Page 2 of 3 CREDIT BUBBLE BULLETIN
Q4 flow of funds
Commentary and weekly watch by Doug Noland
added 2 bps to 1.31%. The Nikkei 225 rallied 5.5% (down 14.6%). Emerging
markets were mostly higher. Brazil's benchmark dollar bond yields dropped 13
bps to 6.93%. Brazil's Bovespa equities index rallied 5.1% (up 3.9% y-t-d). The
Mexican Bolsa surged 14.0% (down 13.2% y-t-d). Mexico's 10-year $ yields sank
23 bps to 6.50%. Russia's RTS equities index jumped 16.7% (up 3.3%). India's
Sensex equities index rose 3.7% (down 9.2%). China's Shanghai Exchange fell
2.9% (up 16.9%).
Freddie Mac 30-year fixed mortgage rates dropped 12 bps to 5.03% (down 110bps
y-o-y). Fifteen-year fixed rates declined 8 bps to 4.64% (down 96bps y-o-y).
One-year ARMs fell 6 bps to 4.80% (down 34bps y-o-y). Bankrate's survey of
jumbo mortgage
borrowing costs had 30-yr fixed jumbo rates up one basis point this week to
6.92% (down 9bps y-o-y).
Federal Reserve Credit fell $13.8bn last week to $1.878 TN. Fed Credit has
dropped $369bn y-t-d, while having expanded $1.009 TN over the past 52 weeks
(116%). Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt last week
(ended 3/11) declined $5.1bn to $2.591 TN. "Custody holdings" were up $440bn
over the past year, or 21%.
Bank Credit jumped $38.2bn to $9.812 TN (week of 3/4). Bank Credit rose $384bn
year-over-year, or 4.1%. Bank Credit increased $420bn over the past 26 weeks.
For the week, Securities Credit increased $6.3bn. Loans & Leases gained
$31.9bn to $7.143 TN (52-wk gain of $231bn, or 3.3%). C&I loans declined
$4.2bn, with 52-wk growth of 5.5%. Real Estate loans rose $16bn (up 5.8%
y-o-y). Consumer loans fell $4.9bn, while Securities loans jumped $28bn. Other
loans slipped $3.1bn.
M2 (narrow) "money" supply jumped $29.5bn to a record $8.304 TN (week of 3/2).
Narrow "money" has now inflated at an 16.9% rate over the past 24 weeks and
$738bn over the past year, or 9.8%. For the week, Currency added $1.7bn, and
Demand & Checkable Deposits grew $15.8bn. Savings Deposits rose $14.2bn,
while Small Denominated Deposits declined $2.6bn. Retail Money Funds added
$0.7bn.
Total Money Market Fund assets (from Invest Co Inst) were little changed at
$3.906 TN, with a 52-wk expansion of $452bn, or 13.1% annualized. Money Funds
have expanded at a 10.3% rate y-t-d.
Asset-Backed Securities (ABS) issuance picked up a bit. Year-to-date total US
ABS issuance of $8.3bn (tallied by JPMorgan's Christopher Flanagan) is a
fraction of the $40.6bn for comparable 2008. There has been no home equity ABS
issuance in months. Year-to-date CDO issuance totals only $660 million.
Total Commercial Paper outstanding increased $3.9bn this past week to $1.484
TN. CP has declined $197bn y-t-d (61% annualized) and $361bn over the past year
(19.6%). Asset-backed CP declined $4.9bn to $717bn, with a 52-wk drop of $90bn
(11.2%).
International reserve assets (excluding gold) - as accumulated by Bloomberg's
Alex Tanzi - were up $207bn y-o-y, or 3.2%, to $6.6 TN. Reserves have declined
$307bn over the past 21 weeks.
Global Credit Market Dislocation Watch
March 13 - Bloomberg (Belinda Cao and Judy Chen): "China, the US government's
largest creditor, is 'worried' about its holdings of Treasuries and wants
assurances that the investment is safe, Premier Wen Jiabao said. 'We have lent
a huge amount of money to the United States,' Wen said at a press briefing ...
'I request the US to maintain its good credit, to honor its promises and to
guarantee the safety of China's assets.'"
March 10 - Financial Times (Tony Barber, Alan Beattie and George Parker):
"Disagreements between the European Union and the US over how to combat the
global recession widened on Tuesday as EU governments made clear they had
little appetite for piling up more debt to fight the collapse in output and
jobs. Finance ministers from the 27-nation bloc insisted in Brussels that it
was doing enough to support world demand and did not need at present to adopt
another fiscal stimulus plan, as Washington is urging ... It also emerged that
Gordon Brown, UK prime minister, was struggling to organise the summit.
Britain's most senior civil servant claimed it was hard to find anyone to speak
to at the US Treasury. Sir Gus O'Donnell, cabinet secretary, blamed the
'absolute madness' of the US system where a new administration had to hire new
officials from scratch, leaving a decision-making vacuum. 'There is nobody
there. You cannot believe how difficult it is,' he told a conference…"
March 9 - Bloomberg (Hugh Son and Scott Lanman): "American International Group
Inc appealed for its fourth US rescue by telling regulators the company's
collapse could cripple money-market funds, force European banks to raise
capital, cause competing life insurers to fail and wipe out the taxpayers'
stake in the firm. AIG needed immediate help from the Federal Reserve and
Treasury to prevent a 'catastrophic' collapse that would be worse for markets
than the demise last year of Lehman Brothers Holdings Inc., according to a
21-page draft AIG presentation dated Feb. 26, labeled as 'strictly
confidential' and circulated among federal and state regulators."
March 12 - Wall Street Journal (Scott Patterson and Leslie Scism): "The
tumbling financial markets are dragging down the life-insurance industry, an
important cog in the US economy, as mounting losses weaken the companies'
capital and erode investor confidence. A dozen life insurers have pending
applications for aid from the government's $700 billion Troubled Asset Relief
Program, and the industry is expecting an answer to its request for a
bank-style bailout in the coming weeks. The government so far hasn't said
whether insurers will be eligible for the program. Life insurers have taken a
beating in recent weeks. The Dow Jones Wilshire US Life Insurance Index has
fallen 59% since the beginning of the year, leaving it down 82% since its May
2007 all-time high. The Dow Jones Industrial Average has lost 21% year to date,
off 51% since its October 2007 record."
March 9 - Bloomberg (Gabrielle Coppola and John Detrixhe): "Bank of America
Corp., the largest US bank by assets, sold $8.5 billion of debt backed by the
Federal Deposit Insurance Corp., according to ... Bloomberg."
March 9 - Bloomberg (Wes Goodman): "Investor Jim Rogers said the Federal
Reserve will probably start buying Treasuries to keep borrowing costs down,
postponing a rout in US government debt. Fed Chairman Ben S. Bernanke said
March 7 the central bank will use 'all the tools' available to revive economic
growth, indicating the central bank is closer to buying, Rogers said. Record
government borrowings will lead to losses later, said the chairman of
Singapore-based Rogers Holdings and author of the books "Hot Commodities" and
"Adventure Capitalist.' 'He's setting things up for a gigantic fall down the
line, but that does not mean he can't drive long-term interest rates to zero,"
Rogers said. "Governments are printing money everywhere, borrowing stupendous
amounts. Throughout history that has led to problems in the bond markets, and
it will this time too.'"
March 9 - United Press International: "The ripple effects of a burst US housing
bubble will traverse the globe in 2009, economists at the World Bank said.
Countries from Africa to Latin America to Asia will find credit shrinking and
export markets in decline, a World Bank report said ... As a result, for the
first time in fifty years, both the global production and worldwide trade
volume would shrink in the same year."
Currency Watch
March 9 - Bloomberg (Jeremy van Loon): "Nobel laureate Joseph Stiglitz said the
world needs to develop a currency reserve and financial system that relies less
on the dollar and more on input from developing countries. 'The current system
is breaking down," Stiglitz said ... 'Replacing it with a mix of dollar and
euro won't solve the problem either.'"
The dollar index ended the week 1.2% lower at 87.43 (up 7.5% y-t-d). For the
week on the upside, the Swedish krona increased 6.7%, the South African rand
4.8%, the Mexican peso 4.6%, the New Zealand dollar 4.6%, the South Korean won
4.5%, the Nowegian krone 3.3%, the Brazilian real 3.3%, the Australian dollar
2.7%, and the Euro 2.1%. On the downside, the Swiss franc declined 2.3% and the
British pound 0.7%.
Commodities Watch
March 9 - Bloomberg (Alistair Holloway): "The Baltic Dry Index, a measure of
shipping costs for commodities, rose to the highest since Oct. 9 on demand to
ship South American grains."
Gold slipped 1.0% this week to $930 (up 5.4% y-t-d), and silver declined 1.0%
to $13.20 (up 16.9% y-t-d). April Crude gained 34 cents to $45.86 (up 3%
y-t-d). April Gasoline rose 1.6% (up 28% y-t-d), while April Natural Gas
slipped 0.4% (down 30% y-t-d). March Copper fell 1.7% (up 18% y-t-d). March
Wheat declined 1.9% (down 17% y-t-d), while Corn firmed 6.3% (down 8% y-t-d).
The CRB index gained 0.7% (down 8.0% y-t-d). The Goldman Sachs Commodities
Index (GSCI) rallied 2.1% (down 1.8% y-t-d).
China Reflation Watch
March 12 - Reuters: "China's industrial output growth ground almost to a
standstill at the start of the year ... but a continued surge in bank lending
in February spurred optimism that business activity could soon rebound ...
Annual growth in China's broad M2 measure of money supply rose to 20.5% rate in
February from 18.8% in January ... New yuan loans in February totalled 1,070bn
yuan ($157bn), down from the record of 1,620bn yuan in January, but still very
high by historical standards. With 10 months to go in 2009, China is already
more than halfway towards reaching its goal of at least 5,000bn yuan in new
bank lending."
March 11 - Bloomberg (Li Yanping): "China's investment spending surged as the
nation poured money into roads, railways and power grids to counter a plunge in
exports, which a separate report showed fell by a record in February. Urban
fixed-asset investment climbed a more-than-estimated 26.5% in January and
February combined to 1.03 trillion yuan ($150 billion) from a year earlier ...
Exports tumbled 25.7%."
March 10 - Bloomberg (Chia-Peck Wong): "Chinese home prices fell by a record
last month, paced by a 15% plunge in the southern export hub of Shenzhen, where
factories closed as growth in the world's third-biggest economy slowed. The
1.2% decline in prices in 70 major cities is the most since the government
started issuing the data in August 2005…"
March 10 - Bloomberg (Tian Ying): "China vehicle sales surged 25% in February,
the first gain in four months, after the government cut taxes on some models,
helping the country extend its lead as the world's largest auto market this
year."
Japan Watch
March 9 - Bloomberg (Keiko Ujikane): "Japan's public debt may exceed 1,000
trillion yen ($10.2 trillion) next fiscal year, Finance Minister Kaoru Yosano
said in parliament…"
March 9 - Bloomberg (Keiko Ujikane): "Japan posted its first current- account
deficit in 13 years in January after exports collapsed amid the global
recession. The deficit stood at 172.8 billion yen ($1.8 billion)…"
March 12 - Bloomberg (Finbarr Flynn and Takako Taniguchi): "The funding crunch
for Japanese businesses is intensifying as foreign-currency financing dries up,
forcing larger firms to turn to the nation's state policy bank for emergency
loans, the head of the lender said. 'Not just automakers, but electrical and
chip companies, and also other manufacturers, are coming to us in large
numbers,' Hiroshi Watanabe, chief executive officer of…Japan Bank for
International Cooperation, said ... As part of a government program, the bank
is lending to 'essentially blue-chip firms that are having trouble with cash
flow.'"
March 11 - Bloomberg (Finbarr Flynn, Katsuyo Kuwako and Shingo Kawamoto):
"Japan's financial regulator will make unprecedented inspections of banks to
avert a loan drought that would increase bankruptcies, as real estate manager
Pacific Holdings Co. collapsed after failing to raise funds. The Financial
Services Agency will visit Japan's biggest lenders including Mitsubishi UFJ
Financial Group Inc. and Mizuho Financial Group Inc. and examine their records
to ensure they provide credit and don't force borrowers to repay loans early as
the recession deepens, the regulator said yesterday."
India Watch
March 9 - Bloomberg (Vipin V. Nair and Kartik Goyal): "India's passenger-car
sales climbed for the first time in five months in February as lower auto-loan
rates spurred demand for Maruti Suzuki India Ltd. and Hyundai Motor Co.
vehicles. Sales rose 22% to 115,386…"
Asia Reflation Watch
March 10 - Bloomberg (Clarissa Batino and Karl Lester M. Yap): "Philippine
exports fell the most in at least 28 years in January, deepening the country's
economic slowdown as demand for Asia's electronics and other goods plunge amid
the global recession. Overseas sales dropped 41%..."
Latin America Watch
March 10 - Bloomberg (Joshua Goodman and Andre Soliani): "Brazil's economy
shrank the most on record in the fourth quarter, going against predictions that
Latin America's largest economy would be a bright spot in the deepening global
recession. Gross domestic product fell 3.6% in the fourth quarter…"
March 9 - Bloomberg (Jens Erik Gould): "Mexico reported the fastest annual core
inflation in more than seven years last month, possibly limiting the central
bank's room to lower the benchmark interest rate. Underlying inflation, which
excludes some fresh food and energy costs, was 5.78% in February, the highest
since November 2001…"
Central Banker Watch
March 12 - Market News International: "The Swiss National Bank ... said it cut
its target range for three-month Swiss franc Libor by 25 bps to 0.0%-0.75% with
immediate effect. The central bank will 'use all means at its disposal to
gradually bring the Libor
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