Page 3 of 5 CREDIT BUBBLE BULLETIN Just the facts
Commentary and market watch by Doug Noland
a power crisis in China combines with supply problems in leading exporting
countries to tighten the market further. The surge in prices coincides with
fresh interest from hedge funds and other investors looking to gain exposure to
the commodity thanks to greater liquidity in the previously opaque
over-the-counter coal market ... The price gains have come on the back of
rising consumption in China, which relies on coal for almost 80% of its
electricity generation. Several regions are rationing power supplies as coal
shortages become acute. 'The Chinese power crisis is likely to be a major
driver of the global coal market over the next few months,' says Francisco
Blanch, commodity strategist at Merrill Lynch ... The one-year forward contract
for the Asian coal
benchmark, known as API-4, has risen by almost 124% over the past year ... "
Commodities markets are highly unstable. Gold dropped 2.6% to $930 and Silver
sank 4.5% to $17.38. August Crude dropped $6.27 to $123.20. August Gasoline was
hit for 4.4% (up 22.5% year-to-date), and August Natural Gas sank 14.3% (up
21.1% year-to-date). September Copper declined 1.7%. September Wheat added
0.9%, while August Corn dropped 5.3%. The CRB index was hit for another 3.5%
(up 14.9% year-to-date). The Goldman Sachs Commodities Index (GSCI) fell 4.6%
(up 24.4% year-to-date and 48.9% y-o-y).
China Watch
July 21 - Wall Street Journal (Denis McMahon): "After years of cross-border
mergers being delayed by authorities wary of foreign companies snapping up
Chinese assets too cheaply, Beijing's preoccupation with hot money may be
swinging the other way. Some foreign investors are being told by China's
currency regulator that they are paying too much for Chinese companies. A surge
in inward foreign direct investment this year - up 46% year-to-year in the
first half, compared with a 14% rise for all of 2007 - suggests potentially
volatile speculative funds are flooding into China in the form of high price
tags on corporate investments."
July 22 - Bloomberg (Zhang Dingmin): "China's tax revenue rose by 30.5% in the
first half as the economy expanded ... Tax income rose to 3.3 trillion yuan
($484 billion), the agency said ... Revenue from value-added, consumption and
business levies climbed 23% to 1.49 trillion yuan ... "
July 22 - China Knowledge: "Prices of major agricultural products in China rose
22.9% year-on-year in the first six months of 2008, the National Bureau of
Statistics (NBS) of China announced ... This was revealed by a nationwide
survey of 31,000 agricultural holdings conducted by NBS. During the period,
producer prices of plantation products, forestry, animal husbandry and fishing
products increased 13.8%, 12.1%, 39.8% and 12.8% respectively."
July 21 - Bloomberg (Nipa Piboontanasawat): "Hong Kong's inflation accelerated
in June to the fastest pace in four months as food and energy costs climbed.
Consumer prices rose 6.1% from a year earlier ... after gaining 5.7% in May."
July 24 - Bloomberg (Nipa Piboontanasawat): "Hong Kong's exports fell for the
first time in more than two years in June as shipments to the US, Japan and
mainland China declined."
Japan Watch
July 22 - Bloomberg (Toru Fujioka): "Demand for loans among Japanese companies
fell to a four-year low as a slowing economy and costlier materials made
businesses reluctant to borrow ... 'This indicates sluggish growth in business
investment, wages and hiring,' said Yasuhide Yajima, a senior economist at NLI
Research Institute ... 'Companies can't be confident about borrowing money amid
the higher costs.'"
July 24 - Bloomberg (Jason Clenfield): "Japan's exports fell for the first time
in more than four years as demand for cars and electronics cooled, signaling
the US slowdown is spreading to the emerging markets that helped sustain
growth. Exports decreased 1.7% in June from a year earlier ... "
July 24 - Bloomberg (Bei Hu): "Tokyo overtook London to be the world's
second-most expensive city, and living expenses in Indian cities leapt as the
dollar weakened and inflation surged, a survey by Mercer LLC said. Moscow was
the costliest city for the third year in a row."
Asia Bubble Watch
July 25 - Financial Times (Raphael Minder): "Asian governments, faced with the
highest inflation for a decade or more, are shelving billions of dollars worth
of landmark infrastructure projects and shifting funds to more immediate
economic assistance. Given the threat presented by surging food and fuel
prices, 'the long-term projects go by the wayside in favour of short-term sops
to keep people happy', said Edward Teather, an economist at UBS ... 'Clearly,
inflation now affects everybody.' New governments that took office this year in
South Korea, Taiwan and Thailand after campaigning on promises to pump new
funds into infrastructure are among those rearranging priorities."
July 23 - Bloomberg (Shamim Adam): "Singapore's inflation unexpectedly held at
7.5% for a third straight month in June ... "
Latin America Watch
July 25 - Bloomberg (Helen Murphy): "Colombia's central bank raised the
benchmark interest rate for the second time this year in a bid to combat
accelerating consumer prices. Policy makers increased their overnight interbank
rate by a quarter-percentage point to a near seven-year high of 10% ... "
Unbalanced Global Economy Watch
July 23 - Bloomberg (Greg Quinn): "Canada's inflation rate in June was the
highest since September 2005 as energy cost surged, forcing companies such as
Air Canada to raise prices. Consumer prices rose 3.1% from a year earlier ... "
July 22 - Financial Times (Chris Flood): "The UK is facing an extended period
of weak growth as policymakers battle to control inflation and this week's data
releases will confirm that the risk of the economy sinking into recession has
risen substantially. With house prices falling at the fastest pace since the
1930s and family budgets under pressure from rising petrol costs, utility bills
and food prices, the outlook for consumer spending has clearly deteriorated."
July 24 - Bloomberg (Jennifer Ryan): "U.K. retail sales dropped in June by the
most since at least 1986 as accelerating inflation and the slowdown in economic
growth prompted consumers to cut spending. Sales fell 3.9% after rising 3.6% in
May ... "
July 24 - Financial Times (Ralph Atkins): "The eurozone's economic slowdown has
worsened markedly according to closely-watched surveys that show growth
prospects collapsing across the 15-country bloc. Germany, France and Italy
reported sharp falls in business confidence in July, with German business
leaders gloomier about the next six months gloomier than for almost six years.
Separately, eurozone purchasing managers' indices ... showed private-sector
economic activity had contracted for the second consecutive month. France's
performance deteriorated particularly sharply. 'The downturn is gathering pace
faster than expected,' said Chris Williamson, chief economist at Markit ... "
July 25 - Financial Times (Ralph Atkins): "Eurozone housing markets have shown
fresh signs of cooling, with growth in mortgage lending dropping sharply to the
lowest annual rate since the launch of the euro. The latest ECB eurozone
lending data ... provide fresh evidence of a substantial economic slowdown
under way across the 15-country bloc."
July 24 - Bloomberg (Christian Vits): "German business confidence fell the most
since the Sept. 11 terrorist attacks in 2001, signaling growth is faltering in
Europe's biggest economy."
July 21 - Bloomberg (Joshua Gallu): "Swiss producer and import price inflation
accelerated to the fastest pace in almost 19 years in June, a sign that
pressure on consumer prices may be building. Prices for factory and farm goods
as well as imports rose 4.5% from a year earlier ... "
July 24 - Bloomberg (Tasneem Brogger): "Danish consumer confidence dropped in
July to the lowest level since November 1992 after declines in property values
led the economy into recession and inflation accelerated."
July 22 - Bloomberg (Flavia Krause-Jackson): "Italian consumer confidence
slumped in July to the lowest level since the 1993 recession after record food
and energy prices eroded purchasing power."
July 23 - Bloomberg (Ben Sills): "Producer prices in Spain accelerated more
than economists expected in June to the fastest pace in 23 years as record oil
increased costs for manufacturers. The price of goods leaving Spain's
factories, farms and mines rose 9% from the year-earlier period ... "
July 24 - Dow Jones (Jonathan House and Santiago Perez): "Spanish unemployment
rose rapidly in the second quarter as activity in the country's once-buoyant
economy slowed sharply at the end of a decade-long construction boom. Data
published Thursday by the National Statistics Institute, or INE, showed the
country's jobless rate rose to 10.44% in the second quarter from 9.6% in the
first quarter."
July 24 - Bloomberg (Tasneem Brogger): "Sweden's unemployment rate rose to a
two-year high of 8.1% in June ... The ... jobless rate rose from 5.9% in May
... "
July 22 - Bloomberg (Christos Ziotis): "Greece's budget deficit widened by
54.3% in the first five months of the year as the government increased spending
on wages and received less money from taxes on heating oil."
July 23 - Bloomberg (Adam Brown): "Romanian private debt growth, which the
central bank says is a main driver of inflation, accelerated in June, driven by
increased borrowing in foreign currencies. Private debt grew an annual 63.4% in
June ... "
July 24 - Dow Jones (Lidia Kelly): "The Russian M2 money supply growth rate
expanded to 3.8% on the month in June, after a 2.8% rise in May ... On the
year, M2 rose 31.2% ... "
July 21 - Bloomberg (Alex Nicholson): "Russian producer prices rose in June at
the fastest pace since December 2004 as energy
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