Page 3 of
5 CREDIT BUBBLE
BULLETIN Crisis intermission - now for stage
two Commentary and weekly watch
by Doug Noland
strategist at UBS… ‘If banks
are loath to lend cash to each other, it’s hard
for us to see any standdown from historically
tight lending standards now being reflected to
consumer and institutional borrowers.’"
April 15 – Bloomberg (Tiffany Kary and
Caroline Salas): "US corporate bankruptcies are
accelerating as the economic slowdown compounds
the end of easy credit… The amount of distressed
corporate bonds jumped to $206 billion April 11
from $4.4 billion in March 2007, according to a
Merrill Lynch & Co. index…"
April 15 –
Bloomberg (Dan Levy): "US foreclosure filings jumped
57% and bank
repossessions more than doubled in March from a
year earlier as adjustable mortgages increased and
more owners gave up their homes to lenders. More
than 234,000 properties were in some stage of
foreclosure, or one in every 538 US
households…RealtyTrac…said… Nevada, California and
Florida had the highest foreclosure rates. Filings
rose 5% from February. About $460 billion of
adjustable-rate loans are scheduled to reset this
year… Auction notices rose 32% from a year ago, a
sign that more defaulting homeowners are ‘simply
walking away and deeding their properties back to
the foreclosing lender’ rather than letting the
home be auctioned, RealtyTrac Chief Executive
Officer James Saccacio said…"
April 15 –
Financial Times (Julie MacIntosh, Francesco
Guerrera and Henny Sender): "Citigroup is allowing
private equity groups bidding for up to $12
billion of its leveraged loans to cherry pick from
a wide range of assets with different prices and
credit ratings - a move that could complicate
Citi’s efforts to clean up its balance sheet.
People close to the situation said that, rather
than selling the loans as a block, Citi was asking
buy-out firms including Apollo, TPG and Blackstone
to choose from a menu of leveraged loans used to
fund at least seven major buy-out deals… People
familiar with the sale said private equity groups
were likely to focus on loans linked to deals they
knew well, while steering clear of those that were
perceived as troubled or unlikely to recover."
April 18 – Associated Press (Alan Zibel):
"Sallie Mae says it cannot write money-losing
student loans indefinitely. Top executives are
holding ‘daily deliberations’ about just how long
the nation’s largest student lender can afford to
sacrifice its bottom line for the sake of
college-bound Americans, Sallie Mae CEO Albert J.
Lord said… Experts said that, unless the
government intervenes or market conditions rapidly
improve, Sallie Mae could have no choice but to
stop writing new federally backed loans… Even
though the majority of student loans are highly
rated and carry a federal guarantee, investor
demand for securities backed by these assets has
plummeted -- a sign of just how nervous investors
are about securities backed by mortgages, student
loans and other debt."
April 17 –
Bloomberg (Abigail Moses): "Banks worldwide are
demanding 60% more in collateral from investors
such as hedge funds to cut the risk of derivative
trades going bad, the International Swaps and
Derivatives Association said."
April 15 –
Bloomberg (Edward Evans): "A record number of
companies canceled initial public offerings in the
first quarter…a survey by Ernst & Young LLP
said. As many as 83 companies withdrew IPOs while
a further 24 delayed share sales… The number of
companies going public declined 60% from the
fourth quarter of 2007 and was down 38% from the
first three months of last year."
Currency Watch The dollar index
rallied 0.3%, ending the week at 72.01. For the
week on the upside, the Canadian dollar increased
1.5%, the South African rand 1.2%, the Brazilian
real 1.1%, the British pound 1.0%, and the
Australian dollar 0.8%. On the downside, the
Japanese yen declined 2.5%, the Swiss franc 1.9%,
the South Korean won 1.7%, and the Norwegian krone
0.5%.
Commodities Watch April 16
– Financial Times (Javier Blas, Isabel Gorst, and
Lindsay Whipp): "The global food crisis
intensified yesterday when one of the world’s
biggest wheat exporters halted foreign sales and
rice prices shot to a record high after Indonesia
stopped its farmers from selling the grain abroad.
In another sign of turmoil, a big food company in
Japan, Nihon Shokuhin Kako, said high corn prices
had forced it to buy cheaper genetically modified
corn for the first time, breaking a social, though
not legal, taboo and signalling that opposition to
GM foods could weaken in the face of record food
prices. Meanwhile, fresh wheat export curbs in
Kazakhstan, the world's fifth largest exporter,
and the rice bans in Indonesia, threaten to
trigger bans in other food exporting countries,
which will now face much higher demand from
importing countries. Hussein Allidina, at Morgan
Stanley in New York, said pressure for export bans
was likely to increase elsewhere as developing
countries suffering high inflation tried to combat
rising local prices by cutting back on exports of
agriculture commodities."
April 18 -
Bloomberg (Rattaphol Onsanit and Luzi Ann Javier):
"Rice futures rose for a fifth day, recording the
biggest weekly advance in at least seven years, on
concern export curbs imposed by China and Vie
trillionam will spread as importing nations
struggle to meet their needs… ‘More and more
countries will have restrictions on exports,’
Frederic Neumann, an economist at HSBC…said…
‘There’s some pressure on the Thai government to
curtail shipments.’"
April 15 – Financial
Times (Carola Hoyos and Javier Blas): "Russian oil
production has peaked, one of the country’s top
energy executives has warned, fuelling concerns
that the world’s biggest oil producers cannot keep
up with rampant Asian demand… Leonid Fedun,
vice-president of Lukoil, Russia’s largest
independent oil company, told the Financial Times
he believed last year’s Russian oil production of
about 10m barrels a day was the highest he would
see ‘in his lifetime’."
April 15 –
Financial Times (Catherine Belton and Carola
Hoyos): "Five years ago Russia's rapidly growing
oil exports were seen as the cure for the US and
Europe's addiction to Middle East oil,
international oil companies' most exciting
potential source of revenue and the only thing
that could quench China's insatiable new thirst.
But today Russia is bracing itself for its first
production decline in 10 years… Leonid Fedun,
vice-president of Lukoil... said Russia would be
able to sustain levels of 8.5m-9m barrels a day
over the next 20 years only if oil companies
invested billions of dollars in tapping new
fields… Mr Fedun estimated companies would need
$1,000 billion, far more than the $4 billion extra
a year Lukoil calculates will be available to the
industry if Russia cuts its production taxes as is
being discussed."
April 18 - Bloomberg
(Lars Paulsson): "A shortage of electricity
generation that shows no sign of abating is
underpinning gains in global commodity prices,
according to analysts at Goldman Sachs… A lack of
infrastructure in South Africa, Latin America,
China and Australia has led to the disruption of
feedstock supplies or halted power generation…
‘One of the key themes that seems to pervade the
entire commodities complex is the significant
shortage of power generation throughout the
world,’ they said."
April 17 – Bloomberg
(Dale Crofts): "ArcelorMittal, the world’s largest
steelmaker, plans to boost prices on some steel
shipments in the US by $250 a ton, or about 33% of
current prices, to recoup surging costs for energy
and iron ore."
Gold dipped 0.7% to $918,
while Silver added 0.7% to $17.82. May Copper
declined 1.3%. May Crude surged $6.64 to a record
$116.78. May Gasoline jumped 4.2% to a new record
(up 21% y-t-d), and May Natural Gas surged 7.5%
(up 42% y-t-d). May Wheat fell 3.0%. The CRB index
jumped 2.9% (up 16.9% y-t-d). The Goldman Sachs
Commodities Index (GSCI) surged 4.2% (up 21% y-t-d
and 58% y-o-y).
China
Watch April 16 – Bloomberg (Nipa
Piboontanasawat and Li Yanping): "China ordered
banks to set aside more money to slow lending
after the economy grew more than economists
forecast in the first quarter and inflation was
close to the fastest in 11 years. Gross domestic
product expanded 10.6% in the three months to
March 31… ‘Economic growth is still very strong
and inflation is out of control,’ said Jim Walker,
chief economist at Asianomics… ‘The authorities
will need to raise interest rates a lot more and
let the yuan appreciate.’"
April 14 –
Bloomberg (Luo Jun, Zhao Yidi and Klaus Wille):
"China’s central bank chief said there’s still
room to raise interest rates after six increases
last year, as he tries to tame the highest
inflation since 1996. ‘The anti-inflation policy
is a combination of both quantitative measures and
price measures,’ Zhou Xiaochuan said… ‘There’s
room for using interest rates further.’"
April 17 – Bloomberg (William Bi): "China,
the world’s largest grain producer, will increase
export duties on all fertilizers and some related
raw materials by 100 percentage points to ensure
domestic supply for farmers during the main
growing season. The changes will be effective from
April 20 to Sept. 30 and will increase export
taxes on fertilizer products to between 100% and
135%..."
India Watch April 15 –
Dow Jones (Giada Cardoletti): "India’s economy
remains resilient to market upheavals, but
inflation rose more than expected, the governor of
India’s Central bank said… India’s inflation
levels are ‘unacceptable and far more intense than
anticipated,’ said Y.V Reddy… Inflation in India
has accelerated to an over three-year high of
7.41%..."
April 15 – Financial Times
(Justine Lau and Joe Leahy): "India’s airline
sector is expected to report losses of $1 billion
for the year ended last month, double that of a
year earlier, according to the head of one of its
biggest airlines… India’s air passenger market
grew at an annual compound rate of 25.5% in the
four years ended in March and is expected to grow
at 16% in the next two years, according to…Ernst
& Young."
Latin America
Watch April 15 – Bloomberg (Andre Soliani
and Adriana Brasileiro): "Brazil’s retail sales in
February rose at the fastest pace since June 2004,
boosting expectations that the central bank will
raise
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