Page 5 of
5 CREDIT BUBBLE
BULLETIN Reflation
contemplation By Doug
Noland
low interest rates encouraged people
to buy more items such as cars and home appliances
on credit. State and non-state bank lending rose
27.3% ... in December from ... a year earlier ...
That's the biggest annual increase since 1995 ...
Personal lending grew 33% last year as record low
interest rates and less unemployment made
Brazilians more confident about borrowing. Loans
to companies rose 29.8% ..."
January 29 -
Bloomberg (Eliana Raszewski): "Argentina's
inflation rate rose at least 22.3% last year,
compared with 8.5% as officially reported,
according to the union representing the
country's National Statistics
Institute."
GSE Watch January 29
- Bloomberg (Kathleen Hays and James Tyson):
"Fannie Mae, the largest source of money for US
home loans, would avoid taking on excessive risk
under a government plan allowing it to buy home
loans as high as $729,500, Chief Executive Officer
Daniel Mudd said ... 'It's wrong to say, there is
a magic line between $417,000 and $418,000, one
part is not risky, one part is risky,' Mudd said.
'We will follow the same risk policy, the same
underwriting criteria, the same conservative
philosophy'."
MBS/ABS/CDO/CP/Money
Funds and Derivatives Watch January 31 -
Dow Jones (Romy Varghese): "With each day, more
data emerge on how deep a problem collateralized
debt obligations pose for financial markets. Not
only did Standard & Poor's put over $264
billion of U.S. CDOs on notice for possible
downgrade, but the ratings agency's latest tally
of technical defaults affecting these complex
securities has reached $77 billion on 64
transactions, as of Jan. 21."
January 31 -
Bloomberg (Jody Shenn): "Moody's Investors Service
raised its loss expectations for subprime
mortgages that were packaged into bonds in 2006,
boosting the odds for further unprecedented
downgrades as defaults build and the economy
weakens. The ratings company now expects losses to
reach 14% to 18%, it said ... Under the best and
worst scenarios, losses could be as low as 12% or
as high as 24% ... In October… Moody’s said the
best-performing quartile of the loans would
probably produce 6.7% losses, while the worst
would lose 15%."
February 1 - Bloomberg
(Matthew Leising): "CME Group Inc, the world's
largest futures exchange, said average daily
volume in January rose 65%, driven by investors
trading more equity index futures and
interest-rate contracts."
January 28 -
Financial Times (Francesco Guerrera, Ben White and
Aline van Duyn): "A boom in the use of derivatives
is giving creditors strong incentives to push
troubled companies into bankruptcy rather than
help rescue them, according to new research and
industry experts. A study by academics Henry Hu
and Bernard Black concludes that, thanks to
explosive growth in credit derivatives,
debt-holders such as banks and hedge funds have
often more to gain if companies fail than if they
survive. The study suggests this development could
endanger the stability of the financial system."
Mortgage Finance Bust
Watch January 29 - Bloomberg (Dan Levy):
"The number of US homeowners entering foreclosure
climbed 75% in 2007 from a year earlier as
mortgages became more difficult to refinance and
falling property values made it tougher to sell.
More than 1% of U.S. households were in some stage
of foreclosure during the year, up from 0.58% in
2006, RealtyTrac Inc. said ... A record $375
billion of subprime loans reset to higher payments
in 2007 and another $340 billion will reset this
year, said Bose George ... at Keefe Bruyette &
Woods Inc ... The number of U.S. homeowners
entering foreclosure doubled in December from a
year earlier, RealtyTrac said. For the year, more
than 2.2 million default notices, auction notices
and bank repossessions were reported on about 1.3
million properties. As many as 750,000 homes will
go into foreclosure this year, 'coming on at
distressed prices' and adding to the supply of
available homes, said Rick Sharga, executive vice
president ... at RealtyTrac."
January 31 -
Bloomberg (Josh P. Hamilton): "Defaults on
privately insured US mortgages rose 37% in
December from the same month a year earlier ...
The number of insured borrowers falling more than
60 days late on payments jumped to a record 64,384
last month from 46,921 in December 2006, according
to ... Mortgage Insurance Companies of America.
Defaults increased 5.5% from November, the prior
high."
Real Estate Bubbles
Watch January 28 - Bloomberg (Mark
Pittman): "Purchases of new homes in the US
unexpectedly fell to a 12-year low in December,
ending the worst sales year since records began in
1963 and signaling little prospect for a recovery.
The median price dropped 10% from December 2006,
the most in 37 years."
January 26 -
Financial Times (Daniel Pimlott): "Sales of US
office property fell by the largest amount since
the September 11 2001 terror attacks in the final
three months of last year, raising fears that
commercial real estate is heading for a meltdown
... The volume of office space sold in the final
quarter of last year fell 42% to $26.5bn compared
with the same period in 2006, according to ...
Real Capital Analytics ..."
January 28 -
The Wall Street Journal (T. W. Farnam): "Local
governments are scrambling to deal with the rising
number of foreclosures that strain city services
and soon may take a toll on property-tax revenue.
Stemming foreclosures and managing vacant
properties so that years of economic development
doesn't unravel was a priority as the nation's
mayors gathered in Washington ... The cities also
are bracing for a drop in tax revenue. A report
commissioned by the conference in November
projects property values across the country will
decline $1.2 trillion this year, leading to a drop
in property taxes ..."
Muni
Watch January 31 - Financial Times (Saskia
Scholtes): "Further uncertainty over the fate of
the embattled bond insurers has rocked the
normally sedate world of municipal bond investing
in recent weeks. Municipal bond yields have spiked
sharply higher versus US Treasuries, a sign that
long-term investors are selling munis because of a
perceived increase in risk - about half of the
$2,600bn municipal bond market is guaranteed by
bond insurers such as MBIA and Ambac. But it is
also a sign of forced selling from a little-known
but important group of short-term municipal bond
investment vehicles that have run into acute
stress in recent weeks, based on suspicions about
the quality of bond insurers' guarantees on the
paper that they issue. 'For a long time, investors
were working on the assumption that the insurers
would always be AAA-rated and now they are looking
at the world through a different lens,' said Ben
Thompson, portfolio manager at Samson Capital
Advisors. 'It's a pretty bad scenario for munis
and everything hinges on the fate of the bond
insurers'."
January 28 - Bloomberg
(Michael Quint): "The University of Cincinnati in
Ohio and an Illinois hospital are among borrowers
in the $270 billion auction-rate bond market
moving out of the securities into other types of
debt amid rising interest rates ... Rates on
auction securities are climbing on waning investor
confidence in bond insurers backing the debt, and
on concern that dealers who hold auctions to set
yields on the securities may not support the
market with their own bids."
January 29 -
Bloomberg (Jeremy R. Cooke): "The Las Vegas Valley
Water District borrowed $363 million ... as state
and local government bond sales fall to the
slowest monthly pace in almost seven years."
Fiscal Watch January 28 -
Bloomberg (William Selway): "Half of US states are
projecting budget deficits next fiscal year as the
slowing economy curbs tax collections, forcing
local governments to spend savings, cut funding
for programs, borrow or raise taxes, a report
found. The Center on Budget and Policy Priorities
... said that the shortfalls are estimated to
total $31.7 billion to $34.5 billion in 19 states,
an amount equal to at least 8% of their spending
..."
January 30 - Atlanta
Journal-Constitution (Eric Stirgus): "The city of
Atlanta faces an estimated $70 million budget
deficit, Atlanta Mayor Shirley Franklin said ...
For the first three months of Atlanta's current
budget year, revenue was down 27% while spending
was up 9% compared with the same time period a
year earlier ..."
Speculator
Watch January 28 - Financial Times (James
Mackintosh): "Hedge funds are on track for their
worst month since the Russian default of 1998 -
which brought down Long Term Capital Management -
with the average fund losing more than 3% so far
in January. Investors say most funds opened the
month betting that stock markets would rise,
leaving them exposed to the terrible start to the
year for equities and the wild swings of last
week."
January 31 - Bloomberg (Jenny
Strasburg): "Deephaven Capital Management LLC is
liquidating a $780 million hedge fund that tries
to profit from takeovers after investment returns
fell and investors asked for more than two-thirds
of their money back. The firm froze redemptions
from the Deephaven Event Fund after clients
requested to withdraw 70% of capital ..."
Crude Liquidity Watch January 29
- Bloomberg (Matthew Brown): "Persian Gulf states,
including Saudi Arabia and the United Arab
Emirates, may create an 'inflationary spiral' as
governments boost spending in response to higher
prices, Moody's ... said. Increased government
spending on salaries and subsidies, aimed at
alleviating the effects of inflation, may
stimulate demand, leading to further price rises,
said senior analyst Tristan Cooper ... Inflation
accelerated to records in all six Gulf Cooperation
Council states during the past year ... 'The
danger is that governments across the GCC may find
it increasingly difficult to limit expenditure
growth in the face of rising inflation, thereby
locking themselves into higher and higher oil
prices in order to balance their budgets', Cooper
said ..."
January 30 - Bloomberg (Maria
Levitov): "Russian government and corporate
foreign debt declined to about 33% of economic
production in 2007, Finance Minister Alexei Kudrin
said. That was down from more than 50% of gross
domestic product in 2006 ..."
January 29 -
Bloomberg (Matthew Brown): "Kuwait's annual M3
money supply growth, an indicator of future
inflation, slowed to 19% in December from 20% in
November. M1 money supply growth increased to 21%
in December from 18% in November, while M2, which
includes savings and investment instruments, fell
to 19% from 20% ..."
Doug Noland
is a market strategist for the Prudent Bear
Funds.
(Republished with permission
from PrudentBear.com.
Copyright 2005-2008 David W Tice & Associates.
All rights reserved.)
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
