Page 4 of 5 CREDIT BUBBLE
BULLETIN Confirmations on the bleak
side Commentary and weekly review by Doug
Noland
largest portfolios of
mortgage-backed securities boosted holdings of
‘non-agency’ home-loan bonds by $48 billion last
quarter as prices were tumbling, according to
Barclays Plc analysts."
February 21 –
Bloomberg (Pierre Paulden): "The ratio of
high-risk, high-yield loans trading at distressed
levels has surged to 8.13%, the highest in five
years, from 4.65% at the end of January, according
to Wachovia Corp. Distressed loans, defined as
those that trade below 80 cents on the dollar, may
have a 25% chance of defaulting within a year…"
February 22 – Bloomberg (David
Mildenberg): "GMAC LLC, the lender partially owned
by General Motors Corp., agreed to loan
as
much as
$750 million to its residential mortgage unit as
it seeks to sell a business that finances vacation
resorts. Residential Capital LLC borrowed $635
million under the agreement yesterday…"
February 20 – Bloomberg (Bryan Keogh): "A
record 41 companies with high-yield, high-risk
credit ratings are in danger of breaching terms of
their loan agreements within 12 months as the
slowing economy cuts into corporate profits,
Moody’s… estimates."
February 18 –
Bloomberg (Gonzalo Vina and Jon Menon): "Northern
Rock Plc, which suffered the first run by U.K.
bank depositors in more than a century, may remain
nationalized for years to come, according to the
chairman appointed by Prime Minister Gordon
Brown’s government. ‘We are clearly talking about
a period of some years,’ Ron Sandler…said…"
Currency Watch The dollar index
fell 0.8% this week to 75.52. For the week on the
upside, the Brazilian real increased 1.9%, the New
Zealand dollar 1.8%, the Norwegian krone 1.6%, the
Swiss franc 1.6%, the Swedish krona 1.3%, the
Taiwanese dollar 1.3%, and the Euro 1.2%. On the
downside, the South African rand declined 1.5%,
the Canadian dollar 0.5%, and the South Korean won
0.4%.
Commodities Watch February
22 – China Knowledge (Kartik Goyal): "China has
surpassed the US and Turkey as the world’s second
largest market for gold jewelry, only next to
India, according to… the World Gold Council. Gold
sales in the Greater China area, including Hong
Kong, Macau and Taiwan totaled 363.3 tons during
last year, surging 23% from a year earlier…"
February 19 – Bloomberg (Tony Dreibus and
Jeff Wilson): "The biggest rally in the history of
wheat trading defied even some of the best
conventional wisdom, humbling forecasters from
Goldman Sachs Group Inc. to the US government.
Wheat has more than doubled since May, reaching a
record $11.53 a bushel on Feb. 11 and driving up
costs for everything from Eggo waffles and Italian
pasta to Pakistani flatbreads and Japanese
pastry."
February 19 – Financial Times:
"The price of steel is set to rise after Asian and
European producers agreed to pay up to 71% more
for iron ore in term-contract rates beginning on
April 1… The big rise suggests demand for
commodities from emerging economies such as China
remains strong, offsetting the US slowdown and
fuelling fears that global inflation will continue
to rise in the short term."
February 19 –
Financial Times (Chris Flood and Javier Blas):
"Coffee, cocoa and tea markets are nearing boiling
point, with prices at multi-year peaks as
supportive demand and supply conditions and fears
about foodinflation have fuelled high levels of
speculative buying. ‘Tight fundamentals tend to
exacerbate speculative investment,’ says Nestor
Osorio, executive director of the International
Coffee Organisation…"
February 19 –
Financial Times (Javier Blas): "Tea prices are
likely to jump to an all-time high this year,
underpinned by production disruptions in Kenya… In
the latest sign of rising global food inflation,
wholesale tea prices surged last year to an annual
average of $1.95 a kilogram, a 6.5% increase from
the previous year and the highest annual level
since 2002. Average tea prices "are expected to
reach even higher and possibly record levels" in
2008 following a 10% reduction in shipments from
Kenya…"
Gold surged 4.8% to $946, and
Silver jumped 5.4% to $18.03. May Copper rose
7.5%. April Crude gained $3.64 to $99.09. March
Gasoline jumped 3.5%, and March Natural Gas gained
2.1%. March Wheat increased 2.1%. Coffee jumped to
a 10-year high, increasing y-t-d gains to 19%. The
CRB index surged 3.8% to a new record (up 11.1%
y-t-d). The Goldman Sachs Commodities Index (GSCI)
rose 3.5% to a new record (up 8.2% y-t-d and 46.8%
y-o-y).
China Watch February 19
– Bloomberg (Nipa Piboontanasawat): "China’s
inflation accelerated to the quickest pace in more
than 11 years after the worst snowstorms in half a
century disrupted food supplies. Consumer prices
rose 7.1% in January from a year earlier… Food
prices soared 18% after blizzards paralyzed
transport systems and destroyed crops."
February 22 – Bloomberg (Nipa
Piboontanasawat and Li Yanping): "China… said
inflation will remain at a high level in the first
half of 2008 and the central bank will use
interest rates to control prices. China ‘needs to
bring out monetary policy to control demand
expansion and stabilize inflation expectations,’
the People’s Bank of China said…"
February
21 – Bloomberg (Luo Jun): "Chinese banks face
higher bad-loan ratios for the first time since
2003 as corporate defaults may increase because of
tighter credit controls and weakening demand from
a slowing US economy, Standard & Poor's said.
‘Challenges are looming on the corporate lending
front,’ Liao Qiang, a Beijing-based analyst at
S&P, said…"
February 20 – Bloomberg
(Tian Ying): "China’s passenger car sales rose
19.8% in January on demand ahead of the Chinese
new year. Automakers in the country sold a total
of 661,900 cars during the period…"
February 19 – Bloomberg (Belinda Cao):
"China will explore more channels to invest its
$1.5 trillion currency reserves, the world's
biggest, for ‘higher returns,’ the central bank
said. The government will allow local companies
and individuals more leeway to convert their yuan
holdings into foreign currencies to invest
overseas…"
Japan Watch February
22 – Bloomberg (Keiko Ujikane): "Japan’s
government lowered its assessment of the economy
for the first time in 15 months, saying growth
will moderate as exports and production cool."
India Watch February 19 –
Bloomberg (Subramaniam Sharma): "Salaries in India
are set to rise at the fastest pace in the world
this year as a real-estate boom and the addition
of capacities spur demand for skilled people,
Hewitt Associates Inc. said. Wages in India will
rise an average 15.2% this year, the sixth
successive annual increase of more than 10%..."
February 22 – Bloomberg (Kartik Goyal):
"India’s inflation accelerated more than expected
to a six-month high in the first week of February
as prices of vegetables, fruits and lentils rose.
Wholesale prices climbed 4.35%...from a year
earlier…"
Unbalanced Global Economy
Watch February 20 – Bloomberg (Jennifer
Ryan): "U.K. money supply growth unexpectedly
accelerated in January, the Bank of England said.
M4…rose 12.9% from a year earlier, compared with
12.3% in December…"
February 21 –
Bloomberg (Simon Kennedy): "French inflation
accelerated in January to the fastest pace in at
least 12 years, led by higher food and energy
costs. Consumer prices climbed by an annual 3.2%,
up from 2.8% in December…"
February 21 –
Financial Times (Ralph Atkins): "An
inflation-beating 5.2% wage increase secured by
German steelworkers… stoked fears that stubbornly
high eurozone inflation pressures would prevent
the European Central Bank from cutting interest
rates in the near future."
February 21 –
Bloomberg (Simone Meier and Joshua Gallu): "Swiss
producer and import prices jumped to the highest
level in almost 20 years in January, adding to
signs that inflation pressure is mounting. Prices
for factory and farm goods as well as imports
increased 3.7% from a year earlier, the biggest
gain since Sept. 1989…"
February 19 –
Bloomberg (Christian Wienberg): "Denmark’s
government should limit spending as unemployment
at a 33-year low threatens to spark a ‘wage
spiral’ and push up inflation, the Organization
for Economic Cooperation and Development said.
‘Avoiding overheating is an urgent challenge,’
the…OECD said…"
February 22 – Bloomberg
(Flavia Krause-Jackson and Giovanni Salzano):
"Italy’s inflation rate for frequently bought
goods such as food and gasoline surged to the
highest since in more than a decade… Consumer
prices for frequent purchases jumped 4.8% in
January from a year earlier…"
February 19
– Bloomberg (Jacob Greber): "Australian inflation
may accelerate to almost 4% as a labor shortage
worsens, central bank official Malcolm Edey said…
The striking thing is the contrast between
domestic and international conditions,’ Assistant
Governor Edey told business leaders… ‘The
Australian economy to date has stayed robust and
the main domestic challenges are those of strong
demand, tight capacity and inflationary
pressures.’"
Latin America
Watch February 20 – Bloomberg (Matthew
Craze): "Argentine truck drivers negotiated a
19.5% wage increase with the government and their
employers, setting a precedent for wage talks with
other salaried workers in the South American
country."
Central Banker
Watch February 19 – Bloomberg (Francois de
Beaupuy): "The Bank of France said the US Federal
Reserve may have cut interest rates too much and
too quickly in response to financial-market
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