Page 2 of 3 CREDIT BUBBLE BULLETIN The newest abnormal
Commentary and weekly watch by Doug Noland
Junk bond funds saw inflows of $207 million. Junk issuers included Western Corp
Credit Union $1.5bn, Reynolds Group $1.125bn, Continental Airlines $640
million, Universal City Development $625 million, Berry Plastics $620 million,
GCI $425 million, Associate Materials $200 million, Potlatch $150 million, and
Scientific Games $125 million.
I saw no converts issued.
International dollar-denominated debt issuers included Achmea Hypotheekbank
$3.25bn, Croatia $1.5bn, Lukoil $1.5bn, Fibria Overseas $1.0bn, Inversiones
$500 million, Coca-Cola Amatil $400 million, Net Servicos $350 million, Prime
Dig $315 million,
Banco BMG $300 million, Indo Integrated Energy $230 million, and Hilla Sukuk
$100 million.
UK 10-year gilt yields declined 6 bps to 3.62%, and German bund yields fell 12
bps to 3.23%. The German DAX equities index sank 5.7% (up 12.6% y-t-d).
Japanese 10-year "JGB" yields increased 4.5 bps to 1.405%. The Nikkei 225
declined 2.4% (up 13.3%). Emerging equities were weak and emerging bonds were
under pressure. Russia's RTS equities index dropped 7.7% (up 113%). India's
Sensex equities fell 5.4% (up 64.8%). China's Shanghai Exchange declined 3.6%,
lowering 2009 gains to 64.5%. Brazil's benchmark dollar bond yields jumped 20
bps to 5.23%. Brazil's Bovespa equities index dropped 5.4% (up 63.9% y-t-d).
The Mexican Bolsa was hit for 6.4% (up 28.0% y-t-d). Mexico's 10-year $ yields
rose 21 bps to 5.52%.
Freddie Mac 30-year fixed mortgage rates increased 3 bps to 5.03% (down 143bps
y-o-y). Fifteen-year fixed rates added 3 bps to 4.46% (down 173bps y-o-y).
One-year ARMs increased 3 bps to 4.57% (down 81bps y-o-y). Bankrate's survey of
jumbo mortgage borrowing costs had 30-yr fixed jumbo rates down another basis
point to 6.04% (down 154bps y-o-y).
Federal Reserve Credit declined $17.4bn last week to $2.154 TN. Fed Credit has
declined $92bn y-t-d, although it expanded $281bn over the past 52 weeks
(15.0%). Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past
week (ended 10/29) jumped $11.4bn to a record $2.899 TN. "Custody holdings"
have expanded at an 18.4% rate y-t-d, and were up $412bn over the past year, or
16.6%.
M2 (narrow) "money" supply jumped $26.4bn to $8.359 TN (week of 10/19). Narrow
"money" has expanded at a 2.5% rate y-t-d and 5.0% over the past year. For the
week, Currency dipped $0.3bn, while Demand & Checkable Deposits gained
$12.2bn. Savings Deposits surged $29.6bn, while Small Denominated Deposits
declined $8.0bn. Retail Money Funds fell $7.3bn.
Total Money Market Fund assets (from Invest Co Inst) slipped $2.3bn to $3.370
TN. Money fund assets have declined $460bn y-t-d, or 14.5% annualized. Money
funds declined $168bn, or 4.7%, over the past year.
Total Commercial Paper outstanding rose $10.6bn (11-wk gain of $302bn) to
$1.377 TN. CP has declined $304bn y-t-d (22% annualized) and $173bn over the
past year (11%). Asset-backed CP declined $5.6bn to $543bn, with a 52-wk drop
of $178bn (25%).
International reserve assets (excluding gold) - as accumulated by Bloomberg's
Alex Tanzi – were up $521bn y-o-y to a record $7.407 TN. Reserves have
increased $643bn year-to-date.
Global Credit Market Watch
October 30 - Bloomberg (Lester Pimentel and Catarina Saraiva): "Mexico's dollar
bonds are posting their biggest monthly declines since January on speculation
President Felipe Calderon will fail to cut the budget gap enough to avoid a
credit-rating downgrade. The debt lost 2% this month ... "
October 30 - Dow Jones (Ainsley Thomson): "October saw record-high issuance of
euro-denominated high-yield bonds, beating the pre-crisis high reached in 2007,
as investors' appetite for riskier, higher-yielding assets continues to
strengthen. High-yield bonds worth EUR6.7 billion were sold in October, beating
the previous record of EUR6.6 billion set at the height of the bull market in
June 2007 ... "
October 30 - Bloomberg (Emre Peker): "Bank of America Corp. and Goldman Sachs
Group Inc. led lenders in arranging a record $2.26 billion of leveraged buyout
financing in October, more than eight times the amount raised in the first
quarter, as the U.S. exits the worst recession since the Great Depression."
October 28 - Bloomberg (Peter Eichenbaum and David Mildenberg): "GMAC Inc., the
lender that received two government bailouts totaling $13.5 billion, is in
talks with the Treasury Department to receive a third lifeline ... The U.S.
government may inject an additional $2.8 billion to $5.6 billion into GMAC ...
"
October 27 - Bloomberg (John Gittelsohn): "Capmark Financial Group Inc., the
lender that filed for bankruptcy this week, was making billions of dollars in
property loans just as investor Sam Zell was exiting the U.S. office market in
early 2007. In 2006 and 2007, Capmark originated $60 billion in commercial
mortgage loans, most for office buildings, according to the Oct. 25 bankruptcy
filing. While Capmark was lending, Zell was selling Equity Office Properties
Trust at the top of the market for $39 billion, including debt."
Currency Watch
The dollar index rallied 1.3% to 76.42. For the week on the upside, the
Japanese yen increased 2.2% and the British pound 0.9%. On the downside, the
New Zealand dollar declined 4.8%, the South African rand 4.5%, the Swedish
krona 4.4%, the Norwegian krone 2.9%, the Canadian dollar 2.9%, the Brazilian
real 2.5%, the Australian dollar 2.5%, and the Euro 1.9%. For the week against
the Japanese yen, the New Zealand dollar declined 6.7%, the South African rand
6.6%, the Swedish krona 6.4%, the Norwegian krone 5.0%, the Canadian dollar
5.0%, the Brazilian real 4.6%, and the Australian dollar 4.6%.
Commodities Watch
October 29 - Bloomberg (Nicholas Larkin): "The time to hold gold is now as
faster inflation and increased purchases through exchange-traded funds and by
central banks boost demand amid stagnant mine output, Paul Tudor Jones's Tudor
Investment Corp. said. 'I have never been a gold bug,' Jones ... told investors
... 'It is just an asset that, like everything else in life, has its time and
place. And now is that time.'"
October 28 - Bloomberg: "China Investment Corp., the country's sovereign wealth
fund, said it has $110 billion for overseas investments and will focus on
buying into commodities companies and property as a hedge against accelerating
inflation. 'Now we are seeing expectations of medium and long-term inflation,
and the value of major currencies may have to fall to a new equilibrium level,'
Chairman Lou Jiwei told a forum ... 'Investing in major commodities can be a
hedge. So is investing in real estate.'"
October 28 - Bloomberg (Luzi Ann Javier): "Rice prices may return to record
levels as bad weather curbs output in major growers and forces some nations to
accelerate imports, a Philippine minister and the U.S. Rice Producers
Association said. 'We are not very far from another rerun of 2008 prices,'
Arthur Yap, the Philippines' Agriculture Secretary, said ... Higher oil prices
may push up fertilizer costs, boosting prices further, he said."
The CRB index declined 3.6% (up 17.8% y-t-d). The Goldman Sachs Commodities
Index (GSCI) dropped 4.3% (up 42.3%). Gold declined 1.0% to close at $1,045 (up
18.4%). Silver sank 7.7% to $16.36 (up 44.8%). December Crude fell $3.46 to
$77.04 (up 73%). November Gasoline fell 4.9% (up 83%), and December Natural Gas
sank 7.8% (down 10.1%). December Copper fell 2.7% (up 110%). December Wheat
dropped 9.8% (down 19%), and December Corn fell 8.0% (down 10% y-t-d).
China Bubble Watch
October 30 - Bloomberg: "China will sustain its economic rebound this quarter
and growth is likely to top the government's 8% target for 2009, the central
bank said. Policy makers need to 'manage inflation expectations,' curb excess
capacity and encourage sustainable lending growth, the central bank said ... "
October 27 - Bloomberg (Sophie Leung and Bernard Lo): "Stephen Roach, chairman
of Morgan Stanley Asia, said investors are wrong to bet that China will
restrain its unprecedented stimulus after the economy accelerated in the third
quarter. 'The Chinese really are fixated on one thing and one thing alone which
is social stability - they don't want to take a risk of another negative growth
surprise' slowdown', Roach said ... "
October 27 - Bloomberg (Sophie Leung): "China predicted an acceleration in
industrial production and reported a 190% jump in overseas investment for the
third quarter ... Investment by Chinese firms abroad rose to $20.5 billion in
July through September, almost triple a year earlier ... Industrial output may
rise 16% in the fourth quarter, Ministry of Industry and Information Technology
official Zhu Hongren said ... "
Japan Watch
October 30 - Bloomberg (Toru Fujioka): "Japan's jobless rate unexpectedly
dropped to a four-month low in September, adding to signs that a recovery in
the world's second-largest economy is spreading to consumers. The unemployment
rate fell to 5.3% from 5.5% in August ... "
India Watch
October 29 - Bloomberg (Luzi Ann Javier): "India, the world's second-largest
rice grower, may become a net importer for the first time in 21 years in 2010,
potentially sparking the kind of 'panic' that sent prices to records in 2008,
an agricultural economist said. India may import as much as 3 million metric
tons next year after the wet season harvest plunged, Samarendu Mohanty, a
senior economist at the International Rice Research Institute, said ... "
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