Page 2 of
2 CREDIT BUBBLE
BULLETIN US core no longer the
magnet Commentary and weekly watch by Doug
Noland
Securities loans rose
$13.4bn. Other loans increased $5.2bn.
M2
(narrow) "money" supply increased $12.2bn to
$8.328 TN (week of 5/18). Narrow "money" has
expanded at a 4.2% rate y-t-d and 9.1% over the
past year. For the week, Currency was unchanged,
while Demand & Checkable Deposits declined
$5.8bn. Savings Deposits jumped $30.8bn, while
Small Denominated Deposits fell $4.2bn. Retail
Money Funds decreased $8.6bn.
Total Money Market Fund
assets (from Invest Co Inst) rose
$15.4bn to $3.789 TN. Money
fund assets have declined $41bn y-t-d, or 2.7%
annualized. Money funds have expanded $309bn, or
8.9% over the past year.
Total Commercial Paper
outstanding sank $35.9bn this past week to $1.248
TN. CP has declined $433bn y-t-d (63.8%
annualized) and $506bn over the past year (28.8%).
Asset-backed CP declined $8.7bn to $566bn, with a
52-wk drop of $188bn (24.9%).
International reserve assets
(excluding gold) - as accumulated by Bloomberg's
Alex Tanzi - were down $100bn y-o-y to $6.709 TN.
Reserves have declined $237bn over the past 37
weeks.
Global Credit Market
Dislocation Watch May
29 - Bloomberg (Lester Pimentel and Michael
Patterson): "Emerging-market bonds are headed for
their biggest three-month rally in seven years,
led by Argentina and Ukraine ... Bonds sold by
developing countries returned 3.4% in May,
extending their gain since March 1 to 12% ... "
May 28 - Bloomberg (Jeff
Green and Mike Ramsey): "General Motors Corp., the
world's largest automaker until its 77-year reign
ended in 2008, plans to file for bankruptcy
protection on June 1 and sell most of its assets
to a new company, people familiar with the matter
said."
May 28 - Bloomberg (Oliver
Suess): "Credit insurers, including Euler Hermes
SA, Atradius NV and Coface SA, have raised
premiums by as much as 20 percent this year in
Germany and may increase them more as defaults
climb amid the financial crisis. 'Credit insurers
have been scrutinizing their contracts very
carefully' and raising rates, Joerg Mielke, head
of credit risk at the German unit of…Marsh &
McLennan Cos. in Munich, said ... 'They currently
might feel like fire insurers when half of the
world is on fire.'"
May 28 - Bloomberg (Radoslav
Tomek): "Eastern Europe no longer faces the threat
of a financial crisis as private investors and
banks will continue their financing in the region,
Moody's ... said. Still, eastern European
economies are in 'dire shape' and their recovery
depends on a revival of global output, said
Dietmar Hornung, Moody's senior analyst ... 'The
imminent feeling of a financial crisis has faded,'
Hornung said ... 'There are assurances that
foreign banks remain committed' to the region."
Government Finance Bubble
Watch May 28 -
Bloomberg (Craig Torres): "The Federal Reserve may
step up asset purchases to prevent its balance
sheet from contracting until policy makers are
convinced an economic recovery has taken hold, Fed
officials and analysts said. Demand for some of
the Fed's emergency programs has waned as the grip
of the credit crunch loosens, with loans to banks
shrinking 38% since Jan. 1. The main tool to keep
the central bank's holdings from falling from the
current $2.1 trillion would be more purchases of
Treasuries, said analysts including former Fed
Governor Laurence Meyer. Until now, policy makers'
balance-sheet decisions have been driven by the
emergency liquidity needs of banks, bond dealers,
money markets and failing financial institutions."
May 27 - Bloomberg (Alan
Bjerga): "Cargill Inc., Archer Daniels Midland Co.
and Bunge Ltd. are benefiting from the most
government support for farm exports since 1992 as
the US steps up loan guarantees for foreign buyers
unable to get credit. About $4.35 billion was
allocated to countries from Jamaica to Turkey
through April 6 in the year that started Oct. 1
... That's 40% more than in all of fiscal 2008 and
almost triple 2007's total."
Currency Watch May 27 - Bloomberg (Chen
Shiyin and Bernard Lo): "The US economy will enter
'hyperinflation' approaching the levels in
Zimbabwe because the Federal Reserve will be
reluctant to raise interest rates, investor Marc
Faber said. Prices may increase at rates 'close
to' Zimbabwe's gains, Faber said ... Zimbabwe's
inflation rate reached 231 million percent in
July, the last annual rate published by the
statistics office. 'I am 100% sure that the US
will go into hyperinflation,' Faber said. 'The
problem with government debt growing so much is
that when the time will come and the Fed should
increase interest rates, they will be very
reluctant to do so and so inflation will start to
accelerate.'"
The dollar index declined
0.9% this week to 79.29 (down 2.5% y-t-d). For the
week on the upside, the South African rand
increased 4.1%, the New Zealand dollar 3.3%, the
Brazilian real 3.0%, the Canadian dollar 2.7%, the
Australian dollar 2.4%, the Swiss franc 1.6%, the
British pound 1.6% and the Euro 1.0%. On the
downside, the Swedish krona declined 1.4%, the
South Korean won 0.6%, the Japanese yen 0.5%, and
the Singapore dollar 0.2%.
Commodities Watch May 28 - Bloomberg (Heather
Walsh): "Coffee prices may return to a 10-year
high this year after rainfall harmed crops in
Colombia, the world's third-largest supplier, a
farming group said. Prices may more than double
this year's 21% gain and 'probably' exceed $1.70 a
pound, said Rafael Mejia, president of the
Colombian Agriculture Society…"
Gold
ended the week up 2.3% to $979 (up 11% y-t-d).
Silver jumped 4.9% to $15.69 (up 38.3% y-t-d).
July Crude surged $4.67 (2-wk gain of $9.45) to
$66.45 (up 30% y-t-d). June Gasoline rose 4.9% (up
82% y-t-d), and June Natural Gas jumped 6.5% (down
31% y-t-d). Copper rallied 4.0% (up 49% y-t-d).
July Wheat surged 6.1% (up 0.3% y-t-d), and July
Corn gained 3.1% (up 5.7% y-t-d). The CRB index
jumped 3.7% (up 10.2% y-t-d). The Goldman Sachs
Commodities Index (GSCI) surged 5.5% (up 26.9%
y-t-d).
China
Reflation Watch May 29
- Bloomberg (Kevin Hamlin): "China's growth
prospects have improved from three months ago ...
The world's third-largest economy will expand 7.5%
this year, according to the median estimate of 14
economists surveyed by Bloomberg…"
May 27
- Bloomberg (Tom Kohn): "China, the world's
second-biggest energy consumer, views global
warming as more serious than the world financial
crisis, President Hu Jintao's special
representative on climate change wrote ... 'The
global financial crisis has, no doubt, exacerbated
the challenge of climate change,' Xie wrote. 'But
since climate change is a more far-reaching and
serious challenge, the world must not waver in its
determination and commitment to address it.'"
May 29
- Bloomberg (John Duce): "China, the world's
second-biggest energy user, may raise gasoline and
diesel prices by about 10% by next weekend as
higher oil prices are leading to losses at the
nation's refiners, according to an analyst."
Japan Watch May 29 - Bloomberg (Jason
Clenfield and Toru Fujioka): "Japan's industrial
output surged the most in 56 years in April as a
rebound in exports helped the economy emerge from
its worst recession since World War II. Production
rose 5.2% from March…"
India Watch May 29 - Bloomberg (Cherian
Thomas): "India's economy grew more than estimated
in the last quarter ... Asia's third-largest
economy expanded 5.8% in the three months to March
31, led by government spending and construction…"
May 28 - Bloomberg (Kartik
Goyal): "India's credit rating may come under
pressure if Prime Minister Manmohan Singh's
government is not able to rein in a widening
budget deficit, Moody's Investors Service said.
'The stable outlook on the ratings has recently
faced growing pressure, mainly due to substantial
deterioration in the fiscal position,' Aninda
Mitra, a senior analyst at Moody's…said ...
'Inability of the newly re-elected government to
meaningfully adjust fiscal policies and push ahead
with reforms could pressurize the foreign currency
credit rating."
Asia
Bubble Watch May 27 -
Bloomberg (Stephanie Phang): "Malaysia's economy
contracted for the first time since 2001 ...
Southeast Asia's third-largest economy shrank 6.2%
in the first quarter from a year earlier…"
Latin America Watch May 26 - Bloomberg (Iuri
Dantas and Joshua Goodman): "Brazil posted a
current account surplus for the first time in 19
months on growing demand for the country's
commodities, rising foreign investment and fewer
remittances of profits and dividends abroad." May 28 - Bloomberg (Matthew
Walter): "Brazil's state-run development bank will
loan Venezuela as much as $4 billion to finance
projects, Venezuelan President Hugo Chavez said.
Brazil and Venezuela signed a letter of intent for
the financing earlier this week…"
Unbalanced Global Economy
Watch May 28 -
Bloomberg (Greg Quinn): "Canadian home prices fell
in March, the Teranet-National Bank National
Composite House Price Index showed. Prices fell
5.8% from March 2008…"
May
27 - Bloomberg (Svenja O'Donnell): "The UK's
millionaire club has shriveled by half because of
the slump in property prices, falling stock prices
and smaller bonuses, the Centre for Economics and
Business Research said. There are currently
242,000 people living in Britain with assets of at
least 1 million pounds ($1.6 million), compared
with 489,000 estimated in the CEBR's previous
report in 2007…"
May 29 - Bloomberg (Christian
Vits): "Loans to households and companies in
Europe grew at the slowest pace on record in April
... Loans to the private sector rose 2.4% from a
year earlier after increasing an annual 3.2% in
March…"
Bursting Bubble Economy
Watch May 28 -
Bloomberg (Brian Louis): "JPMorgan Chase & Co.
Chairman and Chief Executive Officer Jamie Dimon
cut the asking price for his Chicago mansion to
$10.5 million last month…"
MBS/ABS/CDO/CP/Money Funds
and Derivatives Watch May 28 - Bloomberg (Kathleen
M. Howley): "Mortgage delinquencies and
foreclosures rose to records in the first quarter
and home-loan rates jumped to the highest since
March this week as the government's effort to fix
the housing slump lost momentum. The US
delinquency rate jumped to a seasonally adjusted
9.12% percent from 7.88%, the biggest-ever
increase, and the share of loans entering
foreclosure rose to 1.37%, the Mortgage Bankers
Association said ... Both figures are the highest
in records going back to 1972."
Speculator Watch May 28 -
Bloomberg (Larry Edelman): "Arthur Samberg, once
the world's biggest hedge-fund manager, said a
federal insider-trading investigation is forcing
him to shut Pequot Capital Management Inc. more
than two decades after starting its first fund ...
Pequot oversees $3.47 billion, according to a May
15 regulatory filing, down from $4.3 billion in
November and $15 billion in 2001…"
May
26 - Bloomberg (Gillian Wee): "The New York state
pension fund, the third largest in the US, is
pulling its money out of 10 money-management
companies to eliminate the use of middlemen when
investing in hedge funds."
Doug
Noland is a market strategist for the Prudent
Bear Funds.
(Republished with permission
from PrudentBear.com.
Copyright 2005-2009 David W Tice & Associates.
All rights reserved.)
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