Page 3 of
4 CREDIT BUBBLE
BULLETIN QE
forever Commentary and weekly
watch by Doug Noland
September 12 -
Bloomberg (Supunnabul Suwannakij and Luzi Ann
Javier): "Thailand, the world's largest rice
shipper, will sell more than half of its record
inventory to governments including China,
according to Commerce Minister Boonsong
Teriyapirom… The country will sell a total of
7.328 million metric tons…"
September 14 -
Bloomberg (Debarati Roy and Maria Kolesnikova):
"Platinum rose, capping the longest rally in 25
years, after the Federal Reserve took steps to
bolster the US economy and as strikes halted
output at mines in South Africa, the world's
largest producer."
The CRB index jumped
3.0% this week (up 5.1% y-t-d). The
Goldman Sachs Commodities
Index rose 2.6% (up 7.6%). Spot Gold jumped 2.0%
to $1,770 (up 13.2%). Silver gained 2.9% to $34.66
(up 2%). October Crude jumped $2.58 to $99.00
(unchanged). October Gasoline was little changed
(up 14%), while October Natural Gas surged 9.7%
(down 1%). December Copper jumped 5.1% (up 12%).
September Wheat added 1.4% (up 38%), while
September Corn declined 2.2% (up 20%).
Global Credit Watch September 12
- Bloomberg (Karin Matussek): "Germany's top
constitutional court rejected efforts to block a
permanent euro-area rescue fund, handing a victory
to Chancellor Angela Merkel, who championed the
500 billion-euro ($645bn) bailout. The Federal
Constitutional Court in Karlsruhe dismissed
motions that sought to block the European
Stability Mechanism, while ruling Germany's 190
billion-euro contribution can't be increased
without legislative approval. The court said
Germany can ratify the ESM if it includes binding
caveats that it won't be forced to assume higher
liabilities without its consent. 'We are an
important step closer to our goal of stabilizing
the euro,' German Economy Minister and Vice
Chancellor Philipp Roesler told reporters… 'It has
always been the goal of this government' to
establish a 'clear limit and to include parliament
in all important decisions.'"
September 14
- Bloomberg (Emma Ross-Thomas): "Spanish regions'
debt load continued to swell in the second
quarter, as the cash-strapped local
administrations urged the government to speed up
its planned bailout fund. The regions' debt rose
to 14.2% of gross domestic product from 13.8% in
the first three months of the year, the Bank of
Spain in Madrid said… The overall public debt load
rose to 75.9% of GDP from 72.9% in the prior
quarter."
September 11 - Bloomberg (Ben
Sills): "Prime Minister Mariano Rajoy said he
won't allow the European Union or the European
Central Bank to stipulate how Spain narrows its
budget deficit as a condition for buying the
country's bonds. Rajoy pledged that Spain will
meet its targets for reducing its budget shortfall
this year and next and defended his government's
right to set spending limits on individual
policies, in his first television interview since
taking office in December. 'We need to meet the
budget deficit commitment, which is the most
important challenge we have as a country,' Rajoy
said… 'I won't accept them telling us which are
the specific policies where we have to cut or
not.'"
September 12 - Bloomberg (Emma
Ross-Thomas): "Spanish leaders said they can delay
a decision on seeking a bailout as its bond yields
ease, with their focus on ensuring any rescue
doesn't roil markets. Prime Minister Mariano Rajoy
told Parliament it's not clear if Spain needs help
as the European Central Bank's crisis plan has cut
borrowing costs. There's no 'urgency' because the
ECB's move put the Treasury in a more
'comfortable' position, Deputy Economy Minister
Fernando Jimenez Latorre said. 'The important
thing is that when whatever assistance that is
needed is requested, that it should be well
received in the markets,' Jimenez Latorre told
reporters…"
September 14 - Bloomberg (Ben
Sills and Emma Ross-Thomas): "Catalan President
Artur Mas said Spain should debate staying in the
euro as leaders consider seeking a European
bailout, becoming the most senior Spanish official
to question the nation's single-currency
membership. 'If we want to have a serious debate,
the first question has to be whether we want to be
in the euro or not,' Mas said… 'If you say yes,
you have to accept the rules of this game. You
could say no.' Catalonia, which accounts for 20%
of the nation's economy and is home to some of the
country's biggest companies, is battling Prime
Minister Mariano Rajoy for greater control over
taxes as austerity measures have undermined
voters' willingness to subsidize poorer regions.
Mas raised the stakes this week, saying if Rajoy
doesn't give his administration in Barcelona
greater autonomy, he'll push for full
independence. Mas said Catalonia and Spain are
'tired of each other'…"
September 13 -
Bloomberg (Jeff Black and Stelios Orphanides):
"European Central Bank Governing Council member
Panicos Demetriades said the bank might not have
to spend a cent on government bonds. The threat of
unlimited buying under the ECB's new bond-
purchase program may mean that 'in the end, action
is not needed,' Demetriades, who heads the Central
Bank of Cyprus… 'No one will speculate against the
unlimited firepower of a central bank. This is
what stabilizes currencies of countries where
investors know that. One wouldn't gamble against
the Federal Reserve, for example.' Spanish and
Italian bond yields have plunged since ECB
President Mario Draghi pledged on July 26 to do
what's needed to preserve the euro."
Global Bubble Watch September 13
- Wall Street Journal (Jon Hilsenrath and Kristina
Peterson): "The Federal Reserve, frustrated by
persistently high US unemployment and the torpid
recovery, launched an aggressive program to spur
the economy through open-ended commitments to buy
mortgage-backed securities and a promise to keep
interest rates low for years. In the most
significant of its new moves, the Fed said
Thursday it would buy $40 billion of
mortgage-backed securities every month and would
keep buying them until the job market improves, an
unusually strong commitment by the central bank.
'We want to see more jobs,' Fed Chairman Ben
Bernanke said… explaining the rationale for the
Fed's actions. 'We want to see lower unemployment.
We want to see a stronger economy that can cause
the improvement to be sustained.' The Fed's
announcement sent investors piling into stocks,
gold, the euro and other assets seen as likely to
benefit from the extra liquidity."
September 14 - Associated Press:
"Egan-Jones is downgrading its rating on US debt
to AA- from AA, citing Federal Reserve plans to
try to stimulate the economy. The credit rating
agency says the Fed's plans to buy mortgage bonds
will likely hurt the economy more than help it.
Egan-Jones says the plan will reduce the value of
the dollar and raise the price of oil and other
commodities, hurting businesses and consumers."
September 14 - Bloomberg (Sarika Gangar):
"Corporate bond offerings in the US soared this
week to the busiest pace in six months as
borrowing costs tumbled and the Federal Reserve
unleashed its third round of quantitative easing
to stimulate the economy. Walgreen… and
…AstraZeneca Plc led borrowers selling at least
$43.2 billion in bonds, the most since $60 billion
was issued in the week ended March 9… Yields on
speculative-grade debt dropped to an unprecedented
low, breaking the previous record set more than 15
months ago."
September 11 - Bloomberg
(Bradley Keoun): "JPMorgan… and Bank of America…
are helping clients find an extra $2.6 trillion to
back derivatives trades amid signs that a shortage
of quality collateral will erode efforts to
safeguard the financial system. Starting next
year, new rules designed to prevent another
meltdown will force traders to post US Treasury
bonds or other top-rated holdings to guarantee
more of their bets. The change takes effect as the
$10.8 trillion market for Treasuries is already
stretched thin by banks rebuilding balance sheets
and investors seeking safety, leaving fewer bonds
available to backstop the $648 trillion
derivatives market. The solution: At least seven
banks plan to let customers swap lower-rated
securities that don't meet standards in return for
a loan of Treasuries or similar holdings that do
qualify, a process dubbed 'collateral
transformation.' That's raising concerns among
investors, bank executives and academics that
measures intended to avert risk are hiding it
instead. 'The dealers look after their own
interests, and they won't necessarily look after
the systemic risks that are associated with this,'
said Darrell Duffie, a finance professor at
Stanford University who has studied the
derivatives and securities-lending markets.
'Regulators are probably going to become aware of
it once the practice gets big enough.'"
September 11 - Bloomberg (John Detrixhe):
"Moody's… said it may join Standard & Poor's
in downgrading the US's credit rating unless
Congress next year reduces the%age of debt-
to-gross-domestic-product during budget
negotiations. The US economy will probably tip
into recession next year if lawmakers and
President Barack Obama can't break an impasse over
the federal budget and if George W. Bush-era tax
cuts expire in what's become known as the 'fiscal
cliff,' according to a report by the nonpartisan
Congressional Budget Office…"
September 14
- Bloomberg (Lisa Abramowicz): "Measures of [bond
market] stress are at the lowest in more than two
years following Federal Reserve Chairman Ben S.
Bernanke's unveiling of additional stimulus
measures."
September 14 - Bloomberg (Lisa
Abramowicz): "Ben S. Bernanke is sending junk-bond
bears into hiding. The number of shares borrowed
to bet against State Street Corp.'s
exchange-traded high-yield bond fund has plunged
49% since Aug. 30, pushing its price to a 15-month
high… The most distressed securities are
outperforming the highest speculative- grade tier
this month by the most since February…"
September 12 - Bloomberg (Josiane Kremer):
"Norway's banks may face stricter lending rules as
the country's financial regulator fights to
prevent a repeat of a 1980s housing market bust
that triggered a banking crisis and plunged the
economy into a recession. 'The longer a situation
where debt is growing more than income and housing
prices grow substantially more than income, the
higher the risk is for this development to end in
a bubble that eventually bursts,' Morten
Baltzersen, director general at the Financial
Supervisory Authority, said… 'This development
gives reason for concern.' Property prices,
already at a record, are rising an annual 8% on
average as credit growth drives private debt
burdens to more than 200% of disposable incomes
next year, the central bank estimates. The FSA is
stepping up its warnings one year after urging
banks to rein in lending in the world's
third-richest nation per capita amid evidence
overheating is threatening financial stability."
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Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
