Page 3 of 4 CREDIT BUBBLE BULLETIN Q3 2008 'Flow of Funds'
Commentary and weekly watch by Doug Noland
against the dollar after a government official said the weakening currency may
trigger defaults on more than half of loans."
Currency markets have turned hyper-volatile. The dollar index sank 2.8% to
81.30. For the week on the upside, the South Korean won increased 6.4%, the
Swiss franc 6.5%, the New Zealand dollar 5.1%, the Mexican peso 4.0%, the Euro
4.1%, the Danish krone 4.0%, the South African rand 3.4%, the Swedish krona
3.0%, the Singapore dollar 2.1%, the Canadian dollar 2.0%, and the Japanese yen
2.4%. On the downside, the Norwegian
Krone declined 1.5% and the British pound 0.2%. In the emerging currencies, the
Iceland krona dropped 4.1% and the Russian ruble lost 1.7%.
Commodities Watch
December 18 - Bloomberg (Carli Lourens and Brett Foley): "The world's biggest
mining companies are cutting expansion plans by about $200 billion as prices of
metals, demand from factories and funding for projects collapse. 'It will be
the biggest cutback in the history of the resources sector, an emergency stop,'
Graham Birch, who helps manage $40 billion ... at BlackRock ... said ... 'Any
project that is not under way is going to be stopped.'"
December 16 - Bloomberg (Winnie Zhu): "Coal prices at China's Qinhuangdao port,
a benchmark in the world's biggest producer of the fuel, tumbled 9% last week
as an economic slowdown cut demand ... The coal price has halved from the July
record ... "
Gold rose 1.9% to $838, while silver dropped 5.8% to $10.25. January Crude sank
another $12.41 to $33.87, the low since February 2004. January Gasoline dropped
9.1% (down 45% y-t-d), and January Natural Gas declined 2.8% (down 29% y-t-d).
March Copper sank 7.2%. March Wheat rallied 7.9% and Corn 1.9%. The CRB index
dropped 3.6% (down 39% y-t-d). The Goldman Sachs Commodities Index (GSCI) sank
6.4% (down 45% y-t-d).
China Watch
December 15 - Bloomberg (Kevin Hamlin and Li Yanping): "China's industrial
production grew at the weakest pace in almost a decade as export growth
collapsed, increasing pressure on the government to do more to revive the
slumping economy. Output rose 5.4% in November from a year earlier ... "
December 15 - Bloomberg (Li Yanping): "China will face 'very serious'
employment conditions in 2009 as the global financial crisis cools economic
growth, the state-run Xinhua News Agency reported, citing President Hu Jintao.
The government will adopt an "even more active" policy to create jobs ...
Maintaining social stability is a more important task while the economy is 'in
difficulty', he said."
December 15 - Bloomberg (Nipa Piboontanasawat and Li Yanping): "China's money
supply grew at the weakest pace in more than three years after exports fell and
foreign direct investment increased at a slower pace. M2 ... rose 14.8% from a
year earlier to 45.86 trillion yuan ($6.7 trillion) ... "
December 16 - Bloomberg (Li Yanping): "China's spending on factories and real
estate rose at a slower pace as property sales fell and export growth collapsed
because of the global recession. Fixed-asset investment in urban areas climbed
26.8% in the first 11 months from a year earlier to 12.76 trillion yuan ($1.9
trillion) ... "
Japan Watch
December 19 - Bloomberg (Mayumi Otsuma): "The Bank of Japan cut its benchmark
interest rate to 0.1%, increased purchases of government debt and announced
plans to buy commercial paper for the first time as the deepening recession
starves companies of funds."
December 18 - Bloomberg (Naoko Fujimura and Tetsuya Komatsu): "Japan's vehicle
sales next year may fall to the lowest in 31 years ... Sales of trucks, buses,
cars and minicars, may fall 4.9% to 4.86 million vehicles in 2009 from an
estimated 5.11 million this year, the Japan Automobile Manufacturers
Association said ... The tally would be the lowest since 1978 ... "
India Watch
December 16 - Bloomberg (Kartik Goyal): "Indian exporters have cut about 65,500
jobs as recession in the US and Europe, the nation's biggest markets, damped
overseas demand for products. A sample survey conducted by the department of
commerce between August and October for 121 export-oriented companies revealed
the loss of jobs, both direct and indirect, Trade Minister Kamal Nath said ...
India's exports fell in October for the first time in seven years."
December 19 - Bloomberg (Anil Varma): "India's foreign-exchange reserves rose
$4.6 billion to $250.4 billion ... Foreign-currency assets climbed $4.58
billion to $241.7 billion, while the nation's gold reserves remained unchanged
at $7.86 billion ... "
December 19 - Bloomberg (Anil Varma): "Money supply in India grew 20% in the
two weeks ended Dec. 5 from a year earlier ... "
Latin America Watch
December 16 - Bloomberg (Jeb Blount): "Brazil's retail sales rose 10.1% in
October from a year ago, the national statistics agency said."
Unbalanced Global Economy Watch
December 18 - Bloomberg (Jennifer Ryan and Brian Swint): "U.K. mortgage lending
fell an annual 51% in November, and next year borrowers will pay off more of
their debt than banks lend out for the first time in at least four decades, the
Council of Mortgage Lenders said ... Britons may repay about 25 billion pounds
more than they borrow next year, the first negative net lending figure since
records began in 1965 ... "
December 17 - Bloomberg (Svenja O'Donnell): "U.K. unemployment rose at the
fastest pace since 1991 ... The number of people receiving jobless benefits
rose 75,700 to 1.07 million, the highest level since July 2000..."
December 16 - Bloomberg (Marco Bertacche): "European car sales fell 26% in
November, the biggest monthly drop since 1999, as a global recession and
tighter credit hurt purchases and people shunned vehicles made by
bankruptcy-threatened General Motors Corp."
December 18 - Bloomberg (Simone Meier): "German business confidence dropped to
the lowest in more than a quarter century in December as the credit crisis
pushes Europe's largest economy deeper into a recession."
December 17 - Bloomberg (Rainer Buergin and Thomas Bauer): "The German
government will borrow more money next year than ever before as a contracting
economy hits tax revenue and inflates spending on unemployment benefits, a
senior lawmaker ... said. 'Next year we'll have the highest net and gross new
borrowing in the history of the Federal Republic,' Steffen Kampeter ... Gross
borrowing will be close to 340 billion euros ($479 billion) "if things go
really badly," he said."
December 16 - Bloomberg (Alex Nicholson): "Russian industrial production shrank
the most since the economic collapse of 1998 in November as the global slowdown
reduced demand for steel, pipes and fertilizers, pushing the nation to the
brink of recession. Output contracted 8.7% after growing 0.6% in October ... "
December 15 - Bloomberg (Henry Meyer): "Russian Prime Minister Vladimir Putin
is facing a rising tide of social discontent as the economy heads into
recession after a decade-long boom driven by oil prices. Thirty-nine percent of
Russians express growing dissatisfaction with the government, according to a
November poll... 'The worse the crisis gets, the more dissatisfaction will
grow, especially with regional authorities," Lyudmila Presnyakova, the poll's
organizer, said ... 'As unemployment rises, so will the potential for mass
unrest.'"
Bursting Bubble Economy Watch
December 18 - Dow Jones: "Chrysler LLC confirmed it will idle all manufacturing
operations at the end of the day Friday for at least a month in an effort to
align production and inventory with US market demand. The auto maker pointed to
tight consumer credit conditions, adding that dealers have lost about 20% to
25% of their sales volume because many would-be buyers can't find financing ...
General Motors Corp., Toyota Motor Corp. and Honda Motor Co. have all announced
steep production cuts in the past two weeks ... Chrysler's financing arm has
warned dealers it may have to temporarily stop the loans they use to pay for
stocking vehicles on their lots as a result of a recent wave of withdrawals
from a fund used to pay off those loans."
December 18 - Wall Street Journal (Conor Dougherty and Amy Merrick): "The worst
budget crisis in decades is forcing states to cut funding to cash-strapped
cities, which already are slashing police, firefighters and other services ...
In today's recession, both state and local revenues are suffering across the
board. In the past 30 years, state spending has grown by an average of 6.3%.
States cut a total of 0.1% from their budgets for fiscal 2009, which ends in
June ... States are facing $30 billion in budget deficits for the current
fiscal year ... "
December 18 - Wall Street Journal (Guautam Naik): "After a decade of
uninterrupted increases, US investment in research and development is set to
fall next year ... After accounting for inflation, total R&D spending in
the US is expected to fall by about 1.6% in 2009, according to ... Battelle
Memorial Institute ... By comparison, R&D investment in the US since the
late 1990s has increased annually at rates of between 1% and 2%, including
inflation."
December 17 - Bloomberg (Maria Ermakova): "Kira Plastinina, a 16-year-old
Russian fashion designer whose father says he spent $80 million setting up
stores under her name, will close almost all of her 12 US outlets after less
than a year as demand slumps. 'The number of shoppers in the US fell
significantly,' said Sergei Plastinin, Kira's father, the food entrepreneur who
co-founded OAO Wimm-Bill-Dann. 'It also became much harder to find money for
investment because of the financial crisis. We had enormous plans: New York,
then India and China in 2009.'"
Central Banker Watch
December 19 - Bloomberg (Scott Lanman and Craig Torres): "The Federal Reserve
cut the main US interest rate to as low as zero and said it will buy debt as
the next step in combating the longest recession in a quarter-century and
reviving credit. The Fed 'will employ all available tools to promote the
resumption of sustainable economic growth and to preserve price stability,' the
FOMC said ... 'Weak economic conditions are likely to warrant exceptionally low
levels of the federal funds rate for some time.' ... 'The Fed is sending a
message that it will print money to an unlimited extent until it starts to see
the economy expanding,' William Poole, former president of the St. Louis Fed
... said ... "
December 17 - Bloomberg (Johan Carlstrom): "Norway's central bank cut its
benchmark interest rate by 1.75 percentage points and signaled it will cut
borrowing costs further next year, forecasting that the economy will slip into
recession in the fourth quarter. The overnight deposit rate was reduced to
3%..."
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch
December 17 - Bloomberg (James Sterngold): "American International Group Inc.,
which already has suffered more than $60 billion in writedowns and losses, may
have to absorb almost $30 billion more because of flaws in the way its holdings
are
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