Page 2 of 3 CREDIT BUBBLE BULLETIN Fair it is not
Commentary and weekly watch by Doug Noland
and $296bn over the past year (16.3%). Asset-backed CP dropped $13.8bn to
$722bn, with a 52-wk decline of $83bn (10.3%).
International reserve assets (excluding gold) - as accumulated by Bloomberg's
Alex Tanzi - were up $381bn y-o-y, or 6.0%, to $6.7 TN. Reserves have declined
$222bn over the past 18 weeks.
Global Credit Market Dislocation Watch
February 19 - Dow Jones (Maya Jackson Randall): "By enlisting Fannie Mae and
Freddie Mac in its dramatic fight against the foreclosure crisis, the Obama
administration is boosting the importance of the two troubled mortgage entities
while also
increasing the risk that the firms will continue to lose money ... Under the
plan the administration unveiled Wednesday, Fannie Mae and Freddie Mac would
refinance loans in effort to make mortgages more affordable for as many as 4
million to 5 million homeowners who are unable to refinance because of
plummeting home prices ... At the same time, the Treasury Department agreed to
boost its funding commitment to Fannie and Freddie - which were seized by the
government in September amid concerns they would collapse from mounting
mortgage defaults - to $200 billion each from the original level of $100
billion each ... New America Foundation Financial Services Policy Director and
former Clinton administration economic policy official Ellen Seidman said the
administration is right to lean on Fannie and Freddie to ease the pain in the
housing markets. 'I think it's exactly the right thing to do,' she said ...
'You now have these two pretty well-oiled machines. We've essentially
nationalized them, so let's use them.'"
February 18 - Bloomberg (Belinda Cao): "China, whose $1.95 trillion in currency
reserves are the world's largest, called on the US and Europe to protect the
value of its overseas investments and said it plans to spend more foreign
exchange on imports and acquisitions. 'We hope countries whose currencies are
the main holdings in our international reserves will take effective measures to
cope with the financial crisis,' Fang Shangpu, deputy director at the State
Administration for Foreign Exchange, told a press conference ... 'They should
work to maintain economic and financial stability, and protect the interests
and confidence of investors.'"
February 20 - Bloomberg (Wes Goodman and Jody Shenn): "Asian investors won't
buy debt and mortgage-backed securities from Fannie Mae and Freddie Mac until
they carry explicit US guarantees ... The risks are too great without a pledge
that the US will repay the debt no matter what, according to Hideo Shimomura,
chief fund investor in Tokyo for Mitsubishi UFJ Asset Management Co., and other
bondholders and analysts in Japan, China and South Korea interviewed by
Bloomberg ... 'Looking at the risk, they're not so attractive,' he said. 'We
need a guarantee before we'll buy.' Foreign investors sold $170 billion of
agency debt and securities in the second half of 2008, the largest amount since
the Treasury began tracking sales in 1977…"
February 18 - Associated Press (Robert Wielaard): "Public spending by European
Union governments to ease the recession is knocking big holes in many national
budgets, the European Commission said ... But mindful of the extraordinary
economic slowdown, it said it will cut countries both in and out of the
16-nation euro zone some slack in complying again with the bloc's sound
finances rules. In the euro zone, France and Germany will see their budget
deficits go way above the ceiling of 3% of gross domestic product ... It
confirmed France's budget gap will shoot to 4.4% of GDP in 2009 up from 3.2% in
2008 ... Germany's 2009 budget gap is expected to be 3% of GDP but will jump to
4% in 2010 ... Joaquin Almunia, the EU Monetary Affairs Commissioner, put six
nations euro zone members Ireland, Greece, Spain, France and Malta plus
non-euro member Latvia on notice by monitoring their excessive deficits."
February 18 - Bloomberg (Laura Cochrane): "Hungarian, Polish and Czech
government debt, among the highest rated in emerging markets, has already been
downgraded by bondholders. Investors are demanding 20 bps more yield to own
Hungary's bonds than similar-maturity Brazilian debt, which is rated four
levels lower by Moody's ... The risk of Poland defaulting is about the same as
Serbia, ranked six levels lower ... Czech 10-year bonds yield the most compared
with German bunds since 2001."
February 17 - Bloomberg (Zoe Schneeweiss and Niklas Magnusson): "Moody's ...
said some of Europe's largest banks may be downgraded because of loans to
eastern Europe ... Moody's sees 'continuous downward rating pressure' in the
region as a result of worsening asset quality and western banks' reliance on
short-term funding…"
February 19 - Bloomberg (Finbarr Flynn): "Two of Japan's eight nationwide banks
are braced for $2.6 billion in losses after investments by US private equity
groups ... The lenders took on increased risks under foreign ownership. Aozora
Bank Ltd., acquired in 2003 by Cerberus Capital Management LP, reported
reverses on subprime mortgages, GMAC LLC shares and Bernard Madoff's fund.
Shinsei Bank Ltd., bought in 2000 by private investors including billionaire J.
Christopher Flowers, had losses on a stake in Germany's Hypo Real Estate
Holding AG. 'Aozora and Shinsei were managed like many banks in America,
investing in derivatives and other toxic assets,' said Neil Katkov, head of
Asia research at ... Celent LLC. 'It was a bargain with the devil.'"
February 18 - Bloomberg (Alexander Nicholson): "Russia's central bank plans to
print 3.2 trillion rubles ($88.4 billion) to cover this year's budget deficit,
Reuters reported, citing First Deputy Chairman Alexei Ulyukayev."
Currency Watch
Currency markets were volatile, with the dollar index ending the week up 0.5%
to 86.49. For the week on the upside, the British pound gained 0.5%, the Swiss
franc 0.3%, and the Nowegian krone 0.02%. On the downside, the South Korean won
declined 6.7%, the Brazilian real 5.4%, the Swedish Krona 4.0%, the Taiwanese
dollar 2.2%, the New Zealand dollar 2.1%, the South African rand 1.8%, the
Australian dollar 1.7%, the Japanese yen 1.5%, the Mexican peso 1.5% and the
Singapore dollar 1.4%.
Commodities Watch
February 18 - Bloomberg (Helen Yuan and Rebecca Keenan): "Wuhan Iron &
Steel Group and Jiangsu Shagang Group Co., China's third- and fifth-largest
steelmakers, are shopping for iron ore mining stakes in Australia and Brazil,
executives said ... 'We are evaluating and selecting' candidates in Australia
and Brazil, said Shen Wenrong, Jiangsu-based Shagang's chairman. 'Going
overseas is the government policy, so I believe we will get financing from
Chinese banks.' …The world's top metal user, China has agreed to acquire $22
billion worth of commodity assets this year after a 70% drop in metals and oil
since July…"
February 17 - Bloomberg (Ye Xie and Candice Zachariahs): "Shipping costs have
more than doubled this year ... The 147% jump in ocean-transport prices is
evidence that China's $580 billion stimulus plan will lift raw materials, said
Ihab Salib, who oversees $3 billion at Federated Investments Inc. in
Pittsburgh."
Gold surged 5.4% this week to $993 (up 12.6% y-t-d), and silver jumped 5.6% to
$14.39 (up 27.4% y-t-d). April Crude dropped $2.22 to $39.75 (down 11% y-t-d).
March Gasoline slid 11.2% (up 1% y-t-d), and March Natural Gas deflated 9.9%
(down 29% y-t-d). March Copper fell 6.1% (up 3.5% y-t-d). March Wheat declined
3.0% (down 15% y-t-d), and Corn fell 3.6% (down 14% y-t-d). The CRB index sank
5.0% (down 11.8% y-t-d). The Goldman Sachs Commodities Index (GSCI) fell 5.7%
(down 9.8% y-t-d).
China Reflation Watch
February 18 - Bloomberg (Jiang Jianguo): "China's central government may issue
200 billion yuan ($29 billion) of bonds on behalf of local authorities to help
them raise cash, China Business News said, citing unidentified officials from
the Ministry of Finance."
February 17 - Bloomberg (Chua Kong Ho and Zhang Shidong): "Chinese companies
may be using record bank lending to invest in stocks, fueling a rally that's
made the benchmark Shanghai Composite Index the world's best performer this
year, according to Shenyin & Wanguo Securities Co. As much as 660 billion
yuan ($97 billion) may have been converted by companies into term deposits or
used to buy equities…"
February 17 - China Knowledge: "China saw its fiscal revenue fall 17.1% year on
year to RMB 613.16 billion (US$89.72 billion) in January, according to…the
Chinese Ministry of Finance…"
February 16 - Bloomberg (Li Yanping): "Foreign direct investment in China
declined for a fourth month in January as companies cut back on spending to
weather the global financial crisis. Investment fell 32.6% to $7.54 billion
from a year earlier…"
February 17 - Bloomberg (Chia-Peck Wong): "Home prices on the Peak, Hong Kong's
most-expensive residential area, had their steepest decline since the Asian
financial crisis a decade ago ... CB Richard Ellis Group Inc. said. Prices
slumped 30.5% in the fourth quarter of 2008 from a year earlier…"
February 19 - Bloomberg (Chia-Peck Wong): "Prime office rents in Hong Kong, the
world's third-most expensive, fell 17% in January from a year earlier as
landlords sought to retain tenants amid a recession, Colliers International
said in a report today."
Japan Watch
February 16 - UPI: "Japan's economy shrank in the fourth quarter at the worst
annual rate since the first quarter of 1974, government officials said. The
Japanese economy, the second-largest in the world, was particularly hard hit by
plummeting exports and a downturn in domestic consumer spending ... The real
gross domestic product declined at an annual rate of 12.7% from October to
December…"
February 16 - Bloomberg (Tom Kohn): "The cost of protecting Japanese corporate
bonds from default rose to a record after the economy shrank the most since the
1974 oil shock last quarter."
February 16 - Bloomberg (Michio Nakayama and Shigeru Sato): "Japan's
electricity generation dropped for a sixth straight month in January, falling
6.4% from a year earlier as factories and businesses cut production because of
the deepening recession."
India Watch
February 16 - Bloomberg (Kartik Goyal and Anil Varma): "India plans to raise a
record 3.62 trillion rupees ($74 billion) selling bonds in the fiscal year that
starts April 1 as it spends more to counter the impact of the biggest global
slump since the Great Depression ... India also raised its borrowing target for
the current fiscal year by 80% to 2.61 trillion rupees."
February 16 - Bloomberg (Cherian Thomas): "India's budget deficit may be almost
double next year's planned target as the government steps up spending to
protect the economy from the global recession ahead of elections in two months.
Spending will rise 6% to 9.53 trillion rupees ($196bn) in the year starting
April 1, Foreign Minister Pranab Mukherjee said ... That will result in a
budget gap of 5.5% of gross domestic product by March 31, 2010…"
February 16 - Bloomberg (Rakteem Katakey): "India has allocated 955.8 billion
rupees ($19.6 billion) to pay subsidies to companies selling food, oil products
and fertilizers below cost in the year to March 2010, Acting Finance Minister
Pranab Mukherjee told parliament…"
Asia Reflation Watch
February 18 - Bloomberg (Janet Ong and Yu-huay Sun): "Taiwan's economy shrank
at the fastest pace on record last quarter ... Gross domestic product fell
8.36% from a year earlier…"
February 18 - Bloomberg (Janet Ong and Yu-huay Sun): "Taiwan's central bank cut
interest rates to a record low... Governor Perng Fai-nan and his board pared
the discount rate on 10-day loans to banks to 1.25% from 1.5%..."
February 16 - Bloomberg (Seyoon Kim and William Sim): "South Korea faces a
'deeper and longer' recession than during the 1997-1998 Asian financial crisis
as the global slump pummels exports and indebted consumers and companies cut
spending, Nomura Holdings Inc. said. 'The biggest difference this time around
is the country's exports won't provide a cushion for a drop in local demand,'
Nomura's ... Kwon Young Sun said."
February 16 - Bloomberg (Sangim Han and Kim Kyoungwha): "South Korea failed to
meet its target at an auction of 10-year
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