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5 CREDIT BUBBLE
BULLETIN At
the heart of disorder By Doug
Noland
Richards Bay as snowstorms in China,
power cuts in the southern African nation and
floods in Queensland reduced output. Power-plant
coal prices at the New South Wales port climbed
$23.09, or 25%, to $116.44 a metric ton… Coal at
Richards Bay rose $12.20, or 12%, to $111.30 a
ton…"
It was a huge week for commodities.
Gold jumped 1.9% to $923 and Silver 2.1% to
$17.33. March Copper surged 7.5%. March Crude
jumped $2.78 to $91.74. March Gasoline rose 3.1%,
and March Natural Gas jumped 6.8%. March Wheat
surged 16% to a record high. The CRB index gained
3.1% to a new all-time record
high
(up 4.7% y-t-d). The Goldman Sachs Commodities
Index (GSCI) jumped 4.1% (up 1.6% y-t-d and 42%
y-o-y).
China Watch February 5 –
The Wall Street Journal (Gordon Fairclough and
Loretta Chao): "Transport and power disruptions
caused by unusual winter storms across much of
China’s heartland are beginning to ease, but the
scale of the dislocation shows how close the
country’s racing economy is to hitting
physical-growth limits… ‘Electricity consumption
has been growing rapidly,’ Tan Rongyao, a
spokesman for the State Electricity Regulatory
Commission, said… ‘The shortage of
power-generating coal has become enormously
acute.’ Gu Junyuan, chief engineer of the
electricity commission, said total demand for
electricity in China increased 20.2% annually
between 2001 and 2007. Installed generating
capacity, on the other hand, grew by about 18.5% a
year over the period."
Japan
Watch February 7 – Market News
International: "Japan’s foreign reserves hit a
record $996.04 billion at the end of January,
rising for the eighth consecutive month and
surpassing the previous record high of $973.37
billion marked at end of December, the Ministry of
Finance said Thursday. The country’s forex
reserves remain the second largest in the world,
next to China's, which is estimated at $1.43
trillion at the end of the third quarter 2007."
February 8 – Nikkei: "After announcing
price increases on some items, Kirin Brewery Co.,
Nissin Food Products and other food and beverage
companies saw demand surge before the hikes took
effect… Kirin Brewery in October announced it
would lift prices on Feb. 1. January shipments of
beer and beer-like beverages shot up more than 50%
on the year, ‘for probably the first time ever,’
said a company official… Instant noodle makers
uniformly bumped up prices by 10% or so last
month, preceded by announcements in the fall.
Since there was a three- to four-month lead up to
the hikes, demand ballooned over that period…."
Asian Bubble Watch February 5 –
Bloomberg (Francisco Alcuaz Jr.): "Philippine
inflation accelerated to the fastest pace in 15
months in January as prices of food, water and
services rose, reducing the central bank's scope
to cut interest rates. Consumer prices climbed
4.9% from a year earlier…"
India
Watch February 8 – Bloomberg (Anoop
Agrawal): "India’s foreign-exchange reserves rose
$4.36 billion to a record $292.7 billion in the
week ended Feb. 1…"
February 8 – Bloomberg
(Pratik Parija): "Imports of wheat into India, the
world’s second-largest consumer of the grain, may
climb 68% this year, supporting prices that are at
a record."
Unbalanced Global Economy
Watch February 8 – Bloomberg (Greg Quinn):
"Canada added 46,400 jobs in January, more than
four times as many as anticipated… The
unemployment rate fell to 5.8% from 6% the
previous month, returning to a 33-year low set in
October…"
February 5 – Bloomberg (Fergal
O’Brien): "European retail sales fell the most in
at least 13 years in December as higher food and
energy costs prompted consumers to rein in their
Christmas spending. Retail sales in the euro area
declined 2% in December from a year earlier, the
biggest drop since at least January 1995…"
February 4 – Bloomberg (Ben Sills):
"European producer-price inflation accelerated in
December to the fastest pace in a year, boosted by
surging energy costs. Factory-gate prices
increased 4.3% from a year earlier…"
February 5 – Bloomberg (Steve Scherer):
"Italy’s inflation rate in January surged to the
highest in at least 11 years, driven by rising
energy, transportation and food costs. Consumer
prices calculated by European Union standards rose
3.1% from a year earlier…"
February 5 –
Bloomberg (Ben Sills): "Industrial production in
Spain, which accounts for a seventh of the
economy, posted the biggest contraction in more
than five years in December as slower European
growth curbed demand for Spanish goods. Production
at factories, farms and mines fell 2.4% from a
year earlier after adjusting for the number of
days worked…"
February 8 – The Wall Street
Journal (Christopher Emsden and Edith Balazs):
"Accelerating inflation is driving interest rates
higher in Eastern Europe, even as borrowing costs
on the western side of the continent are coming
down. The Czech National Bank on Thursday raised
its core interest rate by a quarter of a
percentage point to 3.75% in an effort to fight
inflation, which hovers near six-year highs. The
move followed similar rate increases in Poland,
Romania and Serbia in recent days, and the dashing
of hopes for a rate cut in Hungary, as inflation
gallops across the continent. The main drivers of
inflation in the east are the same as in the west:
rising food and energy prices. Inflation rates are
also above central-bank targets in the euro zone
and in the United Kingdom… But along with higher
food and energy prices, the economies of the east
are also seeing spill-over into so-called
second-round effects, such as wage increases to
compensate for higher prices. Those second-round
effects threaten to keep inflation rates at higher
levels in Eastern Europe for a longer period of
time…"
February 8 – Bloomberg (Marketa
Fiserova and Andrea Dudikova): "Czech inflation
accelerated faster than expected in January to the
quickest pace in more than nine years because of
government increases in taxes, rent and healthcare
fees. The inflation rate rose to 7.5% from 5.4% in
December…"
February 7 – Bloomberg (Ott
Ummelas): "Estonia’s inflation rate rose to a near
10-year high in January, led by an increase in
taxes on fuel, alcohol and tobacco, boosting
concerns that high consumer prices may help
undermine economic growth. The inflation rate
increased to 11%, the most since April 1998, from
9.6% in December…"
February 5 – Bloomberg
(Alex Nicholson): "Russian inflation accelerated
in January to its fastest pace in 30 months as oil
and gas prices surged, fueling consumer demand.
Consumer prices rose an annual 12.6% in January
from 11.9% in the previous month…"
February 7 – Bloomberg (Alex Nicholson):
"Central Bank Deputy Chairman Alexei Ulyukayev
said the Russian economy is showing signs of
‘overheating,’ the Interfax agency reported… High
consumer demand and an ‘imbalance’ between wage
growth and productivity are ‘symptoms of
overheating…’"
February 4 – Bloomberg
(Tracy Withers): "An index measuring Australian
consumer prices rose at the fastest annual pace in
20 months in January, reinforcing speculation the
central bank will increase interest rates
tomorrow. Prices climbed 3.9% from a year earlier,
breaching the 3% limit of the central bank's
target, according to a monthly gauge released by
TD Securities Ltd. and the Melbourne Institute..."
February 5 – Financial Times (Raphael
Minder): "Canberra on Monday warned that Australia
was facing a ‘very substantial’ inflation problem
as data from China, Singapore and Indonesia
pointed to inflationary pressure from rising food,
energy and housing costs. ‘The inflation genie is
out of the bottle,’ said Wayne Swan, Australia’s
treasurer… ‘We’ve got an inflation problem to deal
with, and deal with it we will.’ His comments
followed news that Australian house prices rose by
3.2% in the fourth quarter of last year, bringing
the increase for the year to 12.3%... In
Singapore, which has also seen a property boom,
Lee Hsien Loong, the prime minister, forecast the
inflation rate could exceed 5% this year, compared
with a previous government forecast of between
3.5% and 4.5%. In Indonesia, the central bank
forecast that inflation this year would be between
6% and 6.5%... In China, most economists expect
inflation to breach 7% this quarter… China has
also been hit by a sharp rise in coal prices,
which in Asia reached a high of $124 a tonne, up
more than 30% in the past week."
February
5 – Bloomberg (Tracy Withers): "New Zealand’s
wages unexpectedly grew at a record pace in the
fourth quarter as a labor shortage prompted
companies to pay more to retain employees. Wages
for non-government workers, excluding overtime,
increased 1.1% from the third quarter…"
California Watch February 4 –
Bloomberg (Jeremy R. Cooke): "California will
borrow $3.2 billion this week to help close a
deficit that led Governor Arnold Schwarzenegger to
declare a state fiscal emergency. California is
seeking to attract buyers by selling bonds with
shorter maturities and some of the highest credit
ratings, the type of debt favored by investors
concerned the value of insured and lower-rated
debt might weaken further. The sale, California’s
first offering of deficit bonds since a fiscal
crisis in 2004, follows a week when long-term
municipal bonds fell and two of the largest
planned offerings were canceled."
Central Banker Watch February 5
– Bloomberg (Jacob Greber): "Australia’s central
bank raised its benchmark interest rate by a
quarter point to an 11-year high, saying a
‘significant slowing in demand’ is needed to cool
the fastest inflation since 1991. Governor Glenn
Stevens and his board increased the overnight cash
rate target to 7%..."
February 4 –
Bloomberg (Gabi Thesing): "European Central Bank
Governing Council member Klaus Liebscher said the
ECB will do what is needed to prevent a price-wage
spiral from accelerating inflation. Liebscher said
that at 3.5% inflation in Austria is ‘clearly too
high,’ according to a statement published by the
Austrian Central Bank… Compensating workers for
the increased cost of living with higher pay
increases and one-off payments would lead to a
‘price-wage spiral, higher budget deficits, higher
taxes and in the end lower competitiveness.’"
Bursting Bubble Economy
Watch February 4 – Bloomberg (Scott
Lanman): "The Federal Reserve said it became
tougher for U.S. companies and consumers to get
loans in the past three months, particularly to
buy real estate. Most lenders anticipate more
delinquencies and losses this year, assuming
‘economic activity progresses in line with
consensus forecasts,’ according to the central
bank’s quarterly survey of senior loan officers…
About 80% of banks raised standards on
commercial-property loans, a record since the Fed
began seeking information on the subject in 1990…
‘It’s definitely a broader-based tightening than
we’ve seen before,’ said Edward McKelvey, senior
U.S. economist at Goldman Sachs… ‘The economy is
weakening and weakening in a pretty substantial
way.’"
February 8 – The Wall Street
Journal (Robin Sidel, Sudeep Reddy and Jane J.
Kim): "America’s love affair with credit cards may
be headed for the rocks. Credit-card delinquencies
are rising across the nation, a sign that some
Americans are at the end of their rope
financially. And these mounting delinquencies, in
turn, have prompted banks to tighten lending
standards, keeping people who have maxed out their
cards from finding new sources of credit. The
result could be a sharp pullback in consumer
spending that would further weaken the slowing
U.S. economy. Such a pullback may already be
taking shape… Sinking home prices have made it
much harder to convert home equity into cash for
living expenses.
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