Page 3 of 3 CREDIT BUBBLE BULLETIN
Just the facts
Weekly watch by Doug Noland
credit crunch deprived potential buyers of needed financing."
November 26 - Bloomberg (Lindsay Fortado): "Salaried lawyers at top New York
law firms last year got bonuses of as much as $115,000. This year they may only
get a quarter of that. Cravath, Swaine & Moore, the second-most-profitable
US law firm and one of the pace-setters for the top tier, opened the bonus
season last week, awarding some associates 27% of what they got in 2007 ...
Simpson Thacher & Bartlett yesterday followed Cravath's lead, announcing
maximum payouts of $32,500 compared with $115,000 in 2007, a 72% difference ...
The most-profitable US firms, which rely heavily on business from financial
institutions, are struggling as some clients go bankrupt, get bought out or
receive government bailouts. Deal work is down 36 percent this year ... "
November 28 - The Wall Street Journal (Kate Linebaugh): "In past economic
slumps, luxury-car makers have withstood the downturn better than their
mass-market counterparts. Not so this year. Sales for the US luxury-car market,
which includes everything from a Lexus to a Lamborghini, fell 30% last month
from a year earlier -- on par with the 31.9% decline for the overall market,
according to Autodata Corp."
Central Banker Watch
November 25 - Bloomberg (John Fraher and Jennifer Ryan): "Bank of England
Governor Mervyn King said U.K. financial institutions may still need more
capital and the 'single most pressing challenge' facing policy makers is to
revive the flow of credit through the economy. 'We may not have come to the end
of recapitalization,' King said ... 'We should not shy away from that if that
proves to be necessary.'"
November 28 - Bloomberg (Maria Levitov): "Russia's central bank raised its main
interest rates for the second time this month in a bid to make the weakening
ruble more attractive to investors, cap capital outflow and damp 'inflationary
trends.' The refinancing rate will rise to 13% from 12%..."
GSE Watch
November 26 - Bloomberg (Emma Moody): "Freddie Mac, seized by the government
two months ago, said the US Treasury gave it $13.8 billion after a record
quarterly loss caused its shareholders' equity to fall below zero."
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
November 25 - Bloomberg (Hui-yong Yu): "The value of US commercial real estate
sales this year will fall to $142 billion, 70% less than last year's record
$467 billion ... according to Reis Inc., a ... real estate research firm.
Office, apartment, retail and industrial property transactions totaled $110
billion through the third quarter, Reis said ... "
November 25 - Bloomberg (Michael McDonald): "The Massachusetts Turnpike
Authority expects to spend an additional $2 million a month after bets it made
using financial derivatives went awry. The agency, at the center of protests
over a proposed doubling of tolls, says the cost of repaying $800 million in
debt will soon increase because of wagers made with UBS AG on future interest
rates. The authority ... sought earlier this month to double tolls to $7 on
some downtown Boston highway tunnels as it struggles with rising maintenance
and debt costs."
Real Estate Bust Watch
November 26 - Bloomberg (Timothy R. Homan): "House prices in 20 US cities
declined in the year ended in September at the fastest pace on record ... The
S&P/Case-Shiller home-price index dropped 17.4% in September from a year
earlier ... The gauge has fallen every month since January 2007, and
year-over-year records began in 2001."
Speculator Watch
November 28 - The Wall Street Journal (Saijel Kishan): "Satellite Asset
Management LP, founded by former employees of billionaire George Soros, stopped
client withdrawals from its three largest hedge funds ... after losses reduced
the firm's assets to about $4 billion this year. Satellite Overseas Fund Ltd.,
Satellite Fund II LP and Satellite Credit Opportunities Ltd. have declined as
much as 35% in 2008 ... "
November 25 - Bloomberg (Saijel Kishan): "Parkcentral Capital Management LP, an
investment firm that manages money for the family of former US presidential
candidate H. Ross Perot, is liquidating a fixed-income hedge fund because it's
'no longer viable.' Parkcentral Global Hub Ltd.'s assets fell as much as 40% to
$1.5 billion this year through October."
November 28 - Bloomberg (Neil Unmack): "Allianz SE's 300 million-euro ($387
million) collateralized fund obligation linked to the performance of 80 hedge
funds will be liquidated after a vote by investors."
Fiscal Watch
November 25 - Wall Street Journal (Jonathan Weisman, Deborah Solomon, and Jon
Hilsenrath): "Aides to President-elect Barack Obama and President George W.
Bush are rushing to craft measures to shore up financial markets and prevent a
policy vacuum from further harming the economy during the transition of power
between the two men. Mr. Obama's team is putting together a new economic
stimulus plan containing more than $500 billion in federal spending and tax
cuts over the next two years, Obama aides and advisers said ... That package
would be far more aggressive than anything envisioned during the campaign."
Muni Watch
November 28 - The Wall Street Journal (Michael Aneiro): "Despite the federal
government's continuing efforts to thaw frozen lending markets, states and
municipalities are still feeling left out in the cold. Municipal-debt issuance
is down sharply in 2008, particularly during the past few months ... Overall
issuance of municipal bonds has dropped by 9.1% in 2008 to date. Since
September, muni issuance has plunged by 41% compared with the same period last
year, according to Municipal Market Advisors. Since investor demand has fallen
sharply, the bonds' prices have sagged."
New York Watch
November 24 - Bloomberg (Henry Goldman): "New York may lose as many as 225,000
jobs and $6.5 billion in securities industry-related tax revenue over the
two-year period ending in October 2009, state Comptroller Thomas P DiNapoli
said."
November 25 - Bloomberg (Michael Quint): "New York Governor David Paterson told
the state's 700 school districts they should plan on deeper reductions than he
previously proposed in aid for next year after lawmakers failed to approve cuts
for this year. The $1.9 billion, or 8.8%, increase in state aid projected for
the year beginning April 1 'is a level of funding we simply cannot afford,'
Paterson said ... Earlier this month, he proposed cutting that amount by $844
million and this year's by $585 million."
California Watch
November 25 - Bloomberg (Daniel Taub): "Single-family home sales in California
more than doubled in October as price cuts of foreclosed properties spurred
purchases, the California Association of Realtors said ... The median home
price in the most populous US state dropped 40% to $311,060 from $517,240 a
year earlier."
November 26 - Bloomberg (Michael B. Marois and William Selway): "California's
Republican lawmakers defeated a $17 billion plan to shrink a yawning budget
deficit, prolonging an impasse in the state suffering most from a fiscal crisis
battering local governments nationwide ... "
Crude Liquidity Watch
November 25 - Bloomberg (Fiona MacDonald): "Kuwait's inflation rate accelerated
to a record 11.6% in August from 11.1% in July."
November 25 - Bloomberg (Camilla Hall): "Qatar M2 money supply growth, an
indicator of future inflation, eased to an annual 42% in August from 45.3% in
July."
November 25 - Bloomberg (Ladane Nasseri): "Iran's annual inflation may
accelerate to 50% if a plan to introduce cash payments for the poor is
implemented, Sarmayeh reported, citing a parliamentary deputy."
Doug Noland is a market strategist for the Prudent Bear Funds.
(Republished with permission from PrudentBear.com.
Copyright 2005-2008 David W Tice & Associates. All rights reserved.)
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