Page 4 of
5 CREDIT BUBBLE
BULLETIN No
simple repeat of LTCM
fiasco Commentary and market
watch by Doug Noland
"The Australian dollar
rose to its highest level in almost 24 years on
speculation the nation’s interest-rate advantage
over the U.S. will keep widening."
The
prospect of more desperate Fed rate cuts hit the
dollar index for 2.4%, ending the week at 73.71.
For the week on the upside, the Swiss franc gained
4.7%, the Japanese yen 4.2%, the Danish krone
2.5%, the Euro 2.4%, the Norwegian krone 1.9%, and
the Swedish krona 1.8%. It is worth noting that
the two big gainers were the low yielding "carry
trade" currencies. On the downside, the South
African rand fell 2% and the New Zealand dollar
1.6%.
Commodities Watch February
26 – Bloomberg (Marianne Stigset): "The price of pasta
in
Italy, the world’s biggest consumer of the food,
is set to soar as wheat climbs to records, the
chief executive officer of the nation’s largest
flour miller said. ‘Agflation in products such as
pasta needs to correspond to the underlying
commodity and the price of durum wheat has more
than tripled in the past couple of months,"
Antonio Costato said… ‘The price of pasta has been
increased by 10%. That’s only the beginning.’"
February 26 – Bloomberg (Hugo Miller):
"Norilsk, the world’s biggest producer of nickel,
is building its own shipping fleet to capitalize
on the melting of the polar ice caps… The thawing
sea ‘has enormous economic implications, and
commerce is going to push this ecological zone to
the limit,’ says Rear Admiral Timothy McGee, head
of the U.S. Navy’s Meteorology and Oceanography
Command."
Gold jumped 3.1% to a record
$974 and Silver a whopping 9.7% to $19.92. May
Copper added 1.4%. April Crude surged $2.90 to a
record $101.71. April Gasoline dipped 0.3%, while
April Natural Gas gained 1.7%. March Wheat rose
2.2%. The CRB index surged 3.5% to a new record
(up 15% y-t-d). The Goldman Sachs Commodities
Index (GSCI) gained 2.9%, also to a new record (up
11.4% y-t-d and 52.6% y-o-y).
China
Watch February 28 – Bloomberg (Zhang
Dingmin): "China’s economic growth will slow to
10.5% in the first quarter on weaker overseas
sales and after the worst snowstorms in 50 years
disrupted consumer spending and investment, the
State Information Center said."
February
28 – Financial Times (Jamil Anderlini): "Chinese
banks will announce record profits for 2007 in
coming weeks in contrast with their global
counterparts… But 2008 will be much more
challenging as a global slowdown spills over into
China and the government attempts to cool the
economy and head off rising inflation. Some of the
country’s biggest banks…have already said their
earnings rose by more than 60% year-on-year in
2007 and analysts say net profits for the industry
grew by a similar amount."
February 26 –
Bloomberg (Xiao Yu): "The average wholesale price
of steel products in China, the world's largest
user of the metal, climbed 26.1% in January from a
year earlier, the nation’s central bank said…"
February 26 – Bloomberg (Chia-Peck Wong):
"The value of new mortgages granted in Hong Kong
more than doubled last month to the highest in a
decade as falling interest rates and accelerating
inflation fueled demand for loans."
February 29 – Bloomberg (Chia-Peck Wong):
"Hong Kong lending rose 20% in January as the
city’s economic growth and low interest rates
fueled demand."
Asia Bubble
Watch February 26 – Bloomberg (James Peng):
"Taiwan’s export orders rose more than forecast in
January and industrial production expanded at the
fastest pace in three months on increased demand
from China and the Middle East. Orders, indicative
of shipments over the coming one to three months,
advanced 16.89% from a year earlier…"
February 25 – Bloomberg (Shamim Adam):
"Singapore’s inflation accelerated in January at
the fastest pace since 1982, increasing pressure
on the central bank to allow its currency to
appreciate further. The consumer price index
jumped 6.6% from a year earlier, after gaining
4.4% in December…"
February 27 – Bloomberg
(Stephanie Phang): "Malaysia’s economy expanded at
the fastest pace in more than three years last
quarter as higher commodity prices and government
spending spurred domestic demand, pushing 2007
growth above government forecasts. Southeast
Asia’s third-largest economy grew 7.3%..."
February 27 – Reuters: "Vietnam estimated
its consumer price index for February rose 15.67%
from a year earlier, the strongest increase in
more than 12 years, underlining the global and
domestic price pressures affecting the economy.
High prices of food, fuel and housing are giving
Vietnam’s Communist Party government one of its
biggest challenges as it pursues faster economic
growth and market reforms."
India
Watch February 29 – Bloomberg (Kartik
Goyal): "India’s economy grew at the slowest pace
since 2005 last quarter as interest rates near a
six-year high curbed consumer spending. Asia’s
third-largest economy expanded 8.4%..."
February 29 – Bloomberg (Anoop Agrawal):
"Money supply growth in India accelerated to 21.5%
in the two weeks ended Feb. 15 from a year
earlier…"
Unbalanced Global Economy
Watch February 27 – Bloomberg (Simone
Meier): "Money-supply growth in the 15-nation euro
region slowed less than economists forecast in
January, limiting the European Central Bank’s
scope to cut interest rates. M3 money supply… rose
11.5% from a year earlier, after gaining 11.6% in
December…"
February 28 – Financial Times
(Jonathan Guthrie): "As Britain’s economy slows,
the gloom felt by its middle class has led to the
acquisition of a new label: the coping class. The
term, invented by an Irish politician, has been
enthusiastically adopted by the media who deploy
it as a display of empathy with their readers and
listeners. Recent news suggests that middle-class
Britons are right to feel financially squeezed."
February 24 – Bloomberg (Heather Smith):
"French supermarket food prices rose faster than
raw material costs, Le Parisien said today, citing
a study by the Institut National de la
Consommation that will be published tomorrow.
The…consumer group found the biggest price jumps
were for baby milk, pasta, ham and yogurt, which
climbed between 40% and 48% in a six-week period…"
February 28 – Bloomberg (Helene Fouquet):
"Consumer confidence in France fell to a record
low in February as the fastest inflation in 12
years squeezed purchasing power."
February
25 – Bloomberg (Ben Sills): "Producer prices in
Spain accelerated in January to the fastest pace
in 20 months… The price of goods leaving Spain’s
factories, farms and mines rose 6.6 percent from
the year-earlier period after a 5.9 % increase in
December…"
February 29 – Bloomberg (Robin
Wigglesworth): "Norway’s domestic credit growth
was little changed at 14.3% in January as the
impact of the biggest wage gains in six years was
offset by seven interest rate increases last
year."
February 27 – Bloomberg (Robin
Wigglesworth): "Norway’s jobless rate fell to the
lowest since at least 1989 in the three months
through January after the fastest economic growth
in 26 years boosted demand for workers. The
seasonally adjusted rate fell to 2.4%..."
February 26 – Bloomberg (Tasneem Brogger):
"Iceland’s inflation rate…accelerated to 6.8% from
5.8% in January…"
Central Banker
Watch February 26 – Bloomberg (Craig
Torres): "Federal Reserve Vice Chairman Donald
Kohn said turmoil in credit markets and the
possibility of even slower economic growth pose a
‘greater threat’ than inflation. ‘I do not expect
the recent elevated inflation rates to persist,’
Kohn said… ‘The adverse dynamics of the financial
markets and the economy have presented the greater
threat to economic welfare in the United States.’"
February 26 – Bloomberg (Svenja
O’Donnell): "The Federal Reserve has ‘rock solid’
credibility on inflation and has kept a lid on
consumers’ price expectations, U.S. Treasury
official Phillip Swagel said. ‘Expectations remain
contained,’ Swagel said… ‘The Fed have really
worked within the dual mandate’ and ‘the Fed’s
credibility on inflation is really strong, it’s
rock solid,’ he said."
February 27 –
Bloomberg (Gabi Thesing): "German import prices,
an early indicator of inflation pressure in the
economy, rose the most in 16 months in January,
led by surging energy costs. The price of imported
goods gained 5.2% from a year earlier…"
February 27 – Dow Jones: "The market
‘clearly underestimates’ euro-zone inflation
risks, Axel Weber, a member of the European
Central Bank's governing council, said Wednesday.
‘Interest rate expectations for the euro zone
don't reflect the monetary policy assessment of a
central bank that is committed to price
stability,’ Weber told politicians…"
Bursting Bubble Economy
Watch February 26 – Bloomberg (Aliza
Marcus): "Medical spending by employers, insurers,
individuals and the government will outpace
economic growth in the U.S. by about 2 percentage
points a year, consuming $1 of every $5 spent by
2017, a study found. Health-care costs made up 16%
of the economy last year, costing about $2.2
trillion, according to…economists for the…Medicare
program…"
February 26 – Bloomberg
(Michelle Fay Cortez): "American men, favoring
Botox injections and liposuction, underwent 17%
more cosmetic procedures in 2007 to more than 1
million treatments, according to the American
Society for Aesthetic Plastic Surgery…
Head
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