Page 3 of
3 CREDIT BUBBLE
BULLETIN 25 years of
folly Commentary and weekly
watch by Doug Noland
October 18 - Bloomberg
(Rebecca Christie): "The French-backed effort to
fast- track a European bank supervisor is running
into German-led concern over potential costs as
the region's leaders tussle over putting their
crisis-fighting blueprint into action. The
27-nation European Union has struggled to maintain
momentum on a June plan to spur investor
confidence by putting the European Central Bank in
charge of banks across the euro area. Skeptics
have questioned the scope of the ECB's supervisory
powers and how losses would be shared. As leaders
gather in Brussels for a two-day summit, French
President Francois Hollande says efforts to stem
the turmoil that began in 2009 could unravel if
the EU fails to deliver on its promises. He called
on the EU to press ahead on banking union, provide
economic help to
countries that rein in
budget deficits, and show investors that Greece
will be able to stay in the euro zone if it keeps
its commitments."
October 17 - Bloomberg
(Ben Sills): "Germany is pressuring Italy to
request European aid alongside Spain so that the
government of Prime Minister Mario Monti doesn't
reap the benefit of lower borrowing costs without
being tied to tougher economic reforms, La
Vanguardia reported."
Germany
Watch October 19 - Wall Street Journal
(Gabriele Steinhauser): "German Chancellor Angela
Merkel took a hard line on Spain Friday, saying
that Madrid will have to keep on its own balance
sheet the tens of billions of dollars it is about
to inject into its banks and won't be able to
transfer them to the euro-zone bailout fund. That
position, laid out after a two-day summit of
European Union leaders in Brussels, would mean
that Spanish borrowing from the euro zone to
bolster the capital of shaky banks - estimated to
be as much as €60 billion ($78.72bn) - will swell
the country's already-heavy debt load. Germany's
stance appeared to dash hopes, fostered by the
leaders at a summit in June, that the government's
capital injections into the banks could later be
transferred to the bailout fund once an effective
euro-wide bank supervisor is in place…"
October 19 - Bloomberg (Rebecca Christie
and Tony Czuczka): "German Chancellor Angela
Merkel said it's an open question whether European
policy makers can meet the deadline they'd set
hours earlier to establish a euro-area bank
supervisor by year-end. 'There are complicated
questions to clarify and we'll see in December if
we complete it or not,' Merkel told reporters…
'For now, the political will is there.' The
comments underscore Germany's go-slow approach
that may stymie plans laid down in June to break
the link between banks and governments that has
worsened the region's debt crisis."
October 18 - Financial Times (Quentin
Peel): "Angela Merkel, the German chancellor,
refused to be rushed on Thursday into rapid
creation of a fully-fledged banking union in
Europe, despite strong pressure from President
Francois Hollande of France and other European
leaders. While insisting that while Germany would
engage 'urgently' in negotiations for a single
European bank supervisor, she said the new system
must be proved 'effective' before taking the next
step: giving a green light for eurozone rescue
funds to be used to recapitalise banks directly.
'I want to say very clearly: merely agreeing on
the legal procedure for banking supervision is not
enough,' Ms Merkel told the German parliament… The
new system must be 'effective and independent of
national banking supervision' before the €500bn
European Stability Mechanism could be used for
recapitalisation."
October 17 - Bloomberg
(Brian Parkin and Patrick Donahue): "The German
government cut its economic outlook for next year,
citing stalling effects from the debt crisis in
the euro area and slower growth in Asia hurting
exports. Europe's largest economy will expand 1%
in 2013, compared with a forecast… of 1.6%
projected in May ... "
October 19 -
Bloomberg (Annette Weisbach): "The outlook for
German banks remains negative as 'intense
competition' and low interest rates weigh on
earnings, according to Moody's ... 'Intense
competition and low interest rates are causing
margin pressure that will likely further erode the
banks' already-weak revenues and profits over the
12-18 month outlook period,' Moody's wrote ...
While the German economy remains stable, Moody's
said banks face 'challenging conditions' because
of the nation's dependence on other European Union
countries for export markets ... 'Rising risk
charges in individual bank results in 2012 to date
indicate that domestic asset quality is gradually
deteriorating,' Moody's said. Exposure to stressed
euro-area countries, plus commercial real estate
and shipping, make the nation's lenders
'vulnerable to a worsening of the sovereign debt
crisis in Europe,' the ratings company said."
Global Bubble Watch October 18 -
Bloomberg (Sarika Gangar): "Xstrata Plc and Oracle
Corp. led borrowers raising at least $20 billion
in the second-busiest day this year for US
corporate bond sales."
October 19 -
Bloomberg (Sarika Gangar): "Sales of corporate
bonds in the US doubled this week as relative
yields narrowed to the tightest level in more than
17 months. Xstrata Plc, the world's largest
exporter of coal burned by power stations ... led
at least $39.4 billion of new issues ... Sales
compare with a 2012 weekly average of $27.8
billion."
October 17 - Bloomberg (Boris
Korby and Drew Benson): "Corporate bonds in Brazil
are becoming more vulnerable to losses than any
major developing nation as companies exploit
record-low borrowing costs to sell the
longest-dated overseas debt in three years. The
so-called duration of Brazilian company bonds, a
measure of how much prices change as yields rise
or fall, which increases with longer maturities,
climbed to a 13-month high of 6.12 years ... That
exceeds the average of 5.18 years for company debt
in China and is about 40% higher than in Russia
and India."
October 19 - Bloomberg
(Charles Mead): "Relative yields on US
investment-grade bonds are poised to tighten to
the least since 2007 as the Federal Reserve's
program to buy up mortgage debt boosts demand for
company obligations, according to JPMorgan Chase
& Co ... While a 'frenzy' for high-grade debt
that has pushed borrowing costs to record lows
will probably slow considerably, the Fed's
open-ended mortgage purchases announced last month
to support housing and boost employment 'is a
powerful force for lower spreads,' the strategists
wrote."
October 17 - Bloomberg (John
Glover): "Junk bonds are proving cheap even with
yields at record lows, helping to explain the
record sums flowing into the securities as firms
from Morgan Stanley to BlackRock Inc. say it may
be time to pull back. While non-financial,
speculative-grade corporate debt yields about
7.15% on average, some 87% of that consist of
spread, or the amount above benchmark rates...
Investors put $64.8 billion into high-yield bond
funds globally this year through Oct. 10, more
than double the previous record of $31.7 billion
in 2009 ... "
October 17 - Bloomberg
(Sarika Gangar): "Sales of convertible securities
are accelerating from the slowest pace on record
as the Federal Reserve's efforts to steer
investors toward riskier assets stokes demand for
debt tied to stocks. WellPoint ... and ...
Stillwater Mining Co. are leading sales of $2.9
billion worldwide this month that are up four-fold
from the same period last year ... That follows
$10.3 billion of convertible bond offerings in
September that were the most for a month since
March 2011."
China Bubble
Watch October 16 - Bloomberg: "China's
citizens are increasingly worried about growing
income inequality and official corruption,
according to a Pew Research Center survey ...
Forty-eight percent of 3,177 adults surveyed said
the gap between rich and poor in China is a 'very
big problem,' up seven percentage points from a
2008 survey ... 50% said official corruption was a
very big problem, compared with 39% four years ago
... The poll results, released today, reflect
growing public disenchantment with a rich-poor
divide that has widened as growth accelerated ...
"
October 18 - Wall Street Journal:
"China's power output grew at a slower pace in
September on the back of a sluggish economy,
reflecting third-quarter gross domestic product
growth that was at its slowest since the first
quarter of 2009. The power consumption growth rate
slumped to its lowest level in at least two years
... China generated 390.7 billion kilowatt-hours
in September, up 1.5% from a year earlier,
compared with a 2.7% growth rate in August and
2.1% in July."
October 17 - Bloomberg
(Stephanie Tong): "Hong Kong Chief Executive Leung
Chun-ying pledged more measures to tackle record
home prices, after a surge this year made
accommodation unaffordable for many people in the
city. The number of applicants on the city's
public housing waiting list is approaching
200,000, Leung said ... Hong Kong is the world's
most expensive place to buy a home after prices
advanced more than 90% since early 2009 on a lack
of new supply, an influx of buyers from China and
record low mortgage rates."
Japan
Watch October 17 - Bloomberg (Isabel
Reynolds, Keiko Ujikane and Mayumi Otsuma):
"Japan's government plans to tap discretionary
budget funds to counter an economic slowdown as a
legislative stalemate threatens to leave the Noda
administration running out of cash as soon as next
month ... Noda's room for fiscal maneuver is
limited by the political opposition's refusal to
give the government authority to borrow to pay for
this year's deficit."
European Economy
Watch October 18 - Bloomberg (Zoe
Schneeweiss): "Swatch Group AG and Cie. Financiere
Richemont SA fell after Swiss watch exports
dropped for the first time in almost three years,
led by a 20% decline to Hong Kong, the biggest
market for timepieces."
US Bubble
Economy Watch October 17 - Bloomberg (Alex
Kowalski and Prashant Gopal): "Housing starts in
the US surged 15% in September to the highest
level in four years, adding to signs of a revival
in the industry at the heart of the financial
crisis."
October 17 - Bloomberg (Alan
Bjerga): "The worst US drought since the 1950s may
trigger record crop insurance payouts,
concentrated in corn-producing states led by
Illinois, Indiana and Missouri. Industry payouts
from companies including Ace Ltd., American
Financial Group Inc. and Wells Fargo & Co. may
reach a record $25 billion this year, according to
Kansas State University."
Central Bank
Watch October 18 - Bloomberg (Suttinee
Yuvejwattana, Yumi Teso and Shamim Adam):
"Thailand's central bank voted to cut interest
rates four days after Governor Prasarn
Trairatvorakul said no easing was needed, adding
to evidence Asia's outlook has worsened and
supporting a government push to shore up growth.
The Bank of Thailand lowered its one-day bond
repurchase rate by a quarter of a percentage point
to 2.75% ..."
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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Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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