Page 3 of
3 CREDIT BUBBLE
BULLETIN Free cash to the
exits Commentary and weekly
watch by Doug Noland
June 4 - Bloomberg
(Patricia Kuo and Stephen Morris): "European
companies are reassessing how they raise money as
stricter capital rules prompt banks to curtail
loans as a loss leader to win other business. Bond
sales are about to overtake loans for the first
time after corporate borrowers raised $196 billion
from syndicated loans this year, a 48% drop from
the same period in 2011 and the steepest decline
ever…"
Global Bubble Watch June
8 - Bloomberg: "China cut borrowing costs for the
first time since 2008 and loosened controls on
banks' lending and deposit rates, stepping up
efforts to combat a deepening slowdown as Europe's
debt crisis threatens global growth… The extra
leeway banks will get to determine rates at
variance from the official
setting was called a
'milestone' by UBS AG. The move, before China
reports inflation, investment and output figures
tomorrow, may signal that the economy is weaker
than the government anticipated."
June 7 -
Bloomberg: "China delayed tightening bank capital
rules to the beginning of next year, signaling
support for loan growth as policy makers seek to
arrest a slowdown in the world's second-largest
economy. New draft rules from the China Banking
Regulatory Commission aim to set 'reasonable'
schedules for banks to meet capital targets in a
way that helps 'maintain appropriate credit
growth,' the government said…"
June 7 -
Bloomberg (Kelly Bit): "Hedge funds fell 2.9% in
May, their worst month since September… The
decline was driven by long-short equity,
multistrategy and global macro funds, according to
data compiled by Bloomberg. Hedge funds have lost
1.3% since the start of the year, trailing a 0.9%
gain for equities worldwide… 'It's very hard for
hedge funds across the board to generate positive
returns if equities around the world are selling
off significantly, the dollar is strengthening,
commodities are selling off significantly,' said
Don Steinbrugge, managing partner of Agecroft
Partners…"
June 4 - Bloomberg (Cheyenne
Hopkins and Caroline Salas Gage): "When is a hedge
not a hedge? That's the question regulators from
the Federal Reserve to the Office of the
Comptroller of the Currency are confronting after
JPMorgan Chase & Co. reported a $2 billion
trading loss from a credit-derivatives position
Chief Executive Officer Jamie Dimon called a
'hedge.' Regulators are under pressure to respond
to JPMorgan's loss as they finish writing the
so-called Volcker Rule, which restricts banks'
proprietary trading and is the most controversial
provision in the Dodd-Frank Act. They're
scrutinizing the so-called hedging exemption in
the proposed regulation and probably will narrow
the exceptions for trades banks say are designed
to mitigate risk, according to two people familiar
with the matter. JPMorgan's loss 'will reinforce
the position of those who want to be tough,'
Representative Barney Frank, a Massachusetts
Democrat and co-author of the financial-overhaul
legislation, said… 'I do think it will mean
Volcker will not allow' such trades."
June
8 - Bloomberg (Sarika Gangar): "Sales of corporate
bonds from the US to Europe and Asia slumped to
their lowest levels this year and borrowing costs
soared to the most since February as a global
slowdown curbed demand for all but the safest
assets. Deere & Co… led weekly sales of at
least $39.5 billion, the smallest amount since the
five days ended Dec. 30… Offerings fell below the
2012 weekly average of $76.8 billion for the
fourth consecutive period as yields rose to 4.272%
from the low this year of 4.06% on May 8.
High-yield issuance in the US was virtually shut
as Federal Reserve Chairman Ben S. Bernanke said
the world's largest economy is threatened by
Europe's debt crisis and government budget cuts…"
June 5 - Bloomberg (Christine Idzelis and
Krista Giovacco): "Leveraged loans are generating
their biggest losses of the year as investors pull
back from even the safest debt in a company's
capital structure on concern that Europe's
financial crisis will spark a global slowdown that
diminishes the creditworthiness of borrowers.
Syndicated loans of speculative-grade borrowers
lost 1.22% last month, the most since November…"
Currency Watch June 8 -
Bloomberg (Catherine Hickley): "It was a currency
union of 15 states in 1992. Two years later, as
budget deficits spiraled out of control,
hyperinflation reigned and economies shriveled,
just two members of the Soviet Union's ruble zone
were left. As Greek politicians threaten to break
terms of the country's bailout with international
lenders, Spain calls for financial help, and
northern European nations balk at funding the
south, historians are asking whether the euro
region is about to face a similar exodus. They
take a longer view of the European Union's crisis
than economists, and it's much bleaker. The Soviet
experience tells us 'an exit like this is messy
and leads to loss of income and inflation, and
people are right to be scared of it,' said Harold
James, a professor of history at Princeton
University…"
June 7 - Bloomberg (Simone
Meier): "The Swiss central bank's foreign-
currency reserves surged to a record in May as the
euro region's increasing turmoil forced policy
makers to step up their defense of the franc
floor. Currency holdings rose to 303.8 billion
Swiss francs ($318bn) from 237.6 billion francs in
April… Walter Meier, a spokesman at the SNB… said
a 'large part' of the increase was due to currency
purchases to defend the minimum exchange rate of
1.20 francs per euro."
The US dollar index
declined 0.5% this week to 82.51 (up 2.9% y-t-d).
For the week on the the upside, the Mexican peso
increased 2.8%, the South African rand 2.2%, the
Australian dollar 2.2%, the New Zealand dollar
2.1%, the Swedish krona 1.7%, the Canadian dollar
1.4%, the Norwegian krone 1.2%, the Brazilian real
0.8%, the Singapore dollar 0.7%, the British pound
0.7%, the Swiss franc 0.7%, the euro 0.7%, the
Danish krone 0.6%, and the South African rand
0.2%. On the downside, the Taiwanese dollar
declined 0.2% and the Japanese yen fell 1.9%.
Commodities Watch The CRB index
recovered 1.7% this week (down 10.6% y-t-d). The
Goldman Sachs Commodities Index rallied 1.2% (down
8.8%). Spot Gold gave back 1.9% to $1,593 (up
1.9%). Silver was little changed at $28.47 (up
2%). July Crude gained 87 cents to $84.10 (down
15%). July Gasoline increased 1.1% (up 1%), while
July Natural Gas declined 1.2% (down 23%). July
Copper slipped 0.9% (down 4%). June Wheat gained
2.9% (down 3%) and June Corn rallied 8.4% (down
8%).
China Watch June 5 -
Bloomberg: "China's four biggest banks extended
less than 250 billion yuan ($39bn) of new loans in
May, said Liu Yuhui, a senior researcher at the
Chinese Academy of Social Sciences… The China
Securities Journal reported… that the lenders,
Industrial & Commercial Bank of China Ltd.,
China Construction Bank Corp., Bank of China Ltd.,
and Agricultural Bank of China Ltd., made 253
billion yuan of new loans… 'Demand is definitely
not robust,' said Liu, director of a financial
research office at the government-backed think
tank. 'Banks are struggling to find projects that
they can lend to that have controllable risks.'"
June 8 - Bloomberg (Greg Quinn): "China
has begun limiting access to corporate filings
after short-sellers used them to highlight
accounting discrepancies that led to stock plunges
and regulatory investigations over domestic
companies listed abroad. 'In recent months, the
Industry & Commerce Administrations in many
key cities and provinces around China have
implemented measures restricting access to the AIC
files of Chinese companies,' said Nathan Bush, a
Beijing-based partner at the law firm O'Melveny
& Myers LLP."
Latin America
Watch June 5 - Bloomberg (Gabrielle Coppola
and Boris Korby): "The takeover of Banco Cruzeiro
do Sul SA is heightening concern that Brazil's
midsize banks will struggle to repay about $2
billion of overseas debt in the next 18 months as
the real weakens and borrowing costs surge. Yields
on Cruzeiro do Sul's dollar notes due in 2020
soared 1,027 bps to a record 23.44% yesterday
after the central bank ordered the seizure of the
lender for 180 days, citing 'serious violations'
of regulations."
June 8 - Bloomberg (Katia
Porzecanski and Camila Russo): "Argentine
President Cristina Fernandez de Kirchner said
she's moving her savings into pesos from dollars
and urged aides to do the same as she struggles to
keep capital in the country and avert a plunge in
the currency. The peso has posted its biggest
three-month slump since 2009, falling 3.3%...,
even after Fernandez tightened dollar purchase
restrictions."
June 8 - Bloomberg (Eliana
Raszewski): "Argentina's economic growth probably
slowed in the first quarter to the lowest since
2009 as import restrictions undermined industrial
output and a drought affected the country's
soybean harvest. Gross domestic product… grew 4.8%
in the January to March period… according to the
median estimate of eight economists surveyed by
Bloomberg."
European Economy
Watch June 5 - Bloomberg (Jeff Black):
"Euro-area services and manufacturing output
contracted at the fastest pace in almost three
years in May, adding to signs the economy is
suffering under the worsening sovereign-debt
crisis. A composite index based on a survey of
purchasing managers in both industries dropped to
46 from 46.7 in April… The indicator has remained
below 50 - indicating contraction - for four
months."
June 5 - Bloomberg (Simone
Meier): "European retail sales declined more than
economists forecast in April as the worsening debt
crisis prompted consumers from Spain to Austria to
cut spending. Sales dropped 1% from March… From a
year earlier, April sales fell 2.5%. European
companies are relying on faster-growing economies
to bolster sales as the euro area's deepening
slump erodes consumer confidence and curbs
spending… German retail sales advanced 0.6% in
April from the previous month, when they rose
1.6%... In Spain, sales fell 2.4% from March, when
they decreased 0.5%, while Portugal saw a 2.1%
drop in the latest month. Austria reported a 3.5%
fall in April, while French sales declined 1.5%."
June 6 - Bloomberg (Angeline Benoit):
"Spanish industrial production unexpectedly fell
the most in more than two years in April as the
fourth-largest economy in Europe's single currency
union sank deeper into recession amid surging
borrowing costs. Output at factories, refineries
and mines adjusted for the number of working days
fell 8.3% from a year earlier, the biggest
contraction since October 2009…"
June 7 -
Bloomberg (Mark Deen): "France's unemployment rate
rose in the first quarter as companies eliminated
jobs in the face of faltering economic growth,
posing a challenge to newly elected President
Francois Hollande. About 10.0% of the population
was unemployed, up from 9.8 in the previous three
months…"
June 8 - Bloomberg (Chiara
Vasarri): "Italian industrial production declined
in April as demand for the nation's manufactured
goods slumped at home and abroad… Output dropped
1.9% from March, when it rose a revised 0.6%...
Production fell 9.2% from a year ago on a workday-
adjusted basis."
June 5 - Bloomberg
(Lorenzo Totaro and Chiara Vasarri): "Italy's tax
revenue in the four months through April was 2.9%
lower than the government forecast… Revenue
totaled 119.1 billion euros ($148.4bn) in the
period, the general accountant's office said… The
proceeds were about 3.5 billion euros less than
expected… Italy's economy is mired in its fourth
recession since 2001."
Global Economy
Watch June 8 - Bloomberg (Greg Quinn):
"Weaker Canadian job creation and slower housing
starts, along with falling exports, add to
evidence growth in the world's 10th-largest
economy is slowing. Employers added 7,700 jobs in
May, the fewest in three months… The country also
recorded its first merchandise trade deficit in
six months in April as exports declined. Beginning
home construction dropped 13%..."
Central Bank Watch June 8 -
Bloomberg (Rich Miller): "Monetary-policy makers
from around the world are being pressed into
action to shore up a global economy that is
suffering its steepest slowdown since the
recession ended in 2009. On the heels of a June 5
interest-rate cut by Australia, China yesterday
unveiled its first reduction in borrowing costs in
more than three years…"
June 6 - Bloomberg
(Gabi Thesing and Jana Randow): "European Central
Bank President Mario Draghi said policy makers
discussed cutting interest rates to a record low
today, fueling expectations they will act as soon
as next month as the worsening debt crisis curbs
economic growth. 'We monitor all developments
closely and we stand ready to act,' Draghi told
reporters… Downside risks to the economic outlook
have increased and 'a few' of the ECB's Governing
Council members called for rate cut at today's
meeting, he said."
US Bubble Economy
Watch June 5 - Bloomberg (Michael McDonald
and William Selway): "Connecticut Governor Dannel
Malloy is learning you can't always count on the
rich. The Democrat last month deferred debt
payments, trimmed programs and diverted funds as
tax revenue came up short and opened a $200
million budget hole. The gap emerged about a year
after Malloy… signed a $2.6 billion tax increase,
the biggest in state history. Connecticut, the
wealthiest US state, joins California and New
Jersey in facing a deficit as income-tax revenue
is the most volatile in at least 30 years…
Connecticut counts on the levy for almost half its
revenue, with the biggest chunk coming from the
hedge fund capital of Greenwich. Connecticut debt
has posted the weakest returns this year among US
states, Barclays data show. The shortfall 'is just
the consequence of loading up on high-income
individuals,' said Philip Fischer, who runs
eBooleant Consulting… 'It is destabilizing. They
have very volatile incomes. The states have that
reflected in their budgets.' Increasing volatility
in tax collections is complicating local
governments' emergence from the worst fiscal
crisis since the Great Depression."
June 8
- Bloomberg (Chris Burritt): "US chief executive
officers are turning more pessimistic about a
second-half recovery as rising unemployment and
Europe's debt turmoil threaten domestic growth
prospects. CEOs from General Motors Co. to
Hewlett-Packard Co. to Manpower Inc. say they are
concerned about the health of the US economy… The
US presidential election is another area of
concern, CEOs said. 'There are so many
uncertainties,' said Jeffrey Joerres, CEO of
Manpower ... 'If these uncertainties keep stacking
up and none get resolved, we'll see a hiring pause
rather than the current slowdown.'"
Doug Noland is a market
strategist for the Prudent Bear Funds.
(Republished with permission from PrudentBear.com.
Copyright 2005-2012 David W Tice & Associates.
All rights reserved.)
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