Page 4 of
5 CREDIT BUBBLE
BULLETIN The
breakdown of Wall Street
alchemy Commentary and weekly review by Doug
Noland
Dealogic. 'Thank God for the
American market,' said one corporate treasurer of
a leading European company. 'Without it, a lot of
companies would have been severely restricted in
what they could borrow. It is much harder to raise
a large amount in euros or sterling because there
aren't the buyers.' The trend is striking because
it shows that the credit crunch is starting to
affect the financing plans of companies, not just
in the highly leveraged sector but in the
investment grade arena as well. It also casts
fresh doubt on the ability of the European
corporate bond market to challenge the US."
February 13 - Bloomberg (John Glover):
"Half of the loans backing leveraged buyouts in
Europe risk breaching investor safeguards
or
defaulting as company earnings and
debt projections miss targets, Standard &
Poor's said… 'There is a heightened potential for
defaults,' S&P analysts led by Taron Wade…
wrote. Fifty-three percent of the companies owned
by buyout firms in S&P's study have more debt
than forecast, making them vulnerable to default…
In LBOs, firms borrow about two-thirds of the
acquisition price, piling the debt onto the
takeover target."
February 13 - Bloomberg
(Stephanie Bodoni): "Luxembourg Finance Minister
Jean-Claude Juncker is 'worried' European
economies will endure for 'some more time' the
consequences of the financial-market turmoil… 'The
financial-market crisis hasn't come to an end yet…
Banks and financial institutions have to write
down a total of $400 billion. So far only $130
billion have been written down.'"
Currency Watch The dollar index
declined 0.7% this week to 76.1. For the week on
the upside, the Norwegian krone increased 2.4%,
the Swedish krona 2.4%, the South African rand
1.3%, the Euro 1.1%, the Danish krone 1.1%, and
the Swiss franc 0.9%. On the downside, the
Japanese yen declined 0.8% and the Canadian dollar
0.5%.
Commodities Watch February
15 - Bloomberg (Jae Hur): "Soybean and soybean oil
futures in Chicago soared to a record on
speculation demand from China will climb after
winter storms damaged the nation's rapeseed crop."
February 13 - Bloomberg (Shruti Date
Singh): "Cocoa extended a rally to a 23-year high
on speculation investors continue to increase
their stakes in the commodity and as the U.K.
pound's rise against the dollar boosts purchases
of futures in New York."
February 13 -
Bloomberg (Halia Pavliva and Catherine Yang):
"Platinum rose to a record, breaching $2,000 an
ounce, as South Africa's state-owned electric
utility advised mines that power shortages will
persist for four years. Palladium also gained."
February 14 - Bloomberg (Pratik Parija):
"India, the world's second-biggest buyer of
vegetable oil, imported 46% more edible oil in
January because of concern output of winter-sown
oilseeds will decline after cold weather reduced
yields."
February 14 - Bloomberg (Feiwen
Rong): "China's rapeseed crops, the world's
biggest, have suffered widespread damage from the
worst storms in 50 years that swept across parts
of the country in late January, the China National
Grain and Oils Information Center said. As much as
7.9 million acres of rapeseed crops, almost half
the total area planted with autumn and winter
rapeseed, has been affected by rain and
snowstorms…"
Gold gave back 2.2% to $903,
while Silver was unchanged at $17.11. May Copper
added 0.2%. March Crude surged $3.88 to $95.65.
March Gasoline rose 5.6%, and March Natural Gas
increased 4.4%. March Wheat fell 6%. The CRB index
rose 2.3% (up 7.1% y-t-d). The Goldman Sachs
Commodities Index (GSCI) jumped 2.9% (up 4.6%
y-t-d and 46.2% y-o-y).
China
Watch February 12 - Bloomberg (Nipa
Piboontanasawat): "China's retail sales grew about
16% during the week-long Lunar New Year holiday,
compared with the same festival a year earlier,
according to the Ministry of Commerce."
February 14 - Bloomberg (Nipa
Piboontanasawat): "China's money supply
unexpectedly grew at the fastest pace in 20 months
in January as the central bank pumped cash into
the financial system ahead of the nation's biggest
holiday festival. M2… rose 18.9%... from a year
earlier…"
February 15 - Financial Times
(Geoff Dyer and Tom Mitchell): "A real estate
agency closing hundreds of branches while the
owner of another absconds; property developers
cancelling fundraisings and debt spreads widening
dramatically; house prices slumping - these sound
like recent tales from the US housing market. Yet
these events have happened in the past three
months in China, as some parts of the country's
housing market have shown signs of real stress.
Shares in many of China's largest listed property
developers have fallen more than 50% from their
highs of last year in the face of investor fears
that some developers might be forced into
bankruptcy."
Japan
Watch February 13 - Bloomberg (Mayumi
Otsuma): "Japan's wholesale prices rose at the
fastest pace in 27 years, led by higher oil and
wheat costs that are spurring inflation as the
economy cools. Producer prices climbed 3% in
January from a year earlier, after a 2.6% gain in
December…"
Asian Bubble
Watch February 15 - Bloomberg (Beth Thomas
and Winnie Zhu): "Vietnam, China's largest coal
supplier, plans to reduce exports by 32% this year
and gradually eliminate the sales to meet rising
domestic demand, a government official said."
India Watch February 12 -
Bloomberg (Kartik Goyal): "India's Finance
Minister Palaniappan Chidambaram asked state-run
banks to boost loans for the purchase of homes and
consumer goods, which he said were key to economic
growth. 'There is a feeling that adequate credit
is not being provided to the housing sector and
the consumer durables sector,' Chidambaram said…
'Banks have been asked to pay attention to provide
adequate credit to these two sectors as they are
drivers of the economy.' …Lending grew 22.6% in
the 12 months through Jan. 25…"
Unbalanced Global Economy
Watch February 13 - Bloomberg (Ben Sills
and Paul Tobin): "Confidence in the global economy
fell for a third month in February as the slowdown
in the US spread to Europe and Japan, a survey of
Bloomberg users on five continents showed. The
Bloomberg Professional Global Confidence Index
fell to 14.3 from 21.0 in January. Users in Asia
were the most pessimistic about the global
economy, with the index falling to 12.6 from 15.0.
A reading below 50 indicates negative sentiment."
February 13 - Bloomberg (Fergal O'Brien):
"Irish mortgage lending declined 20% in the fourth
quarter from a year earlier as increased borrowing
costs and falling property prices deterred
potential homebuyers."
February 11 -
Bloomberg (Tasneem Brogger): "Denmark's inflation
rate rose more than expected in January, reaching
the highest in almost five years, as increased
food and fuel costs pushed up consumer prices
already under pressure from labor shortages.
Inflation accelerated to 2.9% from 2.3% in
December…"
February 14 - Bloomberg (Kati
Pohjanpalo): "Finland's inflation rate rose more
than expected in January, jumping to an eight-year
high of 3.8% following an increase in food costs
and taxes on fuel, electricity and alcohol. The
rate rose from 2.6% in December…"
February
12 - Bloomberg (Jacob Greber): "Australian
business confidence fell in January to the lowest
since terrorist attacks on the US in September
2001, as rising interest rates and turmoil on
financial markets buffeted companies' outlook for
2008."
February 14 - Bloomberg (Jacob
Greber): "Australia's unemployment rate fell to
the lowest since 1974 as employers hired extra
workers for a record 15th month, increasing
pressure on the central bank to raise borrowing
costs as soon as March…The jobless rate fell to
4.1% from 4.3%."
February 13 - Bloomberg
(Tracy Withers): "New Zealand house sales slumped
to a seven-year low in January, adding to signs
record-high interest rates are slowing the
property market and economic growth. House sales
dropped 31%... from… a year earlier… 'The
abnormally low sales figures tell us that the
market's liquidity has reduced significantly and
this will impact on prices,' Murray Cleland,
national president of the Real Estate Institute,
said…"
Latin America
Watch February 14 - Bloomberg (Eliana
Raszewski): "Unions for 70% of registered workers
in Argentina are demanding wage increases of as
much as 30% this year, saying they need higher
salaries to match inflation that's three times the
officially reported figure. 'We just want to
recover the purchasing power we lost,' Juan Jose
Zanola, head of the union representing 90,000 bank
employees, said…"
Central Banker
Watch February 13 - Bloomberg (Jonas
Bergman): "Sweden's central bank unexpectedly
raised its benchmark interest rate to 4.25% after
inflation surged to a 14-year high on plunging
unemployment… The inflation rate rose to 3.5% in
December as surging energy and food costs pushed
up prices and falling unemployment allowed unions
to secure record wage gains."
Bursting
Bubble Economy Watch The preliminary
reading on University of Michigan Consumer
Confidence sank to the lowest level since 1992.
January Import Prices were up 13.7% from a year
earlier, the largest increase since records were
began in 1982 (according to Bloomberg).
February 14 - Financial Times (James
Politi and Daniel Pimlott): "President George W.
Bush signed into law yesterday a $170bn fiscal
stimulus package designed to jolt the US economy
back into health in the second half of this year.
He said that US economic growth had 'clearly
slowed', but added: 'The genius of
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