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4 CREDIT BUBBLE
BULLETIN The
worst-case scenario -
live Commentary and weekly watch by Doug
Noland
nothing to collect on many
home-equity loans in case of default. Some
stretched borrowers are keeping up with their
mortgage and credit cards -- but not their
home-equity loan."
March 13 – Dow Jones
(Lavonne Kuykendall): "Stung by rapidly growing
subprime losses that pushed it to a record
fourth-quarter loss, bond insurer Security Capital
Assurance (SCA) said Thursday that it is in
survival mode. The company said it will write no
new business while it struggles to raise capital
to pay off what could be massive losses in
financial guarantees it wrote on subprime
mortgage-backed securities. It will also try to
get out of
some of
its troubled contracts to reduce its potential
exposure to losses."
March 14 – Bloomberg
(Erik Holm and Josh P. Hamilton): "The collapse of
the subprime mortgage market will lead to record
losses for insurance companies, overtaking
Hurricane Katrina, the worst natural disaster in
U.S. history. The amount of asset writedowns and
credit losses reported by the industry has reached
at least $38 billion, just short of the $41.1
billion in claims from Katrina…"
Currency Watch March 11 –
Bloomberg (Kosuke Goto): "Japan’s yen will rise to
80 per dollar in two years as Japan raises
interest rates and the U.S. cuts borrowing costs,
said Eisuke Sakakibara, the nation’s former
currency-policy chief."
The dollar index
dropped 1.9%, ending the week at a dismal 71.66.
For the week on the upside, the New Zealand dollar
increased 3.1%, the Japanese yen 2.6%, the
Australian dollar 2.4%, the Euro 2.1%, the Danish
krone 2.1%, the Swiss franc 2.1%, and the Swedish
krona 1.5%. On the downside, the South Korean won
declined 2.8%, the Brazilian real 0.5%, and the
Taiwanese dollar 0.3%.
Commodities
Watch March 12 – Bloomberg (Li Yanping and
William Bi): "China may import more grain and
other food this year if necessary to secure
supplies and curb rising prices, the Ministry of
Commerce said. The country has made food security
a top priority in 2008, and will make sure there
is enough grain, meat and cooking oil for domestic
consumption, the ministry said…"
March 10
– Bloomberg (Dinakar Sethuraman and Angela
Macdonald-Smith): "Russia is forcing Exxon Mobil
Corp. to abandon plans to export natural gas to
China. Nigeria is requiring explorers to share
output with its citizens. Indonesia will cut sales
to Japan. Countries holding almost half the
world’s gas are curbing shipments to meet growing
domestic use, hurting importers from the U.S. to
Japan."
Gold jumped 2.8% to a record
$1,001 and Silver 2.0% to $20.66. May Copper gave
back 2.4%. April Crude surged $4.91 to a record
$110.06. April Gasoline jumped 2.8%, and April
Natural Gas increased 0.7%. March Wheat surged
6.2% (up 31% y-t-d). The CRB index gained 1.2% (up
16.1% y-t-d). The Goldman Sachs Commodities Index
(GSCI) rose 2.8% to a new record (up 16.8% y-t-d
and 62.7% y-o-y).
China
Watch March 11 – Bloomberg (William Bi):
"China’s northern provinces, the country’s biggest
grain-growing region, may suffer an extended
drought this month as winter wheat crops start to
need rain, the China Meteorological Administration
said. Heilongjiang, Jilin and eastern Inner
Mongolia have had 1.8 millimeters of precipitation
this year, the lowest since 1951, while other
regions received as little as 80% of average rain
or snow… Drought is afflicting northern China
after the worst snowstorms in 50 years lashed its
southern provinces, killing livestock and damaging
crops there."
March 12 – Bloomberg (Kevin
Hamlin): "China’s retail sales climbed 20.2%,
matching the fastest pace in at least nine years…
The figure was boosted by the fastest inflation in
11 years. Spending fueled by a 17% increase in
urban incomes last year helps the expansions in
China of Wal-Mart Stores Inc."
March 12 –
Bloomberg (Kevin Hamlin): "China’s money-supply
growth slowed in February. M2…rose 17.5% to 42.1
trillion yuan ($5.9 trillion) from a year
earlier…"
March 11 – Bloomberg (Kevin
Hamlin and Li Yanping): "China’s inflation
accelerated to the fastest pace in 11 years as the
worst snowstorms in half a century disrupted food
supplies, adding pressure on the central bank to
raise interest rates. Consumer prices climbed 8.7%
in February from a year earlier after gaining 7.1%
in January… Food costs soared 23% after blizzards
destroyed crops and snarled transport links…"
March 11 – Market News International: "Are
the good times coming to an end for China's
manufacturers? It certainly seems that way, as the
protection that Beijing afforded them in recent
years is quickly eroded by a confluence of
factors, not least a rapidly appreciating
currency. The strengthening yuan is just one of a
series of costs to have hit Chinese manufacturers
in recent years, and evidence is mounting that
companies up and down the east coast are
struggling to protect their margins and, in some
cases, stay in business."
India
Watch March 12 – Bloomberg (Kartik Goyal):
"India’s industrial production growth unexpectedly
slowed in January as interest rates near a
six-year high curbed demand for cars and other
consumer goods. Production at factories, utilities
and mines rose 5.3% from a year earlier after
gaining a revised 7.7% in December…"
Asia Bubble Watch March 11 –
Bloomberg (Seyoon Kim): "South Korea’s retail
sales rose in January as consumers bought more
food and gifts ahead of the Lunar New Year
holiday. Spending climbed 10%..."
Unbalanced Global Economy
Watch March 13 – Bloomberg (Brian Swint and
Jennifer Ryan): "Britons’ inflation expectations
rose to the highest in at least eight years in a
Bank of England survey last month… Consumers
predict prices will increase 3.3% in the next 12
months, up from 3% in November…"
March 11
– Bloomberg (Jennifer Ryan): "The U.K. housing
slump deepened in February, becoming the worst
since the eve of the nation’s last recession in
1990, a survey of real-estate professionals
showed."
March 10 – Bloomberg (Jennifer
Ryan): "U.K. producer-price increases matched the
fastest annual pace since 1991 last month as
factories passed on record raw-material cost gains
to their customers, adding to inflation.
Manufacturing output prices climbed 5.7% from a
year earlier… Raw material costs rose an annual
19.4% in February, the most since records began in
1986…"
March 14 - Dow Jones: "The annual
rate of euro-zone consumer price inflation was
revised up to a fresh all-time high… Higher food
and energy prices pushed the annual measure up to
3.3% in February from an estimate of 3.2%..."
March 12 – Bloomberg (Sandrine Rastello):
"France’s inflation rate remained at a 12-year
high in February as energy and food costs reached
records. Consumer prices climbed by an annual
3.2%…"
March 10 – Bloomberg (Simone
Meier): "German exports increased the most in 16
months in January, led by demand from outside
Europe."
March 13 – Associated Press:
"Inflation in Spain has reached its highest level
since 1995 with the National Statistics Institute
reporting an annual 4.4% rate in February."
March 10 – Bloomberg (Tasneem Brogger):
"Denmark’s inflation rate unexpectedly rose in
February, reaching the highest since July 2000 and
indicating a shortage of workers is pushing the
economy closer to overheating. Inflation
accelerated to 3.1% from 2.9% in January…"
March 10 – Bloomberg (Robin Wigglesworth):
"Norway’s inflation rate unexpectedly rose to 2.2%
in February, the highest since September 2002,
adding to pressure on the central bank to raise
interest rates even as global economic growth
slows."
March 11 – Bloomberg (Alex
Nicholson): "Russian Finance Minister Alexei
Kudrin said net capital outflow may have reached
$15 billion to $20 billion in the first two months
of the year, Interfax reported..."
March
12 – Bloomberg (Jacob Greber): "Australian
consumer confidence plunged to the lowest level in
almost 15 years after the central bank raised
interest rates and the share market tumbled on
concern global economic growth is slowing."
March 12 – Bloomberg (Tracy Withers): "New
Zealand house sales slumped and prices fell to a
12-month low in February, adding to signs
record-high interest rates are cooling the
property market and will slow economic growth.
House sales dropped 32%..."
Latin
America Watch March 12 – Bloomberg
(Guillermo Parra-Bernal): "Brazil’s economy
expanded a greater-than-expected 6.2% in the
fourth quarter, the fastest year-on-year quarterly
expansion since June 2004, as consumer spending
and business investment swelled."
Central Banker Watch March 14 –
Bloomberg (Scott Lanman): "Federal Reserve
Chairman Ben S. Bernanke invoked a law last used
four decades ago to keep Bear Stearns Cos. from
collapsing after the securities firm sought
emergency funding from the central bank. The loan
to Bear Stearns required a vote today by the Fed’s
Board of Governors because the company isn’t a
bank, Fed staff officials said. The central bank
is taking on the credit risk from Bear Stearns
collateral, lending the funds through JPMorgan
Chase & Co. because it’s operationally simpler
to accomplish than a direct loan, the staff said
on condition of anonymity. Bernanke took advantage
of little-used parts of Fed law, added in the
1930s and last utilized in the 1960s, that allows
it to lend to corporations and private
partnerships with a special board vote. The Fed
chief probably sought to stave off a deeper blow
to the financial system from a Bear Stearns
collapse, former Fed researcher Keith Hembre
said."
March 11 – Bloomberg (Simone Meier
and Gabi Thesing): "European Central Bank council
member Axel Weber said he doesn’t see any leeway
to lower borrowing costs after oil prices jumped
to a record. ‘The surge in oil prices is a major
concern and I don’t think it leaves us any room
for a loosening of our monetary policy,’ Weber,
who is also president of Germany’s Bundesbank,
said…"
Bursting Bubble Economy
Watch March 13 – Los Angeles Times: "A
recession has already started and the downturn is
likely to last longer than in the recent past,
with the economy recovering only late next year,
according to a quarterly survey of corporate chief
financial officers… Fifty-four percent of the CFOs
said the United States was in recession, and
another 24% said there was a high likelihood of
one starting later this year, according to a Duke
University/CFO magazine survey… About
three-quarters of the CFOs said they were more
pessimistic this quarter than in the prior quarter
about the economy…"
March 9 – United Press
International: "Food prices in the United States
have increased at the fastest rate since 1990…
Citing U.S. Department of Labor figures, The
Boston Globe reported that prices for such staples
as bread, milk, eggs and flour are rising
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