Page 2 of 3 CREDIT BUBBLE BULLETIN
Off the scales
Commentary and weekly watch by Doug Noland
Management $800 million, Danaher $750 million, Nevada Power $500 million,
Western Union $500 million, Baxter $350 million, and Vanderbilt University $250
million.
Junk issuers included Williams Companies $600 million and Oneok Partners $500
million.
International debt issues this week included Royal Bank of Scotland $1.0bn and
Videotron $260 million.
UK 10-year gilt yields jumped 21 bps to 3.62%, and German bund yields rose 10
bps to 3.11%. The German DAX equities index
sank another 4.3% (down 20.1%). Japanese 10-year "JGB" yields were little
changed at 1.24%. The Nikkei 225 rallied 2.1% (down 14.6%). Emerging markets
were under further pressure. Brazil's benchmark dollar bond yields rose 6 bps
to 6.875%. Brazil's Bovespa equities index dropped 3.6% (up 1.9% y-t-d). The
Mexican Bolsa fell 3.5% (down 21% y-t-d). Mexico's 10-year $ yields dropped 11
to 6.48%. Russia's RTS equities index dipped 0.8% (down 13.8%). India's Sensex
equities index declined 1.7% (down 7.8%). China's Shanghai Exchange dropped
7.9% (up 14.4%).
Freddie Mac 30-year fixed mortgage rates gained 3 bps to 5.07% (down 117bps
y-o-y). Fifteen-year fixed rates were unchanged at 4.68% (down 104bps y-o-y).
One-year ARMs added one basis point to 4.81% (down 20bps y-o-y). Bankrate's
survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates down 25
bps this week to 6.83% (up 7bps y-o-y).
Federal Reserve Credit declined $7.1bn last week to $1.900 trillion. Fed Credit
expanded $1.034 trillion over the past 52 weeks (119%). Elsewhere, Fed Foreign
Holdings of Treasury, Agency Debt last week (ended 2/25) increased $4.6bn to a
record $2.581 trillion. "Custody holdings" were up $439bn over the past year,
or 20.5%.
Bank Credit dropped $41.4bn to $9.776 TN (week of 2/18). Bank Credit expanded
$444bn year-over-year, or 4.8%. Bank Credit increased $384bn over the past 24
weeks. For the week, Securities Credit increased $14.8bn. Loans & Leases
sank $56.2bn to $7.109 TN (52-wk gain of $223bn, or 3.2%). C&I loans fell
$4.8bn, with 52-wk growth of 7.8%. Real Estate loans dropped $11.2bn (up 5.3%
y-o-y). Consumer loans added $2.2bn, while Securities loans fell $48.4bn. Other
loans increased $6.0bn.
M2 (narrow) "money" supply jumped $16bn to a record $8.280 TN (week of 2/16).
Narrow "money" has now inflated at an 18% rate over the past 22 weeks and has
jumped $753bn over the past year, or 10.0%. For the week, Currency increased
$1.8bn, while Demand & Checkable Deposits fell $13bn. Savings Deposits
jumped $33.8bn, while Small Denominated Deposits slipped $0.5bn. Retail Money
Funds dropped $5.7bn.
Total Money Market Fund assets (from Invest Co Inst) increased $9.4bn to $3.888
TN, with a 52-wk expansion of $460bn, or 13.4% annualized.
Asset-Backed Securities (ABS) issuance remains about dead. Year-to-date total
US ABS issuance of $2.9bn (tallied by JPMorgan's Christopher Flanagan) is a
fraction of the $31.5bn for comparable 2008. There has been no home equity ABS
issuance in months. Year-to-date CDO issuance remains less than $1.0bn.
Total Commercial Paper outstanding added $3.3bn this past week to $1.524 TN. CP
has declined $157bn y-t-d and $316bn over the past year (17.2%). Asset-backed
CP increased $1.7bn to $724bn, with a 52-wk decline of $90bn (11%).
International reserve assets (excluding gold) - as accumulated by Bloomberg's
Alex Tanzi - were up $364bn y-o-y, or 5.7%, to $6.716 TN. Reserves have
declined $231bn over the past 19 weeks.
Global Credit Market Dislocation Watch
February 24 - Wall Street Journal (Gerald F. Seib): "When President Barack
Obama delivers his initial speech to Congress Tuesday night, a giant and
unresolved question will hang over the proceedings: What's the proper role for
the government in today's troubled economy? In fact, this is the megaquestion
of our time. Yet it is increasingly clear that neither the lawmakers the
president will be addressing, nor the nation beyond them, have come close to
consensus on an answer. Look up and down Pennsylvania Avenue this week and you
can see how the issue is dividing not just the two political parties, but
factions within them."
February 23 - Bloomberg (Walid el-Gabry): "Billionaire investor George Soros
said the current economic upheaval has its roots in the financial deregulation
of the 1980s and signals the end of a free-market model that has since
dominated capitalist countries ... The global recession, triggered by the
collapse of the US housing market, has 'damaged the financial system itself,'
he said. Regulators are in part to blame because they 'abrogated' their
responsibilities, Soros.. said. 'We're in a crisis I think that's really the
most serious since the 1930s and is different from all the other crises we have
experienced in our lifetime,' Soros said."
February 26 - New York Times (Eric Lipton): "The federal government's bank
insurance fund dropped by the end of last year to the lowest point in more than
25 years, and the number of banks at risk of failure nearly doubled ... 'There
is no question this is one of the most difficult periods we have encountered
during the F.D.I.C.'s 75 years of operation,' Sheila Bair, the [FDIC's]
chairwoman, said ... Overall, the nation's banks lost $26.2 billion in the
fourth quarter, the biggest quarterly lost since the F.D.I.C. began collecting
data on quarterly earnings. Almost one in three banks lost money ... Ms. Bair
said that the agency had placed 252 institutions on its watch list - meaning
they were at risk of failure—compared to 76 banks at the end of 2007. With all
of the bank failures, the F.D.I.C.'s insurance fund has dropped to $19 billion
... The insurance fund had $52 billion at the end of 2007."
February 27 - USA Today (Sue Kirchhoff): "US banks reported a net loss of $26.2
billion in the final quarter of 2008 - the worst performance since 1990 - as
the number of troubled institutions climbed. Fully 252 commercial banks and
savings institutions, with total assets of $159 billion, were termed problem
banks at the end of last year, 'overwhelmed' by staggering real estate losses
and the faltering economy, the Federal Deposit Insurance Corp. said ... "
February 26 - Bloomberg (Margaret Chadbourn and Alison Vekshin): "US savings
and loans reported a record $13.4 billion loss last year as they set aside more
funds for loan losses amid the recession and worsening financial crisis ... "
February 23 - Bloomberg (Gonzalo Vina): "Chancellor of the Exchequer Alistair
Darling ordered Northern Rock Plc to expand lending by 14 billion pounds ($20
billion), the first in a series of measures due this week to revive the UK
banking industry. 'This is against a background where a lot of the foreign-
based banks have withdrawn' from Britain, Darling told BBC Radio 4 ... 'What I
want to do here is use Northern Rock to help fill that gap.'"
February 26 - Bloomberg (Jeff Green and Alex Ortolani): "General Motors Corp.,
surviving on $13.4 billion in US aid, reported a $9.6 billion fourth-quarter
loss... GM posted an annual loss of $30.9 billion, the second largest in its
100-year history."
February 26 - Bloomberg (Jon Menon): "Royal Bank of Scotland Group Plc will put
325 billion pounds ($462 billion) of investments into a state insurance program
and shift toxic assets to a new unit after posting the biggest loss in British
history."
February 27 - Bloomberg (Balazs Penz and Agnes Lovasz): "Hungarian Prime
Minister Ferenc Gyurcsany wants the European Union to arrange a package of as
much as 180 billion euros ($230 billion) to help east European economies, banks
and companies weather the financial crisis."
February 25 - Bloomberg (Patrick Henry): "Delinquent loans account for about
10% of all loans issued by Russian banks, Interfax reported, citing Finance
Minister Alexei Kudrin."
February 25 - Bloomberg (Daryna Krasnolutska): "Ukraine's credit rating was cut
two levels by Standard & Poor's, a day after Latvia was downgraded to junk,
because political turmoil poses growing risks to the country's International
Monetary Fund loan."
Currency Watch
The dollar index ended the week up 1.8% to 88.01 (up 8.2% y-t-d). For the week
on the upside, the South African rand increased 0.4%. On the downside, the
Japanese yen declined 4.3%, the Norwegian krone 3.2%, the Swedish krona 3.1%,
the Mexican peso 3.1%, the New Zealand dollar 2.1%, the South Korean won 1.8%,
the Canadian dollar 1.6%, the Danish krone 1.3%, the Euro 1.3%, and the Swiss
franc 1.3%.
Commodities Watch
Gold dropped 4.9% this week to $945 (up 7% y-t-d), and silver sank 9.7% to
$13.125 (up 16% y-t-d). April Crude rallied $4.34 to $44.37 (down 0.5% y-t-d).
April Gasoline rose 14.6% (up 28% y-t-d), and April Natural Gas gained 4.0%
(down 25% y-t-d). March Copper jumped 7.2% (up 9% 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
gained 4.5% (down 7.8% y-t-d). The Goldman Sachs Commodities Index (GSCI)
rallied 6.7% (down 3.7% y-t-d).
China Reflation Watch
February 24 - Bloomberg (Belinda Cao): "China's insurance regulator plans to
allow insurers to buy unsecured corporate notes for the first time to spur
economic growth and development of the debt market ... "
February 25 - Bloomberg (Zhang Dingmin and Luo Jun): "China aims to prevent a
'massive rebound' in non-performing loans, even as the world's financial crisis
deepens, the nation's top banking regulator said. The non-performing loan ratio
at Chinese banks fell to 2.45% at the end of December, from 6.17% a year
earlier ... "
February 27 - Bloomberg (Li Yanping): "China plans to hand out 20 billion yuan
($2.9 billion) of subsidies this year for farmers' home- appliance purchases as
the government tries to drive up consumption to revive the world's
third-biggest economy."
February 23 - Bloomberg (Nariman Gizitdinov): "China agreed to give a $5
billion yuan denominated credit line to Kazakhstan's National Wellbeing Fund
Samruk-Kazyna, Kazakhstan Today reported."
February 26 - Bloomberg (Nipa Piboontanasawat): "Hong Kong's exports plunged by
the most in 50 years ... Shipments fell 21.8% in January from a year earlier
... "
Japan Watch
February 27 - Bloomberg (Jason Clenfield and Toru Fujioka): "Japan headed for
its worst postwar recession in January as manufacturers cut production by an
unprecedented 10% and consumers slashed spending."
February 25 - Bloomberg (Jason Clenfield): "Japan's exports plunged 45.7% in
January from a year earlier, resulting in a record trade deficit ... The
shortfall widened to 952.6 billion yen ($9.9 billion), the biggest since 1980
... The drop in shipments abroad eclipsed a record 35% decline set the previous
month."
India Watch
February 27 - Bloomberg (Cherian Thomas): "India's economy grew at the slowest
pace since 2003 last quarter ... Asia's third-largest economy expanded 5.3% in
the three months to Dec. 31 ... "
February 24 - Bloomberg (Kartik Goyal and Cherian Thomas): "India reduced
excise and service tax to revive economic growth, less than an hour after
Standard & Poor's said the nation's credit rating may be cut to junk as
government debt is reaching a level that's "not sustainable.'"
February 24 - Bloomberg (Cherian Thomas): "India's credit rating may be cut to
junk by Standard & Poor's, which said government
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