has now inflated at an 18.4% rate over the past 20 weeks and has jumped
$723bn over the past year, or 9.6%. For the week, Currency increased $1.0bn,
and Demand & Checkable Deposits rose $18.8bn. Savings Deposits sank
$47.7bn, and Small Denominated Deposits declined $4.5bn. Retail Money Funds
fell $1.8bn.
Total Money Market Fund assets (from Invest Co Inst) dipped $3.4bn to $3.903
TN, with a 52-wk expansion of $515bn, or 15.2% annualized.
Total Commercial Paper outstanding dropped $31.5bn this week to $1.554 TN. CP
has declined $281bn over the past year (15.3%). Asset-backed CP added $2.2bn to
$736bn, with a 52-wk decline of $80bn (9.8%).
The Asset-Backed Securities (ABS) issuance remains light. Year-to-date total US
ABS issuance of $1.8bn (tallied by JPMorgan's Christopher Flanagan) is a
fraction of 2008's comparable $27.7bn. There has been no home equity ABS
issuance in months. Year-to-date CDO issuance is less than $300 million.
International reserve assets (excluding gold) - as accumulated by Bloomberg's
Alex Tanzi - were up $380bn y-o-y, or 6.0%, to $6.721 TN. Reserves have
declined $226bn over the past 17 weeks.
Global Credit Market Dislocation Watch
February 12 - New York Times (Stephen Labaton and Edmund L. Andrews): "The
Obama administration's new plan to bail out the nation's banks was fashioned
after a spirited internal debate that pitted the Treasury secretary, Timothy
Geithner, against some of the president's top political hands. In the end,
Geithner largely prevailed in opposing tougher conditions on financial
institutions that were sought by presidential aides ... He resisted those who
pushed to dictate how banks will spend their rescue money. And he prevailed
over top administration aides who wanted to replace bank executives and wipe
out shareholders at institutions receiving aid. Because of the internal debate,
some of the most contentious issues remain unresolved."
February 11 - Bloomberg (Rich Miller): "Treasury Secretary Timothy Geithner
ducked the tough questions investors want answered as he rolled out a plan to
repair the financial system ... Driving investor doubts was Geithner's failure
to clearly address three issues at the heart of the crisis: Will banks saddled
with toxic debt be forced to fail? How will illiquid assets be removed from
bank balance sheets? And what will be done to arrest the decline in house
prices that triggered the turmoil?"
February 9 - Bloomberg (Mark Pittman and Bob Ivry): "The stimulus package the
US Congress is completing would raise the government's commitment to solving
the financial crisis to $9.7 trillion, enough to pay off more than 90% of the
nation's home mortgages. The Federal Reserve, Treasury Department and Federal
Deposit Insurance Corporation have lent or spent almost $3 trillion over the
past two years and pledged to provide up to $5.7 trillion more if needed..."
February 10 - Bloomberg (Dawn Kopecki): "Fannie Mae and Freddie Mac ... may
need more than the $200 billion in funding pledged by the US government if the
housing market continues to deteriorate, Federal Housing Finance Agency
Director James Lockhart said."
February 11 - PRNewswire: "At $429.4 billion credit losses for 2008 exceeded
those of the previous three years by more than seven times, according to the
February 2009 issue of S&P's Loss Trends Monthly ... In total, banks
represented 54% of the volume of bad loans last year, or $231.2 billion
dollars."
February 9 - Bloomberg (Jonathan Keehner and Pierre Paulden): "The five banks
that helped finance the takeover of Lyondell Chemical Co. have lost at least
$3.7 billion, and that figure may climb to more than $8 billion, which would
make the leveraged buyout the costliest in history for lenders. Goldman Sachs
Group Inc., Citigroup Inc., UBS AG, Merrill Lynch & Co. and ABN Amro
Holding NV agreed to underwrite the $20.9 billion takeover of ... Lyondell by
Basell AF…"
February 10 - Bloomberg (Michael J. Moore and Pierre Paulden): "JPMorgan Chase
& Co., Citigroup Inc. and Bank of America Corp. are among lenders cutting
back on $1.6 trillion of credit lines as they face increased demand for loans
that threaten to drain capital."
February 11 - Bloomberg (Belinda Cao and Judy Chen): "China should seek
guarantees that its $682 billion holdings of US government debt won't be eroded
by 'reckless policies," said Yu Yongding, a former adviser to the central bank.
The US 'should make the Chinese feel confident that the value of the assets at
least will not be eroded in a significant way,' Yu, who now heads the World
Economics and Politics Institute at the Chinese Academy of Social Sciences,
said…"
February 11 - Bloomberg (Laura Cochrane and Denis Maternosvky): "Russian
companies, the biggest emerging-market borrowers during the last three years,
are shut out of the international bond market after yields jumped sixfold since
August ... No Russian company has raised money through foreign bond sales since
August ... 'The primary market is dead,' said Stanislav Ponomarenko, a
fixed-income analyst at ING Groep ... "I wouldn't be too surprised if there are
no bond deals done by Russian corporates for most of 2009, if not the entire
year.' …International banks proposed talks with Russian companies that owe $400
billion in the next four years, the Russian Association of Regional Banks
said…"
February 11 - Bloomberg (Yuriy Humber and Torrey Clark): "Russia's first budget
deficit in a decade may reach 8% of gross domestic product this year, more than
previous estimates, and the government may spend half of a sovereign wealth
fund to cover the shortfall."
Currency Watch
February 12 - Bloomberg (Dan Hart): "Eisuke Sakakibara, known as 'Mr. Yen' from
his 1997-1999 tenure as Japan's top currency official, told ... CNBC that the
economic stimulus plan in the US may take time. Sakakibara said the current
problems in the US are 'much more complicated' than the economic situation in
Japan in the 1990s and that a US recovery might take two years or more."
The dollar index gained 0.8% this week to 86.04. For the week on the upside,
the Swiss franc added 0.01%. On the downside, the South African rand declined
3.7%, the Swedish krona 3.5%, the
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