Page 3 of 5 CREDIT BUBBLE BULLETIN History's biggest margin call
Commentary and weekly watch by Doug Noland
highest since S&P began tracking the data in October 2002 ... That compares
with about a 30% distress ratio in September ... As of Oct. 15, 75 companies
have defaulted, affecting $226 billion of debt."
October 20 - Bloomberg (Jeremy R. Cooke): "Weekly interest costs on
auction-rate bonds issued by US municipal borrowers held above 7% for a third
week amid slack demand and persistent failures caused by the fallout from
tightened credit markets ... Before the auction-rate market collapsed this
February, the index averaged less than 4%."
October 24 - Bloomberg (Neil Unmack): "The cost of protecting
U.K. mortgage-backed bonds from default soared as concern mounted the global
economy is sliding into recession. Credit-default swaps on top-rated mortgage
securities ... rose 35 bps to 360, with insurance offered as high as 430 bps
... "
October 21 - Bloomberg (Theresa Tang): "Citic Pacific Ltd. tumbled the most in
18 years in Hong Kong trading after predicting HK$15.5 billion ($2 billion) in
losses from unauthorized currency bets. The unit of China's biggest state-owned
investment company dropped 55%..."
October 20 - Bloomberg (Niklas Magnusson and Johan Carlstrom): "Sweden pledged
as much as 1.5 trillion kronor ($205 billion) to guarantee bank loans and
created a fund that may buy shares in banks as it looks to revive lending in
the financial system."
October 23 - Bloomberg (Maria Levitov and Emma O'Brien): "Russia's
international reserves, the world's third largest, fell $14.9 billion last week
after the central bank sold currency to prop up the ruble ... The value of
reserves decreased to $515.7 billion ... 'The speed of the fall in reserves is
quite alarming,' Vladimir Tikhomirov, chief economist at UralSib Financial
Corp. in Moscow said ... Investors withdrew at least $63 billion from Russia
since Aug. 8 ... "
October 22 - Bloomberg (Denis Maternovsky and Juan Pablo Spinetto): "Russian
companies may default on almost a third of local-currency bonds as soaring
borrowing costs make it 'impossible' to refinance the debt, according to the
Bank of Moscow. A third of ruble debt is 'under severe distressed risk,' Denis
Gaevski, head of capital markets at Bank of Moscow, the third-biggest arranger
of ruble bonds, said ... "
October 24 - Bloomberg (Denis Maternovsky): "The market for credit-default
swaps on Russian government debt is 'dead' after investors pushed up the cost
of protection to distressed levels, said Pavel Pikulev, a fixed-income analyst
at Trust Investment Bank in Moscow."
October 21 - Bloomberg (Torrey Clark and Bradley Cook): "Russian companies and
banks have applied for almost $100 billion of loans from state development bank
Vnesheconombank to refinance foreign debt after credit markets worldwide seized
up, threatening economic growth. Banks have asked for $64 billion, while
companies have requested $33 billion, Chairman Vladimir Dmitriev said ... "
October 21 - Bloomberg (Matthew Brown and Khalid Qayum): "Pakistan may need as
much as $10 billion from donors over the next two years to avoid defaulting on
its debts, the International Monetary Fund said."
October 24 - Bloomberg (Christopher Swann): "The International Monetary Fund is
considering loans of up to five times the quota contributions of member
nations, in an unprecedented effort to avert an economic collapse in emerging
markets. The Washington-based lender is discussing plans to offer so-called
hard currency loans of between three and six months that wouldn't carry the
fund's usual demands for policy changes ... "
October 22 - Bloomberg (Kevin Cho): "Samsung Electronics Co., the world's
second-largest maker of semiconductors, scrapped a $5.85 billion offer to buy
SanDisk Corp., saying losses at the US company may worsen as a glut forces
chipmakers to cut prices."
Currency Watch
October 24 - Bloomberg (Kim-Mai Cutler): "The pound tumbled below $1.53 in its
biggest drop in at least 37 years after a report showed the U.K. economy
contracted more than forecast in the third quarter, bringing the nation to the
brink of a recession. The decline surpassed that of Black Wednesday in
September 1992, when the U.K. was driven out of Europe's Exchange Rate
Mechanism."
Global currency markets dislocated badly. The dollar index jumped 4.9% to
86.44. For the week on the upside, the Japanese yen jumped 7.8% to a 13-year
high. On the downside, the South African rand declined 10.4%, the Australian
dollar 9.7%, the New Zealand dollar 9.1%, the Brazilian real 8.2%, the British
pound 8.0%, the Canadian dollar 7.5%, the Swedish krona 6.5%, the South Korean
won 6.2%, the Norwegian krone 5.9%, and Euro 5.9%, and the Swiss franc 2.7%. In
the emerging currencies, the Polish zloty sank 12.1%, the Turkish lira 11.8%,
the Chilean peso 8.0%, the Hungarian forint 7.8%, and the Iceland krona 6.4%.
Commodities Watch
Commodity markets were in heavy liquidation. Gold dropped 6.6% to $732. Silver
was little changed at an almost 3-yr low $9.32. December Crude sank $7.42 to
$64.71. November Gasoline dropped 10.6% (down 40% y-t-d), and November Natural
Gas deflated 8.4% (down 16.9% y-t-d). December Copper collapsed 22.5%. December
Wheat dropped 8.8%, and Corn fell 7.5%. The CRB index sank 9.3% (down 28.6%
y-t-d). The Goldman Sachs Commodities Index (GSCI) fell 9.9% (down 29.9%
y-t-d).
China Watch
October 22 - Bloomberg (Luo Jun): "Agricultural Bank of China will get $19
billion from the government, paving the way for the lender to sell shares to
the public and capping a decade-long bailout of the nation's banking industry
... "
October 20 - Bloomberg (Li Yanping): "The global financial crisis is posing
challenges to the world trade system, China's Minister of Commerce Chen Deming
said. 'Actively pushing forward the Doha round of talks and improving the
multilateral trade system will help fight trade protectionism, boost confidence
among economies and aid smaller and less developed countries to overcome
difficulties,' Chen told World Trade Organization Director-General Pascal Lamy
... "
October 24 - Bloomberg (Lee Spears): "China High Speed Transmission Equipment
Group ... the nation's largest maker of gears for wind turbines, fell to a
record low in Hong Kong trading on concern over a wrong-way bet in an
equity-swap contract. China High Speed dropped 28%... before trading was
suspended, completing a three-day, 53% slide."
Japan Watch
October 24 - Bloomberg (Masaki Kondo and Satoshi Kawano): "Japan stocks
plunged, sending the Nikkei 225 Stock Average to the brink of 1982 levels, as
Sony Corp. cut its forecast, Toyota Motor Corp.'s car sales fell for the first
time in seven years, and the yen reached a 13-year high."
October 23 - Bloomberg (Jason Clenfield): "Japan's exports rose less than
economists estimated in September as overseas demand weakened in the wake of a
deepening global financial crisis. Exports ... climbed 1.5% from a year earlier
... "
India Watch
October 24 - Bloomberg (Anoop Agrawal): "India's rupee fell through 50 against
the dollar to a record low as stocks in the region slumped on increasing signs
that global economies are headed for a recession."
October 23 - Bloomberg (Kartik Goyal): "India's inflation slowed more than
economists ... Wholesale prices rose 11.07%... from a year earlier ... "
October 23 - Bloomberg (Kartik Goyal): "The Indian government has asked banks
to lend aggressively to help increase the amount of cash available in the
financial system, Finance Minister Palaniappan Chidambaram said. 'I hope the
message will go down the line and lending will take place,' Chidambaram told
reporters ... "
Asia Bubble Watch
October 24 - Bloomberg (William Sim): "South Korea's economy expanded at the
slowest pace in four years last quarter, sparking concern the nation is headed
for its first recession since requiring an International Monetary Fund bailout
10 years ago. The economy grew 0.6% from the previous three months ... "
October 23 - Bloomberg (Janet Ong): "Taiwan's export orders grew at the weakest
pace in six years in September as demand from China fell and sales to the US
slowed. Orders ... rose 2.82% from a year earlier ... "
October 20 - Bloomberg (Chen Shiyin): "Singapore's S$150 billion ($102 billion)
backing for its bank deposits is more than sufficient because the government
has enough reserves and the likelihood of a bank failure here is small, Trade
Minister Lim Hng Kiang said."
October 23 - Bloomberg (Shamim Adam): "Singapore's inflation
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