Page 5 of 5 CREDIT-BUBBLE BULLETIN
What is left that is sellable?
Commentary and weekly watch by Doug Noland
offset a surge in the cost of oil and record food prices. The inflation rate
stayed at 2.4%..."
March 6 – Bloomberg (Maria Levitov): "Russia’s trade surplus almost doubled in
January from the same month last year as the world’s biggest oil and gas
exporter benefited from higher commodity prices. The surplus reached $19.9
billion…"
March 5 – Bloomberg (Ben Holland): "Turkey is facing a shortage of wheat and
may need to boost imports, Milliyet newspaper said. The price of flour has
jumped 20% in the past month and may rise another 25% because of a shortage of
wheat on the market,
Milliyet said citing local commodity exchanges."
Latin America Watch
March 6 – Bloomberg (Bill Faries): "Argentina’s main autoworkers union will
seek a wage increase that is more than double the official level of inflation,
Bae said. Union leaders will demand pay raises of 20% for the next three years,
Buenos Aires-based Bae reported…"
March 5 – Bloomberg (Sebastian Boyd): "Chilean annual inflation accelerated to
the fastest pace in 11 years in February… Consumer prices in the 12 months…rose
8.1%, up from 7.5% in the same month-earlier period."
Central Banker Watch
March 7 – Bloomberg (Craig Torres and Vincent Del Giudice): "The Federal
Reserve moved to add as much as $200 billion to the banking system over the
next month to offset a deepening credit crisis that may have already pushed the
U.S. economy into a recession. The central bank raised to $50 billion each from
$30 billion the amount intended for auctions of funds on March 10 and March 24.
The Fed also said in a statement in Washington today that it will make $100
billion available through weekly 28-day repurchase agreements, where the
central bank will lend cash in return for assets including mortgage-backed
bonds."
March 4 – Bloomberg (Jacob Greber): "Australia’s central bank increased its
benchmark interest rate for the second time in four weeks… Governor Glenn
Stevens and his board raised the overnight cash rate target by a quarter point
to 7.25%... to stem the fastest inflation since 1991."
Bursting Bubble Economy Watch
March 8 – Associated Press: "Dangerous cracks in the nation's job market are
deepening. Employers slashed jobs by the largest amount in five years and
hundreds of thousands of people dropped out of the labor force -- ominous signs
that the country is falling toward a recession or has already toppled into one.
For the second straight month, nervous employers got rid of jobs nationwide. In
February, they sliced payrolls by 63,000, even deeper than the 22,000 cut in
January, the Labor Department reported Friday. The grim snapshot of the
country’s employment climate underscored the heavy toll the housing and credit
debacles are taking on companies, jobseekers and the economy as a whole."
March 4 – The Wall Street Journal (Scott Patterson and Kris Hudson): "Cracks
are starting to show in commercial construction. For the second month in a row,
the Commerce Department reported a decline in spending on nonresidential
construction -- which includes everything from hospitals to office parks to
shopping malls. The report yesterday showed U.S. construction spending fell
1.7% in January from December, the steepest drop in 14 years. While residential
construction accounted for a big part of the decline, spending on
nonresidential construction slid 0.8%. Meanwhile, there may be an oversupply of
shopping malls and office buildings after a period of intensive construction…
Nonresidential construction accounted for 3.6% of gross domestic product in the
fourth quarter of 2007, up from 2.5% five years ago and the most since the
second quarter of 1988, according to Moody's Economy.com."
GSE Watch
March 6 – Bloomberg (James Tyson): "Fannie Mae and Freddie Mac, the biggest
U.S. mortgage finance companies, ‘pose potentially significant risks’ to
taxpayers, a congressional watchdog said. ‘While not obligated to do so, the
federal government could provide financial assistance to’ the congressionally
chartered companies should they experience financial difficulties, which would
cost taxpayers, William Shear, director of financial markets and community
investment at the Government Accountability Office, testified today to the
Senate Banking Committee."
Mortgage Finance Bust Watch
March 3 – The Wall Street Journal (James R. Hagerty): "Countrywide Financial
Corp.'s mortgage portfolio continues to deteriorate rapidly as defaults
increase and home prices fall… The… lender’s annual filing…showed a big
increase in late payments on option adjustable-rate mortgages, known as option
ARMs. These loans give borrowers several choices of payment each month,
including one that covers only part of the interest normally due… As of the end
of 2007, payments were at least 90 days overdue on 5.4% of option ARMs held as
investments…up from 0.6% a year earlier… The company said 71% of the borrowers
were making minimal payments. Only about a fifth of the borrowers were required
to document fully their incomes before receiving the loans."
March 5 – Bloomberg (John Brinsley): "Treasury Secretary Henry Paulson may need
to revise his strategy for stemming record U.S. home foreclosures after Federal
Reserve Chairman Ben S. Bernanke urged lenders to forgive portions of some
loans. Bernanke’s call…went beyond a Paulson-backed plan that focuses on
renegotiating interest rates. With his remarks, the Fed chief joined the heads
of the Office of Thrift Supervision and Federal Deposit Insurance Corp. and
congressional Democrats in proposing stronger actions than Paulson to alleviate
the worst housing recession in a quarter century. ‘This puts enormous pressure
on Paulson,’ said Michael Barr, a former Clinton administration Treasury
official… ‘Treasury’s response so far has been insufficient.’ …Bernanke’s
speech highlighted a deepening threat from house prices dropping below
mortgages, something Paulson played down the day before."
March 6 – Bloomberg (Jody Shenn): "Citigroup… plans to pare its U.S.
residential unit’s mortgage and home-equity holdings by about $45 billion, or
20%, over the next year. The Citigroup division will decrease its total
holdings mainly by making fewer loans that can’t be sold…"
March 4 – Financial Times (Peter Thal Larsen and Jane Croft): "Just over three
years ago Sir John Bond, then chairman of HSBC, presented the bank’s board of
directors with a detailed analysis of its track record on acquisitions. His
conclusion: although HSBC had made some mistakes, its large acquisitions had
generally been successful. It is probably just as well that Sir John, who
stepped down in 2006, is no longer around. Because any similar presentation to
HSBC’s board today would have to start with an admission that the bank’s
largest-ever deal - the $15 billion acquisition of Household, the US consumer
finance group - has been a colossal failure. Yesterday HSBC spelled out the
damage it had suffered from its foray into lending to US consumers… Its North
American division, which includes Household, set aside $12.2 billion for bad
loans last year…"
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
March 6 – Bloomberg (Kathleen M. Howley): "U.S. mortgage foreclosures rose to
an all-time high at the end of 2007 as borrowers with adjustable-rate loans
walked away from properties before their payments increased, the Mortgage
Bankers Association said… New foreclosures jumped to 0.83% of all home loans in
the fourth quarter from 0.54% a year earlier. Late payments rose to a 23-year
high… ‘We’re seeing people give up even before they get to the reset because
they couldn’t afford the home in the first place,’ said Jay Brinkmann, vice
president of research and economics for the [MBA]…"
March 4 – Reuters (Al Yoon): "Bonds backed by U.S. office buildings and hotels
suffered their worst month ever in February as investors girded for falling
property prices and rising defaults, according to Lehman Brothers… CMBS lost
3.74% in February… Rising delinquencies in commercial real estate has prompted
investors, already burned by flare-ups in residential real estate, to flee the
$750 billion market that funds office buildings, hotels and shopping malls.
Forecasts of a 20% drop in commercial property values by Moody’s…and…JPMorgan
Chase… have fueled a frenzy of selling in derivative indexes…"
Real Estate Bubble Watch
March 5 – The Wall Street Journal (Dawn Wotapka and Marshall Eckblad): "In the
nation’s worst-hit real-estate markets, home sellers are suffering a new blow:
They are being blacklisted by lenders. As property values decline and credit
markets contract, home lenders nationwide are growing ever more unwilling to
finance home purchases in sharply declining housing markets, driving prices
down further. In some cases, lenders have ruled out entire geographic regions
and property types altogether… There are ‘lists circulating’ from banks, says
Peter Zalewski, a broker with Condo Vultures Realty LLC, and those lists are
pushing down prices when news of the black-marked properties spreads."
March 5 – Bloomberg (Christopher Scinta): "Simplon Ballpark LLC, a San Diego-
based real estate development company, filed for Chapter 11 bankruptcy in its
hometown… Simplon Corp… is building a 334-unit, 35-story condominium tower on
the San Diego waterfront known as Cosmopolitan Square that overlooks Petco
Park, the home of Major League Baseball’s San Diego Padres."
Muni Watch
March 5 – Dow Jones (Michael Aneiro): "As Jefferson County, Ala., continues
efforts to avoid bankruptcy, an Alabama official said Wednesday that there is
no state-level mandate for a bailout should the county default on its debt. ‘To
my knowledge, there is no statutory system or scheme that would cover a
situation of this type that relates to the state serving as a backstop,’ said
Ken Wallis, chief chief legal advisor to Alabama governor Bob Riley."
California Watch
March 5 – Bloomberg (William Selway): "California, the largest seller of
municipal bonds, is moving to help hospitals saddled with soaring borrowing
costs on variable interest-rate bonds refinance their debts. The California
Health Facilities Financing Authority, a state agency that raises money on
behalf of hospitals in the most-populous U.S. state, will meet March 11 to
review applications by borrowers wanting to exit costly auction-rate and
variable-rate bonds… Six borrowers have reserved spots to consider $4.6 billion
of their debt. It is the second effort in as many days by California
authorities to help local governments and other municipal borrowers escape from
soaring interest payments."
Fiscal Watch
March 4 – Bloomberg (Brian Faler): "The U.S. budget deficit will widen this
year to at least $357 billion, the most since 2004, as the economic stimulus
package drains tax revenue from the Treasury, according to the Congressional
Budget Office. The shortfall will prove even larger if lawmakers approve
President… Bush’s pending request for an additional $100 billion this year for
the wars in Iraq and Afghanistan… The CBO estimate is 63% higher than the one
it issued in January…"
March 4 – Bloomberg (Adam L. Cataldo): "New York City will cut another 3% from
its 2009 budget if the state fails to provide previously anticipated aid and
revenue. City agencies have been asked to identify reductions if New York state
fails to include $747 million in its proposed 2009 budget that New York
officials say they were promised. In January, Mayor Michael Bloomberg proposed
a spending plan of $58.5 billion that included a 5% cut in spending… New York
Governor Eliot Spitzer… proposed a $126.5 billion budget that helped close a
$4.4 billion gap by reducing outlays for the city."
March 4 – Associated Press (David Royse): "Lawmakers began their 2008 session
with Florida mired in an economic slump that leaders said would make their work
in the next two months some of the most important in recent times. In an
opening speech Tuesday that was equal parts gloom and brash talk about the way
forward, Speaker Marco Rubio noted that the state’s real estate market is ‘in
complete collapse,’… Rubio said next week lawmakers expect to find out that
incoming tax collections will be almost $4 billion -- about 13% -- less than
estimated just a year ago."
March 7 – Bloomberg (Adam L. Cataldo): "The New Jersey fund responsible for
school employee pensions is short $12.4 billion for estimated future payments.
he Teachers’ Pension and Annuity Fund saw its so-called unfunded liability
increase by about $1.4 billion as of June 30… The figure represents a 13% from
$11 billion for the fiscal year ended June 30, 2006."
Speculator Watch
March 5 – Bloomberg (Tom Cahill and Katherine Burton): "Peloton Partrillioners
LLP, the London- based firm that’s liquidating its largest hedge fund after
‘severe’ losses, probably will have no money left after creditors are paid,
co-founder Ron Beller told investors… ‘The lesson is don’t take on too much
leverage and buy on margin without enough cash for when times get tough,’ said
Odi Lahav, head of the European Alternate Investment Group at Moody’s… The fund
held about $17 billion of long positions in ABX indexes tied to subprime
mortgages…; AAA rated subprime-backed securities; and Alt A mortgages…people
said. The fund was short $6 billion of lower-rated mortgage securities."
Crude Liquidity Watch
March 2 – Bloomberg (Matthew Brown): "Saudi Arabia’s M3 money supply growth, an
indicator of future inflation, accelerated to 24% in January from 20% in
December."
March 5 – Bloomberg (Matthew Brown): "Food inflation in the United Arab
Emirates could accelerate by 40% this year, Gulf News reported, citing the
Emirates Consumer Protection Society."
Doug Noland is a market strategist for the Prudent Bear Funds.
(Republished with permission from
PrudentBear.com . Copyright 2005-2007 David W Tice &
Associates. All rights reserved.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
