Page 4 of
5 Mortgage
crisis to corporate debt
crisis By Doug Noland
in
December, buoyed by Chinese demand. Overseas
shipments surged 19.8% to a record $23.5 billion
from a year earlier…"
Unbalanced Global Economy
Watch January 8 – Bloomberg (Fergal
O’Brien): "European retail sales fell the most in
at least 10 years in November as rising food and
energy costs sapped consumer confidence. Retail
sales declined 1.4% in November from a year
earlier…"
January 9 – Financial Times
(Leslie Crawford): "The City of
London’s skyline bristles
with cranes clearing the ground for a gleaming new
generation of developments… But if the credit
squeeze develops into a full-blown recession, will
there be anyone to fill them? The five biggest
projects would create about 3.8m sq ft of new
space, enough for up to 50,000 desk jockeys. In
itself that would add only about 5% to the City’s
total stock. But as part of a wider picture it
looks scary. Other new, largely speculative,
builds should add another 8% to the stock by 2010.
And demand will falter in the event of a
recession. In the last downturn, between 2001 and
2003, space equivalent to about 10% of the total
stock was vacated. That suggests a nightmare
scenario of a supply overhang of 23%."
January 8 – Bloomberg (Brian Swint and
Jennifer Ryan): "U.K. retail sales rose at the
slowest pace since March 2006 and house prices
declined for the first quarter in seven years,
adding to the case for the Bank of England to cut
interest rates again."
January 9 –
Bloomberg (Gabi Thesing): "Retail sales in Germany
unexpectedly declined in November, falling for a
second month as inflation jumped to a record,
eroding consumers’ spending power. Sales, adjusted
for inflation and seasonal swings, fell 1.3% from
October, when they slid 2.3%... ‘The figures are
quite shocking bearing in mind the decline in the
previous month,'' said Alexander Koch, an
economist at UniCredit Markets & Investment
Banking… ‘Consumers are tightening their purse
strings because prices are rising, but also
because they perceive them as rising faster than
they are.’"
January 9 – Financial Times
(Bertrand Benoit): "German government and union
officials gather today in the baroque town of
Potsdam outside Berlin to start wage negotiations
for the country’s 1.3m civil servants, kicking off
what the head of the country's largest trade union
predicted would be a year of ‘mega-wage deals’.
After years of wage stagnation in Europe’s biggest
economy, calls for substantial pay increases are
growing louder - and prompting warnings from
economists about the potential impact on jobs and
inflation. Verdi, the services union, and the
German Civil Servants’ Federation have lodged an 8
per cent pay claim this year, which would
represent the first increase in three years. In
other sectors facing collective wage rounds,
claims range from 8% to 4%."
January 9 –
Financial Times (Leslie Crawford): "Only last
September, José Luis Rodríguez Zapatero, the
Spanish prime minister, announced that Spain had
joined the ‘Champions’ League’ of world economies.
Europe’s fifth largest economy was growing so
robustly, and creating so many jobs, it would soon
be richer than Germany in per capita terms, Mr
Zapatero predicted. That euphoria was short-lived.
December saw a spike in inflation, a rise in
unemployment and a slowdown in the economy, as the
international credit squeeze gripped Spain… Worse,
house prices in many parts of the country have
started falling, further undermining confidence in
the economy. Some overindebted families now owe
more to their banks than their houses are worth.
International financial gridlock has brought
Spain's credit-fuelled surge to a rude halt."
January 8 – Bloomberg (Robin
Wigglesworth): "Norway’s jobless rate fell in the
three months through November as the joint-fastest
economic expansion on record boosted demand for
workers. The seasonally adjusted rate fell to 2.5%
from 2.6%..."
January 9 – Bloomberg (Robin
Wigglesworth): "Norwegian retail sales growth
accelerated to 7.5% in November as falling
unemployment, increased salaries and the receding
danger of interest rate increases prolonged a
spending boom."
January 9 – Bloomberg
(Marketa Fiserova): "Czech inflation accelerated
in December above the central bank’s target for a
second month… The inflation rate rose to 5.4% from
5% in November…"
January 9 – Bloomberg
(Milda Seputyte): "Lithuanian’s inflation rate
rose in December to the highest level in a decade,
adding to concern that the economy is overheating.
The inflation rate rose to 8.1% from 7.8% in
November…"
January 10 – Bloomberg (Milda
Seputyte and Aaron Eglitis): "Latvian inflation
accelerated to the fastest in more than 11 years
as household expenses and service prices in
restaurants advanced, adding to concern the
economy is overheating. The rate, the highest in
the 27-nation European Union, rose to 14.1% from
13.7% in the previous month…"
Central Banker
Watch January 11 – Financial Times:
"There go the choppers. ‘Helicopter’ Ben Bernanke
is poised to unleash another batch of cheaper
money on the struggling US economy. The Federal
Reserve chairman's clear description of the risks
facing the economy yesterday almost certainly
means another half point interest rate cut this
month."
January 7 – Market News
International: "The European Central Bank remains
prepared to act if necessary to contain increased
inflationary pressure, ECB President Jean-Claude
Trichet reiterated… ‘The ECB’s Governing Council
stands ready to counter upside risks to price
stability, in line with its mandate,’ Trichet
said."
January 10 – Bloomberg (Rich
Miller): "The next bubble to deflate may be Alan
Greenspan’s reputation. Hailed as perhaps the
greatest central banker who ever lived when he
left the Federal Reserve in 2006, Greenspan is
under attack from critics ranging from the New
York Times to economists at the American
Enterprise Institute for his handling of the
2000-2005 housing boom. The former Fed chairman
has taken to the media to defend himself, writing
in the Wall Street Journal and appearing on
network television. ‘He’s had a bubble reputation
that derived from the growth of U.S. household
wealth,’ said Edward Chancellor, author of ‘Devil
Take the Hindmost: A History of Financial
Speculation.’ ‘As that goes down, his standing as
a superstar will suffer.’"
Bursting Bubble Economy
Watch At $63.1bn, the
November Trade Deficit was the highest since
September 2006. Both Imports and Exports were up
double-digits y-o-y. December Import Prices were
up 10.9% y-o-y.
January 11 – Financial
Times (Francesco Guerrera, Aline van Duyn and
Daniel Pimlott): "The US is at risk of losing its
top-notch triple-A credit rating within a decade
unless it takes radical action to curb soaring
healthcare and social security spending, Moody’s…
said… The warning over the future of the triple-A
rating – granted to US government debt since it
was first assessed in 1917 – reflects growing
concerns over the country’s ability to retain its
financial and economic supremacy… In its annual
report on the US, Moody’s signalled increased
concern that rapid rises in Medicare and
Medicaid…would ‘cause major fiscal pressures’ in
years to come."
January 7 – Bloomberg
(Saijel Kishan and Mark Barton): "The U.S. economy
is heading for a recession that will be the worst
‘in a while’ and investors should sell the dollar
as global currencies weaken, investor Jim Rogers
said. ‘It’s going to be one of the worst
recessions we’ve had in a while because we had so
many excesses going into it,’ Rogers…said… ‘It’s
going to be bad for all of us as currencies come
under more and more stress and we have more
inflation in the world.’"
January 10 –
Bloomberg (Mark Gilbert): "The U.S. economy risks
stagnant growth combined with accelerating
inflation, a condition known as stagflation,
according to Tim Bond, head of global asset
allocation at Barclays Capital in London. ‘The
current state of the U.S. economy almost merits
the term stagflation, in the sense that growth is
a long way below trend, while inflation is a long
way above,’ Bond wrote… ‘Inflation has risen above
4%, with little sign from the wholesale commodity,
agricultural and energy markets of much relaxation
in these driving factors.’"
Latim
America Watch January 7 – Bloomberg (Thomas
Black and Valerie Rota): "Mexico’s core inflation
rose to the highest annual rate since 2002, led by
higher leisure costs, increasing pressure on the
central bank to raise interest rates… Consumer
prices, excluding fresh food and energy costs,
rose 4% in the 12 months through December… It was
the most since May 2002."
MBS/ABS/CDO/CP/Money Funds and
Derivatives Watch January 11 – Financial
Times (Robert Cookson): "When Ned Bowers jumped
ship from US bond insurance group Radian with a
plan to clean up in the booming world of credit
derivatives in the summer of 2006, he was riding
the crest of a market wave. Little did he or
anyone else know that a year later that wave would
break violently, all but destroying his
Dublin-based venture - and leaving financial
players worldwide uncovering huge losses in the
wreckage of this corner of the debt markets. His
venture, Structured Credit Company, last month
finalised a restructuring that will see its 12
trading partners receive just 5 per cent of what
they are owed and so leave the banks, which
include Merrill Lynch, Morgan Stanley, Bear
Stearns, Deutsche Bank and HSBC, nursing losses of
about $250m between them… ‘There were a number of
things that should have led the banks to question
‘is this an appropriate counterparty?’’ says Joe
Gavin, head of banking at law firm LK Shields…
‘Has it got deep pockets? If this whole thing is
stress-tested, will it crumble? As in fact it
did.’ It also raises questions about how well
counterparty risk - the danger one party to a
trade cannot honour their losses - has been
understood and monitored by banks and others in
complex corners of the exuberant markets of recent
years, including credit derivatives. Andrea
Cicione, credit strategist at BNP Paribas, says
counterparty risk will be a big theme in 2008
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
