Page 4 of
5 CREDIT BUBBLE
BULLETIN Crisis intermission - now for stage
two Commentary and weekly watch
by Doug Noland
interest rates tomorrow.
Retail, supermarket and grocery store sales, as
measured by units sold, jumped 12.2% in February
from the year-ago month…"
April 15 – Dow
Jones: "In the wake of last month’s widespread
food shortages, Argentines’ expectations for
future inflation rose in April to the highest
level yet… Torcuato Di Tella University said…that
the average projection for 12-month-out inflation
came in at 32.8% in its latest survey…"
Unbalanced Global Economy
Watch April 14 – Financial Times (Krishna
Guha, Chris Giles and Chris
Bryant): "World leaders
yesterday called for urgent action to tackle
soaring global food prices, while promising to
quickly implement measures to strengthen the
international financial system and prevent a
repeat of the credit crisis. The call for a global
effort to deal with both the immediate food crisis
in the developing world and the longer-term
challenge of ensuring adequate food supplies came
on the final day of the World Bank and
International Monetary Fund spring meetings…"
April 13 – Financial Times (Chris Giles
and Krishna Guha): "The subprime mortgage debacle
was not a unique problem for the global economy
but just one of many points at which an
unsustainable global economic system could have
shattered, Tommaso Padoa-Schioppa, Italy’s finance
minister, told the Financial Times. …Mr
Padoa-Schioppa insisted that the path of global
economic growth had been unsustainable and the US
was unlikely to be the main motor for growth over
the coming decade. ‘If we think that solving, or
emerging from, the crisis means going back to the
configuration of growth before the crisis, we
would be making a mistake because we were on an
unsustainable path," he said. Linking the subprime
crisis to global imbalances that built up in years
of low interest rates, high US consumer spending,
lax lending standards and enormous trade deficits,
Mr Padoa-Schioppa believes it is time to remind
everyone that solving the present credit crisis
will not solve the world’s economic problems. ‘We
have been saying for years that an economy that
has stopped generating savings needs a fundamental
correction and it has taken the form of the
subprime crisis…"
April 16 – Bloomberg
(Fergal O’Brien): "European inflation accelerated
more than initially estimated in March,
reinforcing the European Central Bank's resistance
to cutting interest rates even as economic growth
cools. The inflation rate rose to 3.6% last month,
the highest in almost 16 years, the European
Union’s statistics office in Luxembourg said
today. The March figure is up from 3.3% in
February and exceeds an estimate of 3.5% published
on March 31."
April 18 - Bloomberg (Brian
Swint): "Britain had a 10.2 billion-pound ($20.4
billion) budget deficit in March, a third more
than economists forecast, as capital investment
increased. The shortfall was the largest for the
month since records began in 1993…"
April
18 - Bloomberg (Jennifer Ryan): "U.K. mortgage
lending fell 17% in March from a year earlier, the
Council of Mortgage Lenders said. Gross lending
against property declined to 26.3 billion pounds
($52.5 billion)…"
April 16 – Bloomberg
(Christian Vits and Gabi Thesing): "Inflation in
Germany, Europe’ largest economy, accelerated in
March more than initially estimated, leaving the
European Central Bank little room to cut interest
rates. The inflation rate…rose to 3.3% from 2.9%
in February…"
April 18 - Dow Jones
(Jonathan House): "Spanish lending growth
continued to slow in February… Total Spanish loans
rose at an 11.8% annual rate in February, down
from 12.1% growth in January."
April 18 -
Bloomberg (Sharon Smyth and Ariadna Carbonell):
"Spanish housing prices fell in real terms for the
first time in more than a decade after higher
borrowing costs deterred buyers."
April 15
– Bloomberg (Tasneem Brogger): "Iceland’s economy
will contract next year for the first time since
1992 and inflation will exceed the central bank’s
target, the government said in a revised
forecast."
April 18 - Bloomberg (Jason
McLure): "Ethiopia’s annual inflation rate
increased to 29.6% in March, the highest in over a
decade, as rising food costs continued to push up
consumer prices. Inflation expanded from 22.9% in
February..."
April 15 – Bloomberg (Tracy
Withers): "New Zealand’s annual inflation rate
accelerated in the first quarter… The consumer
prices index rose 3.4% in the year ended March
31…"
Bursting Bubble Economy
Watch April 15 – Market News International
(Isobel Kennedy): "Treasuries traded lower Tuesday
on some surprisingly strong economic news and poor
inflation data… The March Producer Price Index was
not a pretty picture. Overall prices were +1.1%
(double the expected…)… Energy was up by 2.9%
Yikes! YOY PPI is running +6.9% vs. +3.1% at this
time a year ago. Bear Stearns’ economists said
crude wheat prices have risen 160.4% over the last
year, flour prices have risen 100.0%, pasta prices
are up 30.8%, and milled rice products have risen
34.8%. ‘Inflation is everywhere within this
report,’ Bear said."
April 18 – New York
Times (Andrew Martin and Kim Severson): "Shoppers
have long been willing to pay a premium for
organic food. But how much is too much? Rising
prices for organic groceries are prompting some
consumers to question their devotion to food
produced without pesticides, chemical fertilizers
or antibiotics. In some parts of the country, a
loaf of organic bread can cost $4.50, a pound of
pasta has hit $3, and organic milk is closing in
on $7 a gallon… Food prices in general have been
rising, but organic food lagged somewhat behind
last year because of a temporary glut of organic
milk and other factors… In recent months, however,
these factors have been giving way to cost
pressures in the industry. On grocery shelves
across the nation, sharp price increases are
taking hold. ‘It’s probably the most dynamic and
volatile time I’ve seen in 25 years,’ said Gary
Hirshberg, chief executive of Stonyfield Farm, an
organic dairy business. ‘It’s extremely difficult
to predict where it’s going.’"
April 17 –
The Wall Street Journal (Jeffrey McCracken): "More
companies than ever are in the weakest of
liquidity positions and struggling to cover their
bills, according to a Moody’s…report… There are
now 47 companies with public debt that Moody’s
rates as having the weakest of liquidity levels, a
number that has more than doubled since June.
These 47 companies have combined rated debt of
$34.7 billion."
April 15 – Financial Times
(Daniel Pimlott): "Tens of thousands of US
students may face problems paying their college
bills this year as the student loan market becomes
the latest victim of the credit crisis. A rising
number of private and public lenders have been
backing out of offering student loans, hit by the
fallout from the credit squeeze and the declining
profitability of federally insured education
loans. The problem is becoming increasingly urgent
because most loans are arranged between now and
August… Loans to students presently in college in
the US totalled $78 billion in 2006-07… But since
last August at least 50 private and non-profit
lenders, who in 2006 lent to 800,000 students and
provided 13% of loans, have withdrawn their
services, according to Finaid.org… A ‘very
significant’ proportion of the rest of the market
is set to follow, according to Tom Deutsch, of the
American Securitization Forum…"
Central
Banker Watch April 14 – Financial Times
(Aline van Duyn): "Henry Kaufman, the
distinguished Wall Street economist, has added his
voice to the debate about the Federal Reserve’s
role in the credit crisis… ‘Certainly the Federal
Reserve should shoulder a substantial part of this
responsibility. . . it allowed the expansion of
credit in huge magnitudes," Mr Kaufman said.
‘Besides its monetary policy approach, [the Fed]
really indicated very clearly that it was
performing its role as a supervisor . . . in a
minute fashion, not in an encompassing fashion.
Monetary policy had a high priority, supervision
and regulation within the Fed had a smaller
priority."
April 17 – Bloomberg (Christian
Vits and Gabi Thesing): "European Central Bank
council member Axel Weber said the bank will
assess whether current interest rates are high
enough to contain ‘intolerably’ high inflation.
‘Recent wage dynamics in conjuncture with elevated
and persistent energy and food price pressures
have increased the risk of a prolonged period of
intolerably high inflation… We will have to
continuously monitor closely all incoming data and
evaluate whether the current level of interest
rates in fact ensures’ price stability."
MBS/ABS/CDO/CP/Money Funds and
Derivatives Watch April 16 – Bloomberg
(Shannon D. Harrington and Abigail Moses):
"Credit-default swaps worldwide expanded to cover
$62.2 trillion of debt in 2007 as investors rushed
to protect against losses triggered by the
collapse of the US subprime mortgage market.
Contracts outstanding rose 37% in the second half
of 2007 from…the first half, the… International
Swaps and Derivatives Association said… The
market, which has grown from $34.5 trillion in
2006, doubled in each of the previous three years
as traders used the derivatives as a cheaper and
easier way to invest in corporate debt. ‘While the
amounts at risk are just a fraction of notional
amounts, these give us a good sense of market
activity,’ ISDA Chief Executive Officer Robert
Pickel said…"
April 16 – Bloomberg
(Abigail Moses): "The $62 trillion market for
credit derivatives needs regulating to prevent a
‘calamitous chain’ of market failures, Credit
Suisse Group’s head of investment banking, Paul
Calello, said at the industry’s biggest gathering.
‘All sectors of the financial system need to act
-- both regulators and industry,’ Calello told the
International Swaps and Derivatives Association
conference… ‘There will be new regulation, and
there should be; voluntary efforts are not
enough.’"
April 15 – Financial Times
(Aline van Duyn and Michael Mackenzie): "’Tranche
warfare’ has broken out in the $450 billion market
at the heart of the credit crunch as hard-hit
investors scrap over the pools of debts that make
up -so-called collateralised debt obligations.
Some investors in the differently rated and ranked
slices of CDOs - known as tranches - have taken
advantage of the - little-noticed terms in the
-structuring of such instruments to seize control
of the assets and cut off payments to other
debt-holders. Such conflicts have resulted in
lawsuits as investors question the rights of
others, such as senior noteholders who
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