Page 4 of
5 CREDIT-BUBBLE
BULLETIN What
is left that is
sellable? Commentary and weekly
watch by Doug Noland
unraveling’ in the
financial markets, UBS AG analysts led by Laurie
Goodman wrote… Agency securities, which are
guaranteed by government-chartered companies
Fannie Mae and Freddie Mac or federal agency
Ginnie Mae, were the ‘most liquid’ bonds they
could sell, they wrote. Spreads are also widening
as ‘hedge funds continue to de- lever,’ or scale
back bond-secured borrowing… Banks and securities
firms are raising the collateral they require on
loans or taking other steps that discourage
borrowing…"
March 4 – The Wall Street
Journal (Lingling Wei): "Overwhelmed by margin
calls from its creditors, home-mortgage lender
Thornburg Mortgage Inc. said it has to sell assets
or raise capital
to
stay in business. The news knocked off more than
half of the market value of the company, which is
structured as a real-estate-investment trust, and
it dragged down shares of other mortgage lenders.
It also raised fears that Thornburg would join
hundreds of other nonbank home-mortgage lenders
and brokers that have gone out of business over
the past year. While most of the others were
subprime lenders, Thornburg specializes in selling
‘jumbo’ mortgages…"
March 5 – Bloomberg
(Michael McDonald): "Auction-rate bond failures
show no sign of abating after investors abandoned
the market for variable-rate municipal securities.
Almost 70% of the periodic auctions in the $330
billion market failed this week as investment
banks stopped buying the securities investors
didn’t want. Yields on the debt averaged 6.52% as
of Feb. 28, up from 3.63% before demand evaporated
in January… ‘Even if the auction-rate market
survives, we’re not going to see the kind of rates
we’re used to,’ said Roger Roux, chief financial
officer at Rady Children’s Hospital in San Diego,
which spent an additional $940,000 on its auction
bonds since rates reset as high as 15% last
month."
March 5 – Dow Jones (Michael
Aneiro): "On Tuesday, a consortium of bankers
gathered in New York to try to prevent an ailing
Alabama municipality’s finances from disappearing
down its own sewer system. Jefferson County, Ala.
is in talks to refinance its sewer revenue debt,
which include interest rate swap agreements it
entered with four banks: Bank of America, Bear
Stearns, JPMorgan Chase and Lehman Brothers. In
the wake of recent credit market problems, the
terms of those swaps agreements mean the county is
on the hook for a $184 million collateral payment
that must be made by March 7. Adding to the
county’s woes, Moody’s…followed Standard &
Poor’s and cut to junk status its underlying
rating on Jefferson County’s $3.2 billion in
outstanding sewer revenue bonds…. If the county is
unable to negotiate a rescue plan this week, it
could result in the largest-ever municipal
default, roughly double the size of the infamous
Orange County, California, debt default in 1994."
March 3 – Bloomberg (Pierre Paulden):
"Distressed debt levels have risen to the highest
since August 2003 as investor fears of increased
defaults amid a slowing economy fuel a flight from
high-yield, high-risk assets. At the end of
February about $180 billion of junk bonds, or
24.8% of the market, traded at more than 1,000
basis points above U.S. Treasuries, compared with
$8 billion a year earlier, JPMorgan Chase &
Co. analysts…led by Peter Acciavatti said… The
dollar value of bonds that traded at or below 70
cents on the dollar is up 93% since the start of
the year to $70.2 billion. Twelve companies with
high-risk loans have already defaulted this year…"
March 5 – The Wall Street Journal Europe
(Joellen Perry): "Fears that stalked European
credit markets last year, pushing money market
interest rates higher and prompting major central
bank interventions, are back. Longer-term European
money-market rates, elevated since the start of
the year, are rising sharply. On Wednesday, rates
at which euro-zone banks lend to each other for
three months hit 4.398%, above the ECB’s 4% policy
rate and their highest since Jan. 18… Longer-term
rates are rising despite ECB policy makers’
ongoing efforts to maintain market calm in the
three-month market."
March 7 – Bloomberg
(Kim-Mai Cutler and Gavin Finch): "The cost of
borrowing euros for three months rose to the
highest level in seven weeks, adding to evidence
central bank attempts to ease a shortage of cash
in the money markets are misfiring. The euro
interbank offered rate, or Euribor, for the loans
climbed 7 bps to 4.50% today…"
March 4 –
Bloomberg (Lukanyo Mnyanda): "The difference in
yield between Italian 10-year bonds and benchmark
German bunds increased to the most in almost a
decade as slumping stock markets prompted
investors to shun all but the safest government
debt."
March 4 – Bloomberg (Lester
Pimentel): "Emerging-market bond sales plunged 65%
this year as mounting subprime mortgage losses
dried up demand for higher-yielding debt.
Developing-nation debt issuance totaled $15.5
billion in the first two months of this year,
David Spegel, head of emerging-markets strategy…at
ING Bank NV, said…"
March 3 – Bloomberg
(Hamish Risk): "Derivative trading fell 21% to
$539 trillion in the fourth quarter, the biggest
drop in at least 14 years, as the freeze in money
markets reduced the need to hedge risks, the Bank
for International Settlements said. Interest-rate
futures, contracts designed to speculate on or
hedge against moves in borrowing rates, led the
fall in exchange- traded contracts with a 25%
decrease to $405 trillion during the three months
ended Dec. 31…"
Currency
Watch March 4 – Bloomberg (Sandrine
Rastello and Meera Louis): "European finance
ministers said they are ‘increasingly concerned’
the euro’s advance to a record against the dollar
risks deepening the economic slowdown in the
region… ECB President Jean-Claude Trichet, who
initially declined to comment yesterday, turned
back to reporters to say that the U.S.
government’s ‘strong dollar’ policy is ‘very
important.’ ‘In the present circumstances, I
consider very important what has been affirmed and
reaffirmed by the U.S. authorities, including the
secretary of the Treasury and the president of the
United States of America, according to whom a
strong-dollar policy is in the interests of the
United States,’ Trichet said."
The dollar
index declined 0.9%, ending the week at 73.03. For
the week on the upside, the Swiss franc gained
1.7%, the British pound 1.5%, the Taiwanese dollar
1.2%, the Euro 1.0%, the Danish krone 1.0%, and
the Japanese yen 0.8%. On the downside, the South
African rand declined 3.4%, the New Zealand dollar
1.6%, the Australian dollar 1.4%, the Mexican peso
1.2%, the Brazilian real 1.1%, and the South
Korean won 1.0%.
Commodities
Watch March 5 – Bloomberg (Ron Day):
"Cotton surged to the highest price in more than
12 years on escalating concern that U.S. farmers
will shift acres to more-profitable crops such as
wheat and soybeans. In 2008, U.S. cotton farmers
may trim plantings to 9.5 million acres, a 25-year
low, the U.S. Department of Agriculture said…"
Gold was little changed at $974, while
Silver added 1.7% to $20.25. May Copper gained
1.7%. April Crude jumped $3.54 to a record
$105.38. April Gasoline gained 0.9%, and April
Natural Gas surged 4.6%. March Wheat rose 1.8%.
The CRB index slipped 0.3% (up 14.8% y-t-d). The
Goldman Sachs Commodities Index (GSCI) jumped 1.9%
to a new record (up 13.6% y-t-d and 56.8% y-o-y).
China Watch March 5 – Bloomberg
(Li Yanping and Zhang Dingmin): "China’s Premier
Wen Jiabao said the government must do more to
rein in lending and curb inflation in the world’s
fastest-growing major economy… ‘Financial controls
need to be strengthened, and the excessively fast
growth in money supply and lending should be
curbed,’ Wen told almost 3,000 lawmakers in his
two-hour report to the National People’s
Congress…"
March 6 – Bloomberg (Li
Yanping): "China’s property prices in 70 major
cities jumped 11.3% in January from a year
earlier, the biggest increase since at least 2005,
when records began."
March 5 – Bloomberg
(William Bi and Feiwen Rong): "China, the world’s
largest consumer of grains and meat, will import
essential commodities, boost farm production and
sell from state stockpiles to cover any food
shortages and curb price gains, the government
said. The country will ‘appropriately increase
imports of commodities that are in short supply,’
the top economic planning body, the National
Development and Reform Commission, said…"
Japan Watch March 5 – Bloomberg
(Jason Clenfield): "Japanese corporate investment
fell at the fastest pace in five years last
quarter… Capital spending excluding software
declined 7.3% in the three months ended Dec. 31
from a year earlier…"
Unbalanced Global
Economy Watch March 3 – Bloomberg
(Alexandre Deslongchamps): "Canada’s economy grew
at the slowest pace since 2003 in the fourth
quarter and contracted in December as exports
declined… Growth slowed to a 0.8% annualized rate
between October and December…"
March 5 –
Bloomberg (Jennifer Ryan): "U.K. consumer
confidence slipped to the lowest level in more
than three years in February as higher food and
energy costs sapped spending, Nationwide Building
Society said."
March 4 – Bloomberg (Fergal
O’Brien): "European consumer spending, which
accounts for almost 60% of the economy, fell in
the fourth quarter for the first time in six
years, curbing economic growth."
March 3 –
Bloomberg (Fergal O’Brien): "European inflation
remained last month at the highest level since the
euro’s debut… Consumer-price growth in the euro
area was 3.2% in February… That matched January’s
rate, the highest since the euro was introduced in
1999…"
March 4 – Bloomberg (Joshua Gallu):
"Swiss inflation held at a 14-year high in
February as a gain in the franc was unable to
fully
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