Page 3 of 4 CREDIT BUBBLE BULLETIN
Good inflation?
Commentary and weekly watch by Doug Noland
shipping grains, coal and other so-called dry-bulk commodities will escape a
global economic slowdown because of increasing demand from China and India,
Macquarie Bank Ltd. said. The Baltic Dry Index, a measure of shipping costs for
commodities, reached a record May 20 and is still trading at more than three
times its 10-year average."
Gold rallied 3.5% to $902, and Silver 5.1% to $17.40. July Crude slipped 24
cents to $134.62. July Gasoline declined 0.9% (up 38.5% y-t-d), while July
Natural Gas rose 3.1% (up 74% y-t-d). July Copper surged 6.7%. July Wheat
declined 1.8% and Corn 1.4%. The CRB index jumped 2.1% to a new record high (up
26.9% y-t-d). The Goldman Sachs Commodities Index (GSCI) added 0.4% (up 38.2%
y-t-d and 72.5% y-o-y).
China Watch
June 20 - Bloomberg (Wang Ying and Winnie Zhu): "China, the world's
second-biggest oil-consuming nation, unexpectedly raised gasoline and diesel
prices by at least 17% and increased power tariffs to rein in energy use,
potentially driving up inflation."
June 17 - Bloomberg (Nipa Piboontanasawat): "China's spending on
factories and real estate grew 25.6% through May, led by property development
and boosted by reconstruction work after snowstorms in January and February.
Urban fixed-asset investment rose to 4.03 trillion yuan ($585 billion) in the
first five months from a year earlier after gaining 25.7% in the four
months through April."
June 16 - Bloomberg (Nipa Piboontanasawat): "China's
industrial-production growth accelerated on rising exports, signaling that the
world's fourth-biggest economy is weathering a global slowdown. Output rose 16%
in May from a year earlier after gaining 15.7% in April."
June 19 - Bloomberg (Kevin Hamlin and Nipa Piboontanasawat): " China's
monetary policy may be overwhelmed by inflows of speculative capital if it
doesn't allow greater exchange-rate flexibility, the World Bank said. ' China
is too large an economy not to have an independent monetary policy,' Louis
Kuijs, acting chief economist for China, said. 'To have that, you need
more exchange-rate flexibility.' The World Bank today forecast inflation in the
world's fourth-biggest economy of 7% this year, up from a February estimate of
4.6%. Record inflows of cash from trade, foreign direct investment and
investors betting on more gains by the yuan threaten to fuel price gains.
'Excess liquidity is already a problem,' said Huang Yiping, chief Asia
economist at Citigroup. 'The expectation of significant further
appreciation of the yuan is encouraging more inflows.'"
June 17 - Bloomberg (Patricia Lui): "China is adding to its holdings of
US assets, data from the US government showed yesterday... Total holdings of US
equities, notes and bonds among foreign investors rose by a net $115.1 billion
in April from $79.6 billion the previous month. China's holdings of
Treasuries gained $11.4 billion to $502 billion, holdings of US agency debt
rose $11.9 billion and US corporate bond investments increased $6.9
billion."
June 18 - Bloomberg (Chia-Peck Wong): "Hong Kong's underlying inflation
rate may double from a year earlier, the city's de facto central bank
said. Prices may gain 5.2% to 5.8% this year, up from 2.8% in
2007. Rising food and energy costs, rents and wages are fanning Hong
Kong's inflation, along with a currency that is pegged to the declining US
dollar."
Japan Watch
June 18 - Bloomberg (Mayumi Otsuma): "The Bank of Japan is watching the
effect of higher commodity prices on global inflation and growth in the world's
second-largest economy, meeting minutes show. Japan faces 'considerable
downside risks including uncertainty regarding future developments in overseas
economies and global financial markets,' members agreed at their May 19- 20
meeting. 'Inflation risks had been heightening worldwide given the high
international commodity prices.'"
June 17 - Bloomberg (Aya Takada): "Japan, Asia's biggest wheat importer,
may raise prices of the grain sold to flour millers by more than 20% from
October, adding to production costs for bread and noodle makers. The expected
gain, following a 30% increase in April, would reflect rising costs to import
the grain."
India Watch
June 20 - Bloomberg (Kartik Goyal): "India's inflation accelerated to a
13-year high after record crude oil costs forced the government to raise retail
fuel prices... Wholesale prices jumped 11.05% in the week to June 7."
June 20 - Bloomberg (Anil Varma): "Money supply in India grew 21.4% in
the two weeks ended June 6 from a year earlier, compared with 22.5% in the
prior two weeks."
Asia Bubble Watch
June 17 - Financial Times (Sundeep Tucker): "The value of mergers and acquisitions
within Asia is soaring as the region's leading companies take advantage
of opportunities to build scale and secure resources in fast-growing markets
closer to home. The aggregate value of announced cross-border deals between
Asia-Pacific companies has totalled $54bn in the year to date, according
to Dealogic. This compares to $25.7bn during the
corresponding period last year. Bankers report that deals currently in the
pipeline should mean 2008 will be a record year for intra-Asian deals."
June 18 - Bloomberg (Soraya Permatasari): " Malaysia's vehicle sales
rose 25% last month from a year earlier, the Malaysian Automotive Association
said."
June 19 - Bloomberg (Wahyudi Soeriaatmadja): " Indonesia's automobile
sales may rise by as much as 27% in June, Investor Daily Indonesia
reported."
Latin America Watch
June 20 - Bloomberg (Jens Erik Gould): "Mexico's central bank
unexpectedly increased its benchmark interest rate and said inflation may
exceed its forecast this year and in the beginning of next. Banco de Mexico's
five-member board voted today to raise the overnight lending rate by a quarter
percentage point to 7.75%."
June 16 - Bloomberg (Alex Emery): " Peru's economy grew 13.25% in April,
the national statistics institute said."
June 16 - Bloomberg (Daniel Cancel): "Venezuelan bank lending rose 2.8%
in May from the previous month. Lending rose 46.3% from the same month a
year earlier."
June 18 - Dow Jones:
"Venezuela's retail sales increased 21.7% in March
from the same month a year ago, the central bank
said."
Unbalanced Global Economy Watch
June 17 - Bloomberg (Brian Swint and Jennifer Ryan): "U.K. inflation
reached the highest since at least 1997 in May, and Bank of England Governor
Mervyn King predicted it will exceed 4% later this year, adding to speculation
that the economy will fall into a recession."
June 16 - Bloomberg (Rachel Graham): "Unite, the U.K.'s largest union,
is seeking a 6% pay increase for farm workers, to attract more applicants and
ease a labor shortage."
June 19 - Bloomberg (Jennifer Ryan): "The U.K. budget deficit widened to
11 billion pounds ($21.7 billion) in May, the second-biggest shortfall since
records began in 1993, as a slowing economy eroded taxes. It compared with a
gap of 8.5 billion pounds a year earlier."
June 19 - Bloomberg (Brian Swint): "U.K. annual money supply growth
slowed to the lowest pace in three years in May, according to Bank of England
data. M4 rose 10% from a year earlier."
June 16 - Bloomberg (Fergal O'Brien): "European inflation accelerated to
the highest in 16 years last month as food and energy costs soared,
intensifying what finance ministers from the world's richest nations said is
becoming a 'more complicated' dilemma. The inflation rate in the euro area rose
to 3.7%, the highest since June 1992, from 3.3% in April."
June 19 - Bloomberg (Sharon Smyth): "Land prices in Spain fell in the
first quarter from the previous three months and from a year earlier. The
average price of urban land dropped 9.4% from the fourth quarter and 7.7% from
the first quarter of 2007."
June 19 - Bloomberg (Flavia Krause-Jackson and Steve Scherer): "Italy's
unemployment rate unexpectedly rose in the first quarter to the highest in more
than a year. The jobless rate increased to 6.5%."
June 19 - Bloomberg (Zoltan Simon): "Hungarian wages rose faster than
consumer prices in April. The average monthly gross wage increased an
annual 10.6% to 194,455 forint ($1,241), after climbing 9.9% in March."
June 16 - Bloomberg (Alex Nicholson): "Russia's economy expanded an
annual 8.5% in the first quarter, the second-fastest pace since 2000, as
companies invested in their businesses to keep up with demand for consumer
goods and new apartments. The growth rate followed an advance of 9.5% in the
previous three months."
June 19 - Bloomberg (Alex Nicholson): "The cost of living in Moscow rose
40% in the year through April, Vedomosti reported. The price of a standard
'shopping basket' of basic necessities advanced 25% on average nationwide in
the period, the newspaper reported today, citing a yearlong survey of 8,500
people conducted by the Romir research service."
June 19 - Bloomberg (Nasreen Seria): "South Africa's current account
deficit swelled to 9% of gross domestic product in the first quarter, the
widest in 26 years, while foreign investment in stocks and bonds plunged,
undermining the rand."
June 17 - Financial Times (Peter Smith): "The land of the long white
cloud has enjoyed a 10-year economic boom driven by exports of milk, butter and
cheese, a population riding a housing market boom and tourists eager to sample
the landscapes depicted in Hollywood films such as The Lord of the Rings. But
New Zealand is on the cusp of a downturn and risks seizing the dubious honour
from the US of becoming the world's first developed nation to sink into
recession."
Bursting Bubble Economy Watch
June 19 - Wall Street Journal (Kelly Evans): "In an increasingly gloomy
assessment of the US economy, the officers of major companies expect employment
at their companies to decline in coming months and rising costs to pinch their
profits, according to surveys released Wednesday. Chief executives polled by
Business Roundtable pared their expectations of economic growth to an
annual rate of 1.3% in the second quarter of this year. Some 31% of CEOs
said they expect employment at their companies to decline over the next six
months. The group, whose outlook is usually relatively upbeat, has become
pessimistic amid mounting energy prices and housing-market worries."
June 20 - Bloomberg (Greg Bensinger): "Ford Motor Co.'s production cuts
underscore how plunging prices for used pickups and sport- utility vehicles are
deepening US automakers' sales slide. Prices for used large pickups and SUVs
fell at least 21% in May, according to Manheim Consulting."
June 19 - Wall Street Journal (Christopher Conkey): "As Americans cut
back on driving, they are paying less in gasoline
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