Page 2 of 3 CREDIT BUBBLE BULLETIN Just the facts
Weekly watch by Doug Noland
M2, the broadest measure of money supply, rose 26% from a year earlier."
May 12 - Bloomberg (Victoria Batchelor): "Australia's government plans to sell
a record A$60 billion ($45.6 billion) of bonds in the 12 months to June 2010
... The amount is almost double an estimated A$35 billion of debt sales in the
2008-2009 fiscal year and up from A$5.1 billion issued in 2007-2008…"
May 12 - Bloomberg (Jacob Greber and Gemma Daley): "Australia faces record
budget deficits until 2016 as it embarks on the biggest building program in its
history, spending on roads, rail
lines and high-speed Internet to blunt fallout from the global recession."
May 11 - Bloomberg (Fabiola Moura and Francisco Marcelino): "Brazil's state
development bank is financing the biggest acquisitions in the country as other
sources of credit dry up, driving a consolidation in the meat, ethanol, paper
and telecom industries. 'They are trying to help the creation of national
champions,' said Marcello Hallake, a lawyer focused on mergers and acquisitions
... who has spent more than a dozen years advising in Latin America. 'They want
to encourage the formation of large Brazilian companies that could then in turn
acquire outside of Brazil.'"
Currency Watch
May 12 - Bloomberg (Chen Shiyin and Haslinda Amin): "The dollar's rally is set
to end in a "currency crisis," investor Jim Rogers said, adding that he may bet
on a slide in equities after nine weeks of gains. The advance in the US
currency has been driven by investors covering their short sales, Rogers…said
... He may consider adding to his holdings of the yen and prefers the euro to
the dollar or the pound ... 'We're going to have a currency crisis, probably
this fall or the fall of 2010. It's been building up for a long time. We've had
a huge rally in the dollar, an artificial rally in the dollar, so it's time for
a currency crisis."
The dollar index gained 0.6% this week to 83.02 (up 2.1% y-t-d). For the week
on the upside, the Japanese yen increased 3.5% and the Taiwan dollar gained
0.3%. On the downside, the South African rand declined 5.1%, the Swedish krona
3.5%, the New Zealand dollar 3.0%, the Norwegian krone 3.0%, the Canadian
dollar 2.6%, the Australian dollar 2.5%, the Swiss franc 1.5%, and the Euro
1.0%. In the emerging currencies, the Hungarian forint dropped 4.7% and the
Polish zloty 4.0%.
Commodities Watch
May 12 - Bloomberg (John Duce): "China, the world's second-largest energy user,
increased crude-oil imports in April by 13.6% from a year earlier after the
government announced plans to boost stockpiles of the fuel. Crude-oil imports
reached 16.17 million metric tons last month, or 3.9 million barrels a day…"
May 12 - Bloomberg (William Bi): "Copper imports by China, the world's largest
consumer, rose to a record for a third month in April as buyers took advantage
of low prices to replenish stockpiles and demand was spurred by a $585 billion
stimulus program. Inbound shipments advanced 7% from the previous month to
399,833 metric tons…"
Gold ended the week up 1.6% to $931 (up 5.6% y-t-d). Silver was little changed
at $13.97 (up 23.6% y-t-d). June Crude dropped $2.11 to $56.52 (up 27% y-t-d).
June Gasoline dipped 1.5% (up 58% y-t-d), and June Natural Gas sank 4.7% (down
27% y-t-d). Copper fell 6.3% (up 43% y-t-d). July Wheat declined 2.3% (down 5%
y-t-d), and July Corn fell 0.9% (up 3% y-t-d). The CRB index dropped 2.9% (up
2.9% y-t-d). The Goldman Sachs Commodities Index (GSCI) declined 2.8% (up 14.6%
y-t-d).
China Reflation Watch
May 15 - Bloomberg (Eugene Tang): "China's banks face significant pressure on
their profits this year, said Liu Mingkang, head of the China Banking
Regulatory Commission. 'Banks should focus on traditional businesses, such as
deposit and lending,' Liu said ... China's banks, most of which are
government-controlled, posted a slowdown or drop in profits for the first
quarter while tripling lending to $670 billion as part of a government stimulus
package, raising concerns that non-performing loans will curb earnings growth."
May 11 - Marke trillionews International: "China's national fiscal revenue fell
by 13.6% year-on-year to CNY589.72 billion in April and the full year-fiscal
outlook is grim, the Ministry of Finance said ... falling corporate profits as
well as government fiscal stimulus measures to boost economic growth are the
main reasons for the decline in fiscal revenue. The Finance Ministry said
corporate income tax fell 27% year-on-year in April ... Fiscal spending rose
24.5%..."
May 13 - Bloomberg (Kevin Hamlin): "China's industrial production grew less
than economists estimated in April as electricity output fell and exports
tumbled. Retail sales climbed. Output rose 7.3% from a year earlier, the
statistics bureau said today, after gaining 8.3% in March."
May 12 - Bloomberg (Kevin Hamlin): "China's investment in factories and
property surged by more than economists forecast in response to the
government's 4 trillion yuan ($586 billion) stimulus package ... Urban
fixed-asset investment climbed 30.5% in the four months to the end of April
from a year earlier, from 28.6% in the first three months…"
May 12 - Bloomberg (Chia-Peck Wong): "Housing prices in 70 Chinese cities fell
1.1% in April from a year earlier, the smallest drop in three months, as the
government's 4 trillion yuan ($585 billion) stimulus package spurred lending
and revived demand."
May 12 - Bloomberg (Nerys Avery): "China ... issued draft rules for allowing
non-deposit taking foreign institutions to offer consumer loans to its more
than 1.3 billion citizens."
May 15 - Bloomberg (Kevin Hamlin): "China's policy makers, grappling with their
bigger voice on the global stage, have yet to agree on what they want from a
new world financial order, central bank Governor Zhou Xiaochuan said. 'Many
issues are new to us and we haven't formed a collective opinion about them.
There are some scholars' views on those issues but we haven't reached a
consensus at a national level or set any goal.'"
May 15 - Bloomberg (Nipa Piboontanasawat and Theresa Tang): "Hong Kong's
economy shrank by the most since at least 1990 ... Gross domestic product
shrank a seasonally adjusted 4.3% in the first quarter... It forecast a
full-year contraction of as much as 6.5%, which would be the biggest decline
since data began in 1962."
Japan Watch
May 13 - Bloomberg (Ron Harui and Yasuhiko Seki): "Individual investors in
Japan increased bets to the highest in six months that the yen will weaken as
the economy stabilizes, jumping back into a trade that was all but wiped out
last year. Businessmen, housewives and pensioners held 153,326 margin contracts
at the end of last month that will make money if the yen declines against
currencies ranging from the euro to the Australian and New Zealand dollars,
according to the Tokyo Financial Exchange."
India Watch
May 12 - Bloomberg (Kartik Goyal): "India's industrial production fell the most
in 16 years in March ... Output at factories, utilities and mines declined 2.3%
from a year earlier after a revised 0.7% drop in February…"
May 14 - Bloomberg (Cherian Thomas): "India needs to cut its budget deficit to
avoid having its credit rating lowered, Fitch Ratings said. 'India faces
considerable challenges in balancing the need for short-term stimulus measures
to counter the economic downturn and the necessity of re-establishing a
sustainable medium-term path for the country's public finances,' Fitch said…"
Asia Bubble Watch
May 15 - Bloomberg (Aloysius Unditu and Berni Moestafa): "Indonesia's economy
grew at the fastest pace in Southeast Asia last quarter as buoyant local
spending helped the nation fend off the global recession. GDP expanded 4.4% in
the three months to March 31 from a year earlier…"
Latin America Watch
May 12 - Bloomberg (Valerie Rota and Carlos Manuel Rodriguez): "Mexico's credit
rating may be cut as soon as the third quarter as the global recession exposes
the government's failure to raise taxes and ease its dependence on oil income
... 'Mexico was very complacent over the past decade,' Alonso Cervera, a Latin
America economist at Credit Suisse, said ... The country 'didn't really move in
a meaningful way to accomplish the reforms that it needed,' he said."
May 15 - Associated Press: "Mexico's central bank has cut the benchmark
interest rate by three quarters of a point to spur growth for the
recession-plagued economy. The bank has lowered the rate to 5.25% from 6%..."
Central Banker Watch
May 14 - Bloomberg (Matthew Brockett): "European Central Bank policy makers
clashed over the bank's asset-buying program less than a week after President
Jean-Claude Trichet engineered a truce. Slovenia's Marko Kranjec said yesterday
the ECB is likely to spend more than the 60 billion euros ($82 billion) it has
earmarked for covered-bond purchases and hasn't ruled out acquiring corporate
bonds and commercial paper. Hours later Germany's Axel Weber, who had already
said there's no need to buy other assets, insisted 60 billion euros is the
'maximum.' Slovakia's Ivan Sramko said today nothing can be excluded. 'The ECB
Governing Council looks like a battlefield,' said Laurent Bilke, an economist
at Nomura…"
GSE Watch
May 13 - Washington Post (Zachary A. Goldfarb): "Freddie Mac... reported that
it lost $10 billion in the first three months of the year, as investments in
mortgages continued to fall in value at the federally run housing finance
giant. The disclosure automatically prompts a $6 billion investment from the
Treasury Department to keep the company solvent, bringing Freddie Mac's bailout
total to $51 billion in the first nine months of its government rescue."
Freddie's "Book of Business" (retained mortgages and MBS guarantees) expanded
at a 21% annualized rate during March to $2.247 trillion. Freddie's retained
mortgage portfolio expanded any eye-opening $45 billion during the month, or
65.8% annualized, to $867.1 billion. It is worth nothing that Freddie's
retained portfolio has now grown $155 billion, or 21.7%, over the past twelve
months. Freddie and Fannie combined to balloon their retained portfolios by
$216 billion over the past year, or 15%, to $1.651 trillion.
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