Asia Times Online :: Asian news and current affairs

Oct 6, 2009

Page 2 of 3
CREDIT BUBBLE BULLETIN
No way to fix a collapse
Commentary and weekly watch by Doug Noland

Junk issuers included Elan $625 million, Cincinnati Bell $500 million, Transdigm $425 million, Windstream $400 million, Tops $275 million, Gannett $500 million, Stream Global Services $200 million and Venoco $150 million.

I saw no converts issued.

International dollar-denominated debt issuance remained strong. Issuers included Enel Finance $4.5bn, Italy $2.5bn, Brazil $1.5bn, Abu Dhabi Commercial Bank $1.0bn, Arcelormittal $1.0bn, Nordic Investment Bank $1.0bn, Volvo $750 million, Embraer $500 million, Dexus Finance $300 million, Ceva Group $210 million and

Caribbean Development Bank $120 million.

U.K. 10-year gilt yields dropped 17 bps to 3.44%, and German bund yields fell 13 bps to 3.12%. The German DAX equities index declined 2.0% (up 13.7% y-t-d). Japanese 10-year "JGB" yields fell 6 bps to 1.25%. The Nikkei 225 sank 5.2% (up 9.8%). Emerging markets were resilient. Russia's RTS equities index was unchanged (up 93.8%). India's Sensex equities jumped 2.6% (up 77.6%). China's Shanghai Exchange declined 2.1%, lowering 2009 gains to 52.6%. Brazil's benchmark dollar bond yields declined 3 bps to 5.07%. Brazil's Bovespa equities index gained 1.4% (up 62.9% y-t-d). The Mexican Bolsa slipped 0.3% (up 28.1% y-t-d). Mexico's 10-year $ yields declined 3 bps to 5.28%.

Freddie Mac 30-year fixed mortgage rates were down 10 bps to an 18-wk low 4.94% (down 106bps y-o-y). Fifteen-year fixed rates dropped 10 bps to 4.36% (down 142bps y-o-y). One-year ARMs declined 3 bps to 4.49% (down 63bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates down 6 bps to 6.11% (down 107bps y-o-y).

Federal Reserve Credit declined $12.4bn last week to $2.120 TN. Fed Credit has declined $126bn y-t-d, although it expanded $732bn over the past 52 weeks (53%). Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 9/30) added $583 million to a record $2.855 TN. "Custody holdings" have expanded at a 17.9% rate y-t-d, and were up $389bn over the past year, or 15.8%.

M2 (narrow) "money" supply declined $8.0bn to $8.310 TN (week of 9/21). Narrow "money" has expanded at a 2.0% rate y-t-d and 5.2% over the past year. For the week, Currency added $1.4bn, while Demand & Checkable Deposits sank $32.4bn. Savings Deposits jumped $40.7bn, while Small Denominated Deposits dropped $9.5bn. Retail Money Funds fell $8.1bn.

Total Money Market Fund assets (from Invest Co Inst) sank $53.5 to $3.429 TN. Money fund assets have declined $401bn y-t-d, or 14.0% annualized. Money funds increased $30bn, or 0.9%, over the past year.

Total Commercial Paper outstanding jumped another $19.7bn (7-wk gain of $158bn) to a 17-wk high $1.232 TN. CP has declined $450bn y-t-d (36% annualized) and $375bn over the past year (23%). Asset-backed CP added $1.5bn to $522bn, with a 52-wk drop of $202bn (28%).

International reserve assets (excluding gold) - as accumulated by Bloomberg's Alex Tanzi - were up $287bn y-o-y to $7.213 TN. Reserves have increased $447bn year-to-date.

Global Credit Market Watch
September 30 - Bloomberg (Timothy R. Homan and Sandrine Rastello): "The International Monetary Fund cut its projection for global writedowns on loans and investments by 15% to $3.4 trillion, citing improvements in credit markets and initial signs of economic growth."

September 30 - MarketWatch (Laura Mandaro): "Companies found investors newly receptive to fresh stock and debt offerings in the third quarter ... As September winds down, U.S. companies are on track to have issued $39 billion in new stock and convertible debt and $156 billion in bonds, according to Dealogic. The combined capital raising has increased 57% from the same period last year ... The total shrank 43% from the second quarter, a period when secondary stock offerings surged as banks sold shares to repay U.S. government bailout funds."

October 1 - Wall Street Journal (Aaron Lucchetti): "A steady stream of new share and bond issues combined with a stock-market rally to give Wall Street reason to cheer during the third quarter. The three-month period ended Wednesday wasn't close to setting records for issuance, but traders and bankers welcomed even an average quarter ... The volume of third-quarter stock and bond sales, $1.5 trillion, was down 25% from the second quarter but up 69% from the third quarter of 2008..."

October 2 - Bloomberg (John Detrixhe): "Citigroup Inc., ranked third among U.S. lenders by assets, and the finance arm of General Electric Co. issued $8.5 billion of U.S.-guaranteed bonds this week, the most in six months, taking advantage of federal backing from a program the government plans to end."

Government Finance Bubble Watch
September 30 - Dow Jones: "The International Monetary Fund needs an appropriate exit strategy from special stimulus measures when the financial crisis ends, the Deutsche Bundesbank said ... 'At the end of the current financial crisis, it should be reviewed whether the increase in special drawing rights...should be withdrawn, either partially or entirely, to limit risks to political stability,' Hans-Helmut Kotz, a member of the German central bank's executive board, said ... "

September 30 - Bloomberg (Mark Deen and Francois de Beaupuy): "French President Nicolas Sarkozy says that even with a record budget deficit, France needs to spend more borrowed money to kick start economic growth. Promising a 'grand loan' to finance spending on everything from Paris's rail system to new supercomputers, Sarkozy is set to swell a budget shortfall that already is the highest since 1959 ... "

September 30 - Bloomberg (Gabi Thesing): "The European Central Bank will lend banks less money than economists forecast in its second 12-month auction of unlimited funds, indicating banks' need for cash has eased for now. Banks bid for 75.2 billion euros ($110bn) at the current benchmark interest rate of 1%... It loaned a record 442 billion euros at the first auction in June ... "

Currency Watch
September 29 - Bloomberg (James Tyson and Michael McKee): "Former Federal Reserve chairman Paul Volcker said the rise of China and other emerging economies has underscored a decline in the comparative economic and intellectual leadership of the U.S. 'I don't know how we accommodate ourselves to it,' Volcker ... said ... 'You cannot be dependent upon these countries for three to four trillion dollars of your debt and think that they're going to be passive observers of whatever you do.'"

The dollar index this week gained 0.3% to 77.03 in continued volatile currency trading. For the week on the upside, the South Korean won increased 1.0%, the Canadian dollar 0.9%, the Brazilian real 0.5% and the Taiwanese dollar 0.4%. On the downside, the South African rand declined 2.9%, the Swedish krona 1.3%, the Danish krone 0.8%, the Euro 0.7%, the Swiss franc 0.7%, and the Mexican peso 0.5%.

Commodities Watch
September 30 - Bloomberg (John Duce): "China's sovereign wealth fund bought a stake in the London-traded unit of Kazakhstan's state-run energy company, taking its spending on resources to at least $3.69 billion this month."

Gold gained 1.2% to close at $1003 (up 13.7% y-t-d). Silver added 0.7% to $16.18 (up 43% y-t-d). November Crude rallied $3.72 to $69.74 (up 56% y-t-d). November Gasoline jumped 6.1% (up 64% y-t-d), while November Natural Gas fell 4.9% (down 16% y-t-d). December Copper slipped 2.1% (up 90% y-t-d). December Wheat fell 1.9% (down 28% y-t-d), while December Corn was little changed (down 18% y-t-d). The CRB index increased 2.0% (up 11.3% y-t-d). The Goldman Sachs Commodities Index (GSCI) rose 3.0% (up 30.2% y-t-d).

China Bubble Watch
September 28 - Bloomberg: "China's government stimulus may risk overheating some parts of the economy as local authorities rush to expand fixed-asset investment, said Qu Hongbin, chief China economist at HSBC ... 'Local governments in China have laid out massive investment plans this year and with an explosion of bank loans funding the construction, overheating in some areas and price increases in raw materials may be on the horizon," Qu said ... 'How to address the unbalanced recovery will be a test for the government,' said Qu. Premier Wen Jiabao's 4 trillion yuan ($586 billion) stimulus package to build airports, power grids, roads and low- cost homes is driving the world's third-largest economy out of the steepest slump in more than a decade. Still, Wen said this month that his government 'cannot and will not' halt stimulus because the nation's economic rebound isn't yet solid."

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