Page 5 of 5 CREDIT BUBBLE
BULLETIN Confirmations on the bleak
side Commentary and weekly review by Doug
Noland
declines. An unsigned article in
the…bank’s monthly bulletin…said new financial
products have amplified asset price swings. That
may lead to ‘stronger Monetary reactions than what
would otherwise be necessary, as shown by the
recent decision of the Federal Reserve…’ The
unusual criticism by one central bank of another
may reflect the European Central Bank's reluctance
to follow its US and U.K. counterparts in cutting
rates…"
Bursting Bubble Economy
Watch February 21 – The Wall Street Journal
(Greg Ip): "The US faces an unwelcome combination
of looming recession and persistent inflation that
is reviving angst about stagflation, a condition
not
seen
since the 1970s. Inflation is rising. Yesterday
the Labor Department said consumer prices in the
US jumped 0.4% in January and are up 4.3% over the
past 12 months, near a 16-year high… A
simultaneous rise in unemployment and inflation
poses a dilemma for Fed Chairman Ben Bernanke.
When the Fed wants to fight unemployment, it
lowers interest rates. When it wants to damp
inflation, it raises them. It's impossible to do
both at the same time."
GSE
Watch February 22 – Bloomberg (Jody Shenn):
Freddie Mac, the second-largest provider of money
for US home loans, implemented new fees for
‘higher risk’ debt it buys or guarantees and said
it will no longer accept most mortgages that
exceed 97% of a home’s value."
Mortgage
Finance Bust Watch February 20 – Bloomberg
(Alison Vekshin): "US savings and loans posted a
record $5.24 billion loss in the fourth quarter of
2007 as housing-market distress continued to take
a toll… The loss stemmed from $4.07 billion in
‘goodwill’ writedowns and $5.12 billion set aside
for anticipated loan losses, the Treasury
Department’s Office of Thrift Supervision said…
‘Looking forward, I think 2008 is going to be a
very difficult year for the industry,’ OTS
Director John Reich said."
Muni
Watch February 19 – Bloomberg (Michael
McDonald): "Drivers on the Massachusetts Turnpike
may face higher tolls after the state was unable
to sell auction-rate securities backed by a unit
of Ambac Financial Group Inc. The Massachusetts
Turnpike Authority was forced to delay refinancing
$126.7 million it borrowed for the ‘Big Dig’
because it bought bond insurance from troubled
Ambac… The state agency is spending an additional
$300,000 in interest a month as a result…."
California Watch February 20 –
Bloomberg (William Selway): "California Governor
Arnold Schwarzenegger ordered state agencies to
stop hiring and scrap new equipment purchases as
part of a plan to save $100 million this year and
help close a budget shortfall… The order follows
lawmakers' Feb. 15 passage of measures to cut
about $1 billion from this year’s budget as
revenue growth slows… Before the spending cuts,
California faced a $14.5 billion deficit through
June 2009."
February 20 – Bloomberg
(Michael B. Marois): "California’s budget deficit
widened to $16 billion as the housing slump and
higher energy costs cut tax revenue, the state’s
fiscal analyst said. The deficit is $2 billion
larger than what Governor Arnold Schwarzenegger
predicted in January… Fitch Ratings has warned
that California’s credit ratings on $49 billion of
debt are in danger." February 21 – Bloomberg
(Michael B. Marois): "California, the biggest
borrower in the US municipal bond market, will
replace $1.25 billion of auction-rate bonds with
traditional debt after a series of auction
failures nationwide sent rates soaring."
February 21 – Bloomberg (Michael B.
Marois): "Vallejo, California, may become the
first city in the state to file for bankruptcy
should labor negotiations fail to cuts costs
before officials run out of money by May 1...
‘This is a last resort,’ City Councilwoman
Stephanie Gomes, referring to bankruptcy, said…
‘We’re in a state of crisis here. This isn’t a
threat.’"
Fiscal Watch February
22 – New York Times (Edmund L. Andrews and Louis
Uchitelle): " Prodded in part by some of the
nation’s biggest banks, the Bush administration
and Congress are considering costly new proposals
for the government to rescue hundreds of thousands
of homeowners whose mortgages are higher than the
value of their houses. Not since the Depression
has a larger share of Americans owed more on their
homes than they are worth. With the collapse of
the housing boom, nearly 8.8 million homeowners,
or 10.3% of the total, are underwater. That is
more than double the percentage just a year ago,
according to a new estimate of the damage by
Moody’s Economy.com. Administration officials say
they still oppose any taxpayer bailout for either
people who borrowed more than they could afford or
banks that made foolish loans… But with the
current efforts to arrest the housing collapse so
far bearing little fruit, Washington is being
forced to explore new ideas, among them the idea
of a federal mortgage guarantee for troubled
borrowers."
Speculator
Watch February 21 – Bloomberg (Tomoko
Yamazaki): "Hedge funds around the world had the
worst month in at least eight years in January as
equities worldwide tumbled amid concerns that the
US economy was headed for a recession… The
Eurekahedge Hedge Fund Index, which tracks the
performance of 2,467 funds that invest globally,
dropped 3.3%, based on preliminary figures…"
February 22 – Financial Times (Henny
Sender): "New York hedge fund DB Zwirn & Co is
winding down its principal funds after investors –
rattled by lapses in internal controls… – said
they would withdraw more than $2bn. Investors
started pulling their money after the group, which
has almost $5bn under management, disclosed in
March last year that an independent internal
review had uncovered improper transfers among
funds and improper handling of operational
expenses… On Thursday night, Zwirn sent a letter
to investors outlining its plans to liquidate
assets, about 60% of which are not easily tradable
and mostly involve illiquid loans made both in the
US and abroad."
February 21 – Dow Jones
(Kaja Whitehouse): "Two China-focused hedge funds
that returned 100% or more last year posted
double-digit percentage losses in January,
tripping over continued volatility in China’s
stock market. The 788 China Fund…lost 39.5% in
January, following gains of 115% last year… The
Golden China Fund…lost 21.5% in January, following
gains of 100.3% last year…"
Crude
Liquidity Watch February 20 – Bloomberg
(Matthew Brown): "Inflation in the Middle East may
be stoked by recent snowstorms in China that
damaged wheat crops, said Royal Bank of Scotland
Group Plc. The Middle East is the world’s largest
importer of wheat, so any increase in the price of
the commodity will fuel food prices… ‘Wheat prices
are already a serious problem for the Middle East,
while recent snowstorms in China may aggravate the
problem,’ Simpfendorfer said… ‘This risk
underscores our view that the Middle East
economies will continue to face serious inflation
risks, so the case for adopting basket pegs or
permitting faster appreciation is strong.’"
February 19 – Bloomberg (Matthew Brown):
"Mortgage lending growth in the United Arab
Emirates slowed to an annual 83% at the end of the
third quarter from 97% in the second quarter. Loan
and overdraft growth remained at 25% in the third
quarter… M3 money supply growth slowed to 34%..."
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.)
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Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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