Page 3 of
3 CREDIT BUBBLE
BULLETIN Bubble and
speculation Commentary and
weekly watch by Doug Noland
October 23 -
Bloomberg (Angeline Benoit and Ben Sills):
"Spanish Prime Minister Mariano Rajoy said there
is a case for easing budget-deficit targets set by
the European Union as the recession undermines tax
revenue. 'I think what a lot of other people
think,' Rajoy told the Spanish senate ... 'Things
could be done more calmly, taking into account
especially that we are in a recession, but in any
case I can't give up on Spain's commitments.'
Rajoy's comments undercut Budget Minister
Cristobal Montoro's insistence that Spain can
stick to the path of budget consolidation demanded
by the EU ... "
October 25 - Bloomberg
(Sharon Smyth): "Spain's efforts to sell as much
as 90 billion euros ($117bn) of toxic property
assets it
uses to create a bad bank
from lenders that take state aid will be
constrained by the size and inability to provide
credit to potential buyers, adding to the risk of
taxpayer losses. 'When managing tens of thousands
of assets scattered across the whole of Spain, big
is not beautiful, it's sheer chaos,' said Mikel
Echavarren, chairman of Irea, a Madrid-based
financial adviser. A large, 'clumsy' bad bank will
be at a 'tremendous' disadvantage and will
generate losses that Spaniards will have to pay
for."
October 25 - Bloomberg (Angeline
Benoit): "Andalusia, the region that is the
third-biggest contributor to Spain's economy,
called on the government to find new 'formulas' to
fund the 17 semi- autonomous states after Madrid
was shut out of debt markets. 'If financial
markets' attitude doesn't change, regions will
demand from the government a new fund or measures
to help their treasuries,' said Andalusia
government spokesman Miguel Angel Vazquez Bermudez
... "
October 25 - Bloomberg (Esteban
Duarte, Emma Ross-Thomas and Ben Sills): "European
authorities are pushing Bankia group to impose
losses on junior debtholders as Spain purges a
banking system clogged with about 180 billion
euros ($234bn) of bad real estate assets, people
familiar with the talks said. The European Central
Bank and European Commission want investors
including preference shareholders to swap their
securities for new shares to reduce the cost to
the taxpayer ... "
Germany
Watch October 23 - Bloomberg (Jeff Black
and Brian Parkin): "Mario Draghi is taking his
sales pitch into the lion's den. By appearing
before a joint session of three committees of the
German parliament in Berlin tomorrow, the European
Central Bank president is seeking popular support
in Europe's largest economy for his plan to
purchase government bonds to stem the debt crisis.
While Draghi says his so-called Open Market
Transactions are required for price stability,
some German policy makers say they are an affront
to the monetary orthodoxy upon which the ECB was
founded. 'Draghi is on a mission to smooth concern
that OMT won't send inflation skyrocketing or
lumber German taxpayers with liabilities they
can't pay,' said Frank Schaeffler, finance
spokesman for the Free Democrats ... 'Many
lawmakers - even if they don't admit it - have
grown suspicious of the ECB and its head, once
dubbed the most German of non-German central
bankers.'"
October 25 - Bloomberg (Rainer
Buergin): "Chancellor Angela Merkel would fail to
secure the backing of her coalition for as much as
20 billion euros ($26bn) in extra aid for Greece,
said Otto Fricke, her junior coalition partner's
budget spokesman. Fricke ... cited an agreement
between the Greek government and its international
creditors as saying that Greece will get a loan of
16-20 billion euros to supplement its second
rescue package ... Germany's parliament would need
to approve the loan. Fricke, a Free Democratic
Party lawmaker, told reporters ... that he sees
'no majority for such a thing.'"
October
25 - Bloomberg (Jeff Black and Finbarr Flynn):
"Bundesbank board member Andreas Dombret said bad
debts held by banks before the arrival of a new
supervisory mechanism shouldn't be assumed by
Europe's joint bailout fund. 'Legacy assets are
those risks which evolved under the responsibility
of national supervisors,' Dombret said ... 'It
follows that these assets have to be dealt with by
the respective member states. Anything else would
amount to a fiscal transfer.' Irish optimism that
the country would be able to receive funds from
the European Stability Mechanism to help reduce
the burden of its 64 billion-euro ($83bn) bank
rescue was dented last month when the finance
ministers of Germany, the Netherlands and Finland
said so-called legacy assets would be excluded
from the bailout facility. While German Chancellor
Angela Merkel conceded Oct. 21 that Ireland is a
"special case," the Bundesbank remains against
permitting such a move. Dombret said allowing
countries to repair their banking sectors using
ESM funds would rapidly overburden the facility."
Global Bubble Watch October 25 -
Bloomberg (Sandrine Rastello and Doug Alexander):
"Resistance to new regulations and implementation
delays have left the global financial system no
safer than it was at the eve of the 2008 crisis,
International Monetary Fund Managing Director
Christine Lagarde said. 'The world's financial
system is still not functioning well,' Lagarde
said ... 'While fundamental changes do take time,
the basic structures that we found problematic
before the crisis are still with us.'"
October 25 - Bloomberg (Johan Carlstrom):
"Sweden needs immediate measures to tame the
nation's growing private debt burden and take
pressure off the central bank's interest rate
policy, Governor Stefan Ingves said. The Riksbank
was forced to take household debt risks into
account when it agreed yesterday to keep its main
lending rate unchanged at 1.25%, Ingves said ... "
China Bubble Watch October 26 -
Bloomberg: "Illicit financial outflows from China
totaled $3.79 trillion from 2000 through 2011 as
people sought to evade taxes and hide gains
through offshore accounts, according to a report
by the group Global Financial Integrity. Money was
moved through methods that included false
invoicing of outbound and inbound shipments, the
Washington-based advocacy group that includes
former New York County District Attorney Robert
Morgenthau on its advisory board said in a report
... Of the $2.83 trillion that flowed illicitly
out of China from 2005 through 2011, $595.8
billion became cash deposits or financial assets
in tax havens such as the British Virgin Islands
... It was released as the family assets of
China's leaders have come under increased scrutiny
amid a widening income gap in the world's
second-biggest economy. 'I've studied the proceeds
of crime, corruption, and tax evasion for decades,
and the magnitude of illicit money flowing out of
China is astonishing,' GFI Director Raymond Baker
said ... 'There's no other developing or emerging
economy that even comes close to suffering as much
in illicit financial outflows.'" October
24 - Dow Jones: "China's economic slowdown is
expected to reveal significant damage to the
balance sheets of Chinese banks resulting from a
massive lending spree that dates back to the 2008
global financial crisis, ratings agency Standard
& Poor's said ... Credit risks such as falling
net interest margins and a rise in bad loans are
likely to beset Chinese banks, which have faced a
margins squeeze since China's interest rate regime
was loosened in June, S&P said ... 'While
cheap loans associated with the lending spree have
helped the banks contain their credit losses in
the past few years, the damage to their balance
sheets is about to surface,' the report said. The
rating company said the trigger for banks' credit
woes is the slowdown in Chinese economy ...
Chinese banks are set to see a rise in
non-performing loans in coming quarters, hit by
increasing credit costs and slowing economic
growth, Liao Qiang, director of financial
institutions ratings at S&P, told reporters
... "
October 22 - Bloomberg: "Chinese
factories are losing pricing power in the worst
wholesale-cost deflation since 2009, signaling
corporate earnings may deteriorate further and
putting a damper on global inflation pressures.
Steelmaker China Oriental Group Co. says falling
prices are wiping out profits, while Yunnan Copper
Industry Co. cited the declines for a
third-quarter loss. The producer price index fell
3.6% in September from a year earlier ... "
Japan Watch October 26 -
Bloomberg (Ma Jie, Anna Mukai and Yuki Hagiwara):
"Toyota Motor Corp. led Japanese carmakers in
reporting production cuts in China after
anti-Japan protests flared in the world's largest
automobile market. Asia's largest carmaker said
today it reduced September production in China 42%
from a year earlier ... "
European
Economy Watch October 24 - Bloomberg
(Stefan Riecher and Simone Meier): "Euro-area
services and manufacturing output contracted more
than economists forecast in October and German
business confidence dropped to the lowest in more
than 2 1/2 years as Europe's recession deepened. A
composite index based on a survey of euro-area
purchasing managers in services and manufacturing
fell to 45.8, the lowest in more than three years,
from 46.1 in September ... In Germany, the Ifo
institute's business climate index unexpectedly
dropped to 100.0 from 101.4 in September."
October 26 - Bloomberg (Angeline Benoit):
"Spanish unemployment climbed to a fresh record in
the third quarter as a deepening recession left
one in four workers jobless ... Unemployment, the
second highest in the European Union after Greece,
rose to 25.02% from 24.6% in the previous quarter
... "
October 23 - Bloomberg (Angeline
Benoit): "Spain's economy contracted for a fifth
quarter, adding pressure on Premier Mariano Rajoy
to seek more European aid even as the euro area's
fourth-largest economy met a bill sales target.
Gross domestic product fell 0.4% in the three
months through September from the previous
quarter, matching the contraction of the second
quarter ... "
October 26 - Bloomberg
(Bradley Keoun and Elena Logutenkova): "UBS AG,
Switzerland's largest bank, will cut as many as
10,000 jobs companywide as the trading business
shrinks, a person with knowledge of the plan
said."
Latin America
Watch October 22 - Bloomberg (David
Biller): "Brazil's government is cracking down on
luxury boat owners who allegedly evaded taxes and
customs duties, as rising incomes in the world's
second-largest emerging market drive demand for
high-priced leisure goods. The federal
government's tax authority yesterday instructed a
team of 30 employees, supported by boats and
helicopters, to inspect foreign-made yachts and
other 'suspect' vessels, some of which may be used
to launder money, the agency said ... Brazil's
warm climate, long coastline and growing economy
have enticed both shipbuilders and boating
enthusiasts to its shores in recent years.
Production of fiberglass recreational boats grew
to 4.7 million in 2010 from 3.5 million in 2006
... The value of motorboat, sailboat and jet ski
imports ballooned to $133 million from $13 million
in the same period, the group said."
US
Bubble Economy Watch October 25 - Bloomberg
(Chris Burritt): "Ford Motor Co. and Dow Chemical
Co. joined a growing number of companies firing
thousands of workers as sluggish US growth and
Europe's deepening recession lead to a persisting
slump in sales. North American companies have
announced plans to eliminate 62,600 positions at
home and abroad since Sept. 1, the biggest
two-month drop since the start of 2010 ... Firings
total 158,100 so far this year, more than the
129,000 job cuts in the same period in 2011."
Central Bank Watch October 26 -
Bloomberg (Jeff Black): "European Central Bank
Executive Board member Joerg Asmussen said tapping
Europe's bailout fund won't automatically trigger
the ECB's bond-buying program. A government's
application to the rescue fund for aid is 'a
necessary, but not a sufficient condition for us
to become active,' Asmussen said ... 'The ECB
council independently decides in each case to what
extent and for how long an intervention on
monetary policy grounds is necessary.'"
October 26 - Bond Buyer: "Richmond Federal
Reserve Bank President Jeffrey Lacker warned ...
that the Fed is taking undue inflation risks -
both with its asset purchases and with the
quasi-commitment to sustained low interest rates
it is making through its communications strategy.
Lacker ... doubted the third round of
'quantitative easing' would do much good and said
the concentration on buying mortgage-backed
securities is an unwarranted 'allocation of
credit' by the central bank. He also expressed
strong dismay with the FOMC's declaration that it
will hold rates down at very low levels even after
the economy starts growing more rapidly."
California Watch October 26 -
Bloomberg (Alison Vekshin): "Los Gatos,
California, where Apple Inc. co-founder Steve
Wozniak can be seen riding the sidewalks on his
Segway, isn't often mentioned in the same breath
as Fresno, an agricultural hub seeking to stave
off insolvency. Yet both are on a list of more
than two dozen California cities, including some
of the most affluent, with securities facing
possible credit downgrades by Moody's ... Rating
companies and investors are scrutinizing the
willingness of California localities to budget for
bond payments after three of the state's
municipalities filed for bankruptcy since June."
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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