Page 3 of
5 More
than 20 years in the making: By Doug Noland
January 23 – Bloomberg
(Neil Unmack): "American International Group Inc.,
the world's biggest insurer by assets, will bail
out its Nightingale Finance structured investment
vehicle, according to Moody’s… AIG Financial
Products Corp…will either buy the SIV’s $2.2
billion of senior debt or replace it with loans…"
January 25 – Bloomberg (Steve Rothwell):
"Banks worldwide may need to raise as much as $143
billion of additional reserves to satisfy
regulators if bond insurer rating cuts trigger
downgrades for the securities they guarantee,
Barclays Capital analysts said. Banks will need at
least $22 billion if bonds covered by insurers led
by MBIA Inc. and Ambac… are cut one level from
AAA, and
six
times more for downgrades by two steps to A, Paul
Fenner-Leitao wrote… The estimates are based on
banks’ holdings of the outstanding $820 billion of
structured securities covered by bond insurers,
the report said. ‘This is a huge amount, but the
assumptions we use are also very aggressive,’
Fenner-Leitao said… The estimate was designed to
show how bank capital could be affected if bond
insurers are downgraded significantly, he
said."
January 25 – Bloomberg (Jeremy R. Cooke
and Martin Z. Braun): "U.S. municipal bonds are
headed for their first weekly decline this year on
concerns the loss of top ratings at two bond
insurers will lead more investors to unwind
structured trades by selling long-term debt… Banks
and other institutions that sell short-term
tax-exempt debt to finance purchases of
higher-yielding long-term municipal bonds face
having to reverse the strategies should
money-market buyers balk at holding downgraded
debt, investors said. ‘Liquidity is out of the
market, bidders are pulling away,’ said J. Matthew
Dalton, a fixed-income money manager at Belle
Haven Investments… ‘Without liquidity, you’ve got
a real problem.’"
January 25 – Bloomberg
(Martin Z. Braun): "Yields on some tax-exempt
floating-rate bonds have more than doubled in the
past week on concern by money-market investors
that the credit standing of insurers backing the
debt will weaken further."
January 21 –
Financial Times (Aline van Duyn): "Municipal
borrowers in the US are increasingly issuing bonds
without seeking guarantees from beleaguered
insurers MBIA and Ambac, highlighting the risks of
a collapse of their bond insurance business model
unless confidence is restored. So far in January,
US municipalities borrowed $8.6bn through new
bonds guaranteed by insurers, according to Thomson
Financial. This compares to over $31bn of new
guaranteed bonds issued in January of 2007. About
30% of the new bonds this month were guaranteed by
FSA, a bond insurer with little exposure to
subprime assets…"
January 24 – Financial
Times (Lina Saigol): "Companies across the globe
are putting multibillion-dollar deals on ice as
the rout in equity markets makes it almost
impossible to put a value on takeover targets.
Several big transactions, including a $9bn bid for
Orica, the world’s biggest explosives company, and
the $3bn sale of Tarmac by Anglo American, have
fallen through, with more expected to follow. This
has been the slowest start to the year for deals
since 2002, with worldwide volume dropping 17% to
$116bn, according to…Dealogic. North America and
Europe, which traditionally account for about 60%
of global volume, are the worst performing regions
so far this year."
January 25 – Financial
Times (Henny Sender): "So far, most of the rout in
the debt markets has been linked to the US
subprime mortgage debacle. Increasingly, however,
many hedge funds are betting there is far worse to
come for the corporate debt market as well. Hedge
fund managers and the trading desks of some of the
savviest firms on Wall Street are expecting a
severe downturn in the corporate debt market… A
number of trades have been made on the assumption
that, when things go wrong, corporate creditors
will receive far less than 100 cents on the
dollar, and the more junior their debt, the less
they will get back."
January 22 – The Wall
Street Journal (Aparajita Saha-Bubna): "Hybrid
securities have in the past been an easy source of
capital for cash-strapped financial institutions.
But that has all changed. Risk premiums on these
securities – sandwiched between bank loans and
common stock in a company’s capital structure –
have risen across the board as investors rethink
the aggressive terms and conditions under which
they lent to these once credit-healthy borrowers."
January 24 – Bloomberg (Bryan Keogh and
David Mildenberg): "Bank of America Corp… more
than doubled its planned sale of preferred shares
to as much as $13 billion, after offering the
highest yields in 15 years. The bank will sell as
much as $6 billion of perpetual securities that
may yield 8%, the most since 1992, and $6 billion
to $7 billion of convertible shares…"
January 24 – Bloomberg (Edgar Ortega):
"E*Trade Financial Corp., the online brokerage…had
a record $1.71 billion loss in the fourth quarter
after selling securities to raise capital."
January 22 – Financial Times: "Taxpayers
are set to support Northern Rock for at least the
next three years under a government-sponsored
financing plan likely to raise public sector net
debt by close to £100bn. The unprecedented level
of support for Northern Rock was presented on
Monday by Alistair Darling, the chancellor, as the
only viable option to a full nationalisation of
the bank. The plan would see the Bank of England’s
£28bn loan to Northern Rock replaced by bonds
backed by Rock assets and guaranteed by the
government." January 23 – Bloomberg (Tim Barwell):
"George Soros…comments on the current financial
crisis and the threat of a global recession… ‘I’m
not looking for a worldwide recession, I’m looking
for a significant shift in power, influence, away
from U.S.,’ to ‘the developing world, like China.
China, India, and the developing world are earning
significantly more than they are spending."
January 21 – Bloomberg (John Fraher and
Simon Kennedy): "The U.S. Federal Reserve and
other central banks are partly to blame for the
financial-market slump that’s now threatening to
derail the global economy, said investors and
former policy makers at the World Economic Forum.
‘It’s hard to give central banks a very high grade
over the last couple of years on recognition of
bubbles and actions taken to address them in the
policy or regulatory spheres,’ said former U.S.
Treasury Secretary Lawrence Summers… Billionaire
investor George Soros said central banks have
‘lost control’ of financial markets."
January 22 – Bloomberg (Edward Evans):
"Cerberus Capital Management LP Chairman John Snow
said banks need to ‘purge’ about $200 billion of
loans for which they haven’t found buyers before
leveraged buyout firms can resume last year's
record pace. ‘The big issue here this year is the
seizure of the credit markets and the prospect of
a sharp downturn in economic activity,’ Snow said…
‘There’s got to be a purging’ of un-syndicated
loans before deals will resume, he said."
Currency Watch January 23 –
Bloomberg (Edward Evans and Jenny Strasburg):
"Billionaire investor George Soros said the
post-World War II era of easy credit backed by the
U.S. dollar will end as the nation’s economy slips
into an ‘almost inevitable’ recession. ‘The
current crisis is not only the bust that follows
the housing boom, it’s basically the end of a
60-year period of continuing credit expansion
based on the dollar as the reserve currency,’
Soros said…at the World Economic Forum in Davos,
Switzerland. ‘Now the rest of the world is
increasingly unwilling to accumulate dollars.’ A
U.S. recession is all but certain as lenders and
investors stop the flow of credit, while the
global economy probably will avoid contraction,
Soros, 77, said later in a Bloomberg Television
interview. ‘I think it is almost inevitable that
the turmoil in the financial markets will affect
the real economy…"
The dollar index
slipped 0.5% this week to 75.97. For the week on
the upside, the New Zealand dollar increased 3.0%,
the Brazilian real 2.8%, the Canadian dollar 2.7%,
the Australian dollar 2.1%, the British pound
2.1%, the Singapore dollar 1.7%, and the Euro
1.6%. On the downside, the Japanese yen declined
0.7%. Commodities Watch:
January 25 –
Bloomberg (Danielle Rossingh): "Gold and platinum
rose to records in London as a shortage of
electricity in South Africa forced mining
companies to shut production… ‘It’s kind of a
perfect storm’ for precious metals, said Wolfgang
Wrzesniok-Rossbach, head of marketing and sales
at…Heraeus Metallhandels GmbH… ‘There are
absolutely no platinum reserves, so any supply
disruption will have an impact.’"
January
24 – Bloomberg (Jay Shankar and Thomas Kutty
Abraham): "Rising cereal prices worldwide may put
300 million rural poor at risk of starvation in
South Asian countries such as India, Pakistan and
Bangladesh, the Asian Development Bank said. In
the Asia-Pacific about 617 million people are
classified as poor or living on less than a dollar
a day… ‘These are the people who are most
vulnerable to food prices and in greatest need of
protective mechanisms in the event of unexpectedly
high food prices,’ Frederick Roche, director of
agriculture in ADB’s South Asia Department, said…
World cereal stocks are at their lowest level in
more than a decade as wheat prices in Chicago
doubled in the past year."
January 22 –
Financial Times (Javier Blas): "Scarcity of water
and arable land means that the boom in food prices
could last longer than most expect, a new study
has warned. The report…by the UK-based consultants
Bidwells Agribusiness, said the boom - until now
fuelled by rising demand from emerging countries
and the biofuels industry - would be exacerbated
by supply constraints. Richard Warburton, head of
Agribusiness at Bidwells, said it was impossible
to know yet whether the agricultural market was
facing a structural or a cyclical change. But he
warned that even if it was cyclical, ‘we are up
against a long cycle of rising prices’. Wheat and
soyabean prices have surged to records, corn
prices hit a 12-year high this year and rice
prices have doubled in the past year to levels not
seen since the mid-1990s. Meat, poultry, eggs and
dairy products prices have also increased
sharply."
January 23 – Associated Press
(Mitch Weiss): "Nuclear reactors across the
southeastern U.S. could be forced to throttle back
or temporarily shut down later this year because
drought is drying up the rivers and lakes that
supply power plants with the huge amounts of
cooling water they need to operate. Utility
officials say such shutdowns probably wouldn’t
result in blackouts. But they could lead to
sharply higher electric bills for millions of
Southerners… ‘Water is the nuclear industry’s
Achilles’ heel,’ said Jim Warren, executive
director of N.C. Waste Awareness and Reduction
Network… ‘You need a lot of water to operate
nuclear plants. This is becoming a crisis.’"
January 24 – MSNBC (Alex Johnson):
"Double-whammy shortages of two main ingredients
are threatening to send the price of beer
significantly higher, just in time for the
national drinking holiday known as Super Bowl
Sunday. After water, the biggest components of
most beers are malted barley, whose sugar starches
are fermented into alcohol, and hops, which add
the bitter tang. In recent months, both have been
in increasingly short supply, and when they have
been available, their prices have leaped — by as
much as 500% in the case of hops."
For the
week, Gold gained 3.5% to a record $914 and Silver
1.9% to $16.53. March Copper declined 1.7%.
February Crude gained 83 cents to $90.75. February
Gasoline added 0.4%, and February Natural Gas
0.8%. March Wheat declined 3.1%. The CRB index
added 0.2%, boosting four-week gains to 0.9%. The
Goldman Sachs Commodities Index (GSCI) added 0.4%,
with a four-week decline of 1.8% (52-week gain
45%).
China Watch January 24 –
Financial Times (Richard McGregor): "China’s
economy grew by 11.4% in 2007, the highest pace in
13 years… China’s economy has now grown at
double-digit rates for five straight years, an
achievement hailed by the government as a ‘hard
won gain’ of difficult policy decisions… New data…
showed the December quarter recorded growth of
11.2%, compared to the first three quarters of
11.1%, 11.9% and 11.5%."
January 24 –
Financial Times (Richard McGregor): "The sharp cut
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