Page 3 of 3 CREDIT BUBBLE BULLETIN
Asia's savers not the culprit
Commentary and weekly watch by Doug Noland
creation a new international reserve currency in an essay published on the
central bank's Web site ... The proposal is the latest sign of tension between
China and the US over important global economic matters."
Another interesting week for the currencies. The dollar index rallied 1.5% this
week to 85.11 (up 4.7% y-t-d). For the week on the upside, the South Korea won
increased 4.75%, the New Zealand dollar 2.2%, and the Australian dollar 1.1%.
On the downside, the Norwegian krone declined 3.8%, the Euro 2.1%, the Danish
krone 2.1%, the Japanese yen 2.0%, the Swiss franc
1.4%, the Mexican peso 1.2%, and the British pound 1.0%.
Commodities Watch
Gold dropped 3.0% this week to $924 (up 4.8% y-t-d), and silver fell 3.8% to
$13.32 (up 18% y-t-d). May Crude was little changed at $52.26 (up 17 y-t-d).
May Gasoline added 1.8% (up 40% y-t-d), while May Natural Gas sank 12.7% (down
33% y-t-d). May Copper added 1.9% (up 30% y-t-d). May Wheat dropped 7.8% (down
17% y-t-d), and May Corn declined 2.4% (down 5% y-t-d). The CRB index dropped
1.7% (down 3.2% y-t-d). The Goldman Sachs Commodities Index (GSCI) dipped 1.0%
(up 5.6% y-t-d).
China Reflation Watch
March 27 - Bloomberg (Li Yanping and Kevin Hamlin): "China is scolding the
world before the Group of 20 meeting next week, telling the largest countries
to spend more on stimulus and fix their financial supervision. Central bank
Governor Zhou Xiaochuan yesterday lambasted governments that failed to emulate
China's "decisive" action to spur economic growth. Earlier this week he
suggested creating a new international reserve currency to rival the dollar."
March 24 - China Knowledge: "Daimler AG's Mercedes-Benz Friday said its monthly
vehicle sales grew 21% year on year to hit 2,800 units on the Chinese mainland
in February, 3.4% higher than the average growth rate of the overall sedan
segment, the China Daily reported."
March 24 - Bloomberg (Jiang Jianguo): "China barred the nation's state-owned
companies from taking part in speculative hedging, the Chinanews news service
reported ... "
March 27 - Bloomberg (Li Yanping and Nipa Piboontanasawat): "Chinese industrial
companies' profits dropped for the first time on record as the global recession
cut demand for exports from the world's third-largest economy. Net income sank
37.3% in the first two months of 2009 from a year earlier to 219.1 billion yuan
($32 billion) ... "
Japan Watch
March 25 - Bloomberg (Saburo Funabiki and Norihiko Kosaka): "Japan's companies
are paying the least to borrow since 2006 after the central bank started buying
commercial paper, signaling an end to the credit squeeze that helped push the
world's second-biggest economy into recession."
March 23 - Bloomberg (Katsuyo Kuwako): "Japanese residential land prices fell
to a 24-year low as job losses and wage cuts discouraged homebuyers, while
tighter credit markets choked off funding for property developers."
March 24 - Bloomberg (Naoko Fujimura): "Japan's vehicle sales may fall to the
lowest in 32 years as the country's deepening recession discourages customers
from visiting showrooms. Industrywide sales ... may fall 8% to 4.3 million
vehicles ... the Japan Automobile Manufacturers Association said ... "
Asia Reflation Watch
March 24 - Bloomberg (Seyoon Kim): "South Korea plans to spend a record 17.7
trillion won ($13 billion) on cash handouts, cheap loans, infrastructure and
job training to revive an economy on the brink of its first recession in more
than a decade. The stimulus will boost economic growth by 1.5 percentage points
and help create 552,000 new jobs, the finance ministry said ... "
Central Banker Watch
March 26 - Bloomberg (Anchalee Worrachate): "Bank of England Governor Mervyn
King says Gordon Brown should be 'cautious' on public spending while the
official in charge of UK bond sales says the central bank is undermining demand
for government debt. For the first time in almost seven years, the UK couldn't
find enough buyers for one of its debt sales when it offered 1.75 billion
pounds ($2.55 billion) of bonds ... Robert Stheeman, head of the UK's Debt
Management Office, which runs the bond auctions, says it wasn't able to attract
enough bids partly because of the Bank of England's efforts to lower yields
through debt purchases."
Fiscal Watch
March 25 - Associated Press (Randolph E. Schmid): "The [US] post office will
run out of money this year unless it gets help, Postmaster General John Potter
told Congress ... 'We are facing losses of historic proportion. Our situation
is critical,' Potter told a House panel. The agency lost $2.8 billion last year
and is looking at much larger losses this year. Reducing mail delivery from six
days to five days a week could save $3.5 billion annually, Potter said."
GSE Watch
March 27 - Washington Post (Zachary A Goldfarb): "Half a year after the
government seized Freddie Mac, confusion about its role is stoking tensions
between the company and its regulator, including a dispute this month over how
much the mortgage giant should reveal to private investors about its financial
troubles. Federal officials who took over Freddie Mac stopped short of
nationalizing the company, leaving it partly in private hands. This means
Freddie still has to answer to investors and file financial disclosures. But
when Freddie Mac's executives concluded a few weeks ago that they had to
disclose that the government's management of the ... company was undermining
its profitability and would cost it tens of billions of dollars, the firm's
regulator urged it not to do so, according to several sources ... The clash
grew so severe that they threatened to go to the Securities and Exchange
Commission ... The company's regulator backed down, the sources said"
March 25 - Bloomberg (Romaine Bostick): "Freddie Mac, the mortgage-finance
company under federal control, said its portfolio of home-loan assets rose at
an annualized rate of 35% last month. The holdings climbed by $23.1 billion in
February to $822 billion as regulators leaned on the company to help modify or
refinance more loans for struggling borrowers ... "
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
March 27 - Bloomberg (Dawn Kopecki): "Mortgage originations may double to $3.1
trillion this year as historically low interest rates and looser financing
standards at Fannie Mae and Freddie Mac lure more borrowers, Bank of America
Corp. analysts said."
Unbalanced Global Economy Watch
March 24 - Wall Street Journal (John W Miller): "The World Trade Organization
issued the most pessimistic report on global trade in its 62-year history,
forecasting a drop of 9% or more in 2009. Monday's prediction is worse than
previous estimates by the WTO, the World Bank and independent economists..."
March 27 - Bloomberg (Jurjen van de Pol): "European industrial orders dropped
the most on record in January as the global recession forced companies to cut
production, reducing demand for equipment and machinery. Industrial orders in
the euro area fell 34% from the year-earlier month, when they declined 24%..."
March 25 - Bloomberg (Simone Meier): "German business confidence fell to the
lowest level in more than 26 years in March, adding to signs that the recession
is deepening."
Bursting Bubble Economy Watch
March 26 - Bloomberg (Bob Willis): "The number of people collecting US jobless
benefits rose to a record 5.56 million, indicating more Americans are spending
longer periods out of work. Initial claims topped 600,000 for an eighth
straight time."
March 27 - Bloomberg (Lee J Miller): "Coupon clipping is back in vogue,
increasingly driven by the Internet, as recession prompts consumers to turn in
price-off tokens, according to retailers including McCormick & Co, the
world's biggest spice seller, and Kroger Co, the largest US supermarket chain.
'Redemptions in the US are up 20% versus last year,' McCormick Chief Executive
Officer Alan Wilson said."
California Watch
March 25 - Los Angeles Times: "Ravenous investor demand allowed California
today to boost the size of its infrastructure bond sale to $6.54 billion from a
planned $4 billion, and to close out the deal a day early. The offering, the
state's first sale of longer-term bonds since June, didn't come cheap for
taxpayers: The longest-term bond, maturing in 2038, will pay investors an
annualized tax-free yield of 6.1%. By contrast, California paid a yield of 5.3%
on bonds of that maturity in the June sale. Still, the deal allowed Treasurer
Bill Lockyer to make a dent in the state's backlog of voter-approved bonds to
be sold ... "
March 25 - California Association of Realtors: "Home sales increased 83% in
February in California compared with the same period a year ago, while the
median price of an existing home declined 40.8%. The median price ... was
$247,590, a 40.8% decrease ... The February 2009 median price fell 2.3%
compared with January's ... C.A.R.'s Unsold Inventory Index ... in February
2009 was 6.5 months, compared with 15.3 months for the same period a year ago."
March 25 - Wall Street Journal (By Peter Sanders): "As Don Bransford prepares
for his spring planting season, he is debating which is worth more: the rice he
grows on his 700-acre farm north of Sacramento, or the water he uses to
cultivate it. After three years of drought in California, water is now a
potential cash crop ... Water - or the lack of it - has been costing the state
dearly. According to Richard Howitt, a professor at the University of
California, Davis, the drought and resulting water restrictions could cost as
much as $1.4 billion in lost income and about 53,000 lost jobs, mostly in the
agriculture sector."
New York Watch
March 26 - Bloomberg (Henry Goldman): "New York City experienced a record
month-to-month increase in its unemployment rate, climbing to 8.1% in February
from 6.9% in January ... "
Muni Watch
March 27 - Bloomberg (Jeremy R Cooke): "US state and local borrowers sold about
$12 billion of bonds in the biggest week for new issues since December 2006, as
strong reception for California's record deal helped to cap yield increases in
the broader market."
Speculator Watch
March 24 - Bloomberg (Bei Hu): "The global hedge fund industry may shrink by
11% this year as funds liquidate and investor withdrawals persist, a Deutsche
Bank AG survey said. Industry assets may fall to $1.33 trillion by December ...
"
March 23 - Financial Times (James Mackintosh): "Hedge fund investors believe
the industry will see even bigger withdrawals this year than last, when record
levels of cash were pulled from the sector. A survey of investors by Deutsche
Bank found a third expect more than $200 billion to be withdrawn, after a net
$155 billion was taken out last year, according to calculations by Chicago
consultancy Hedge Fund Research."
March 27 - Bloomberg (Michael B Marois): "The California Public Employees'
Retirement System, the largest US state public pension fund, said it wants to
renegotiate the fees it pays hedge funds. Calpers, as the fund is known, said
hedge fund payments should be based on long-term rather than short-term
performance."
Doug Noland is a market strategist for the Prudent Bear Funds.
(Republished with permission from PrudentBear.com.
Copyright 2005-2009 David W Tice & Associates. All rights reserved.)
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