Page 3 of 4 CREDIT BUBBLE BULLETIN Temporarily immune from reality
Market watch by Doug Noland
annual cement output to rebuild after the nation's worst earthquake in more
than five decades, the local government said. The southwestern province will
need 370 million metric tons of cement and 37 million tons of steel in the next
three years, Vice Governor Huang Yanrong said today... Over a trillion yuan
($146 billion) is needed to rebuild Sichuan... 'Both investment scale and
consumption demand will be expanded' with the rebuilding, Huang told
reporters…"
India Watch
August 19 - Bloomberg (Kartik Goyal): "India's central bank may have to further
raise interest rates as inflation at a 16-year high damages the government
ahead of elections due by May, according to the finance ministry's top
economist. 'The political
system doesn't tolerate inflation beyond a certain point,' the ministry's Chief
Economic Advisor Arvind Virmani said... 'Monetary policy has to focus on
inflation... ' 'The government's focus now is clearly on inflation control,'
said Ramya Suryanarayanan, an economist at DBS Bank... 'Inflation hurts the
poor more disproportionately and has a political significance in India.'"
Unbalanced Global Economy Watch
August 19 - Financial Times (Christopher Mason): "In the early days of the US
credit crisis, Canada remained confident that commodity prices and stable
consumer spending would allow it to escape the worst of the downturn in spite
of the ties that link the two economies. But this confidence is waning as
evidence grows that the gloss is coming off the Canadian economy... 'There are
troubling signs that we are beginning to see the economy buckle," said Douglas
Porter, deputy chief economist at BMO Capital Markets….More than 80% of
Canadian exports go to the US... Housing starts were down nearly 14% in July
from the previous month, home resale values have fallen in the past two
months…"
August 19 - Dow Jones: "U.K. inflation expectations soared to a 16-year high in
the third quarter, underscoring the risk that above-target price growth could
damage the credibility of the central bank's inflation target. Barclays
Capital's BASIX survey found that the median rate of inflation expected by
respondents over the next 12 months was 4.7% - up from 4.4% in the second
quarter and the highest level since January-March 1992."
August 20 - Bloomberg (Jennifer Ryan): "Britain's government budget surplus
shrank in July as the economic slump sapped tax receipts, putting Prime
Minister Gordon Brown at risk of breaking decade- old borrowing rules. The 4.8
billion-pound ($8.9 billion) surplus was the smallest for the month since
2005... In the first four months of the fiscal year, the deficit was 19.1
billion pounds, 10.7 billion more than a year earlier."
August 19 - Bloomberg (Gabi Thesing): "German producer-price inflation
accelerated to the fastest pace since October 1981 last month... Prices for
goods from newsprint to plastics increased 8.9% from a year earlier after
rising 6.7% in June…"
August 20 - Wall Street Journal (Anna Molin): "With a slowdown in Denmark's
property market pushing the country to the brink of recession, some banks in
the country face an uncertain future as credit losses and write-downs on loans
to property developers eat into earnings. Denmark's smaller banks have been the
main victims, with at least two teetering near collapse. But several industry
participants warn the troubles could soon make a bigger impact on the region's
larger banks and, in the longer term, lead to more mergers among the top dozen
or so financial institutions."
August 19 - MarketNews International: "New Zealand producer prices rose at
their fastest pace in more than 20 years in the second quarter... Producers'
input prices, the cost of goods and services excluding labor at the farm and
factory gate, rose 5.6% on the previous quarter, output prices were up 3.5%...
"
Bursting Bubble Economy Watch
August 19 - Bloomberg (Timothy R. Homan): "Prices paid to US producers in July
rose double the amount economists projected and increased the most in 27 years
from a year earlier... The 1.2% increase in the producer price index followed a
1.8% jump the prior month... Producers paid 9.8% more for goods from July 2007,
the biggest year-over-year gain since June 1981…"
August 20 - Associated Press: "The Tennessee Valley Authority has approved its
largest electric rate increase in more than 30 years. The 20% hike will affect
millions of customers across the TVA's seven-state region. The change will
raise monthly bills between $15.80 and $19.80 for the average residential
customer beginning Oct. 1."
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
August 19 - Bloomberg (Jody Shenn): "Collateralized debt obligations
experienced so-called events of defaults at a faster pace in early August, with
a commercial-mortgage CDO joining the list, according to JPMorgan Chase...
Seven mortgage-linked CDOs experienced default events, indicating even the
senior-most classes may not be repaid in full... Monthly additions to the $229
billion of defaults since mid-2007 peaked with 47 in February, the report said.
'Unwind fears,' including concern that CDOs will dump their holdings, have
pushed asset prices lower, the report said. Typical yields on AAA rated slices
of collateralized loan obligations over the London interbank offered rate are
at a record 2.25 percentage points, up 1.30 percentage point this year, the
report said... 'We have been expecting the next wave of EODs to come with
further downgrade activities on the horizon,' the analysts... led by Chris
Flanagan wrote. CDOs repackage assets such as mortgage bonds, loans and
derivatives into new securities with varying risks. CLOs repackage buyout loans
and other high-yield corporate debt."
Real Estate Bust Watch
August 20 - Bloomberg (David M. Levitt): "US Commercial real estate prices fell
for a fourth straight month in June, bringing values to 11.8% below their
October 2007 peak, Moody's said... Prices of office, retail, industrial, and
multifamily properties all fell as measured by the Moody's/REAL Commercial
Property Price Indices, and each was the largest decline since Moody's started
tracking them separately in 2000…"
August 21 - Bloomberg (Peter Woodifield): "London developers are adding the
equivalent of 160 trading floors of office space in the main financial district
in the next two years. Their timing couldn' be worse. Prices for offices in the
City of London have plunged 25% since last August, the biggest drop since
1992…"
GSE Watch
August 19 - Bloomberg (Maria Ermakova): "The Russian government has earned more
than $1 billion over the past six months by investing in Fannie Mae and Freddie
Mac bonds, Interfax reported, citing Finance Minister Alexei Kudrin."
Speculator Watch
August 20 - Bloomberg (Tomoko Yamazaki and Komaki Ito): "Hedge funds worldwide
declined in July... according to Eurekahedge. The Eurekahedge Hedge Fund Index,
which tracks the performance of 2,407 funds that invest globally, declined
2.3%, based on preliminary figures…"
August 20 - Wall Street Journal (Jenny Strasburg): "Andor Capital Management
LLC, a hedge fund controlling about $2 billion in assets that was spun off from
Arthur Samberg's Pequot Capital Management Inc. in 2001, is closing down and
returning money to investors... Andor's stock fund has lost money this year
amid the market turbulence that has caused troubles for many hedge funds."
August 22 - Bloomberg (Miles Weiss): "Hedge-fund manager David Tepper bought
$2.4 billion of oil and gas stocks in the second quarter, shifting 79% of his
US equity holdings into energy from less than 1% three months earlier. Tepper,
who runs Appaloosa Management... acquired new stakes in 18 energy companies….
Stanley Druckenmiller's Duquesne Capital Management LLC in Pittsburgh, Daniel
Loeb's Third Point LLC and Jeffrey Altman's Owl Creek Asset Management LP also
loaded up on energy stocks in the quarter, according to SEC filings. 'A lot of
funds have been caught long on crude,' said Peter Fusaro, chairman of Global
Change Associates…that tracks 700 hedge funds that make energy- related
investments."
Muni Watch
August 19 - Associated Press (Bill Kaczor): "Florida Gov. Charlie Crist said...
he plans to tap reserves to cover part of a predicted
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