"DEBT TRAP"

http://prudentbear.com/index.php/commentary/creditbubblebulletin?art_id=10149 summary always good at end

The Asset-Backed Securities (ABS) market remains pretty much closed down. Year-to-date total US ABS issuance of $129bn (tallied by JPMorgan's Christopher Flanagan) is running at 25% of comparable 2007. Home Equity ABS issuance of $351 million compares with 2007’s $232bn. Year-to-date CDO issuance of $30bn compares to the year ago $300bn.

Federal Reserve Credit surpassed $1.0 Trillion for the first time in September and rose above $2.0 Trillion last week. For the week, Fed Credit surged $183bn to a record $2.056 TN, with a historic 8-wk increase of $1.168 Trillion. Fed Credit has expanded $1.82 TN y-t-d (156% annualized) and $1.191 Trillion y-o-y (138%). Fed Foreign Holdings of Treasury, Agency Debt last week (ended 11/5) increased $8.1bn to $2.494 TN. “Custody holdings” were up $438bn y-t-d, or 24.6% annualized, and $462bn y-o-y (22.7%).

International reserve assets (excluding gold) - as accumulated by Bloomberg’s Alex Tanzi – have dropped a notable $145bn over the past three weeks. During the past year reserves were up $864bn, or 14.5%, to $6.801 TN.

November 5 – MarketNews International (Steven K. Beckner): “Dallas Federal Reserve Bank President Richard Fisher said Tuesday he ‘would not be surprised’ if the Fed’s assets balloon to $3 trillion by the end of year. Fisher… suggested inflation has ceased to be an issue for now because the economy is ‘geared to the downside with a kind of turbulent ferocity.’ He said it ‘will take time’ before confidence is reestablished.”

*In recorded history $1B, then in 3 wks to $2T and goal by yr end is $3T ??????

November 5 – Wall Street Journal (Kelly Evans): “Banks continue to tighten lending terms for the nation’s consumers and businesses…
Also, separate reports Monday showed manufacturing activity slowed, and construction spending fell… Some 95% of banks in the U.S. said they tightened price terms on commercial and industrial loans to large and midsize firms… A total of 85% tightened lending standards, compared with 60% in the previous three-month period

EXPANDED SCOPE
November 7 – Washington Post (David Cho, Peter Whoriskey and Neil Irwin): “The federal government is preparing to take tens of billions of dollars in ownership stakes in an array of companies outside the banking sector, dramatically widening the scope of the Treasury Department’s rescue effort beyond the $250 billion set aside for traditional financial firms, government and industry officials said. Treasury officials are finalizing the new program, which could ultimately involve hundreds of billions of the $700 billion rescue package, though the initiative is unlikely to be announced until the end of next week at the earliest.”

GOV BAILOUTS INCREASE
November 7 – Bloomberg (Jeff Green and Mike Ramsey): “General Motors Corp., seeking federal aid to avoid collapse, said it may not have enough cash to keep operating this year and will fall ‘significantly short’ of the amount needed by the end of June unless the auto market improves or it raises more capital. The largest U.S. automaker reported a $4.2 billion third-quarter operating loss…”

November 7 – Bloomberg (Bill Koenig): “Ford Motor Co., with U.S. sales shredded by the worst financial crisis since the Great Depression, posted a third-quarter operating loss of $2.98 billion and said it used up $7.7 billion in cash.”

November 7 – Bloomberg (John Hughes): “General Motors Corp., Ford Motor Co. and Chrysler LLC, strapped for cash as sales plunge, are seeking $50 billion in federal loans to help them weather the worst auto market in 25 years, a person familiar with the matter said. The package would be $25 billion for health-care spending and $25 billion for general liquidity that could be delivered in different ways, including short-term borrowing from the Federal Reserve…”

AGAIN IS THE GOV PLAN WORKING?????????????????

November 6 – Wall Street Journal (Prabha Natarajan and Robin Sidel): “A key part of the bond market that is essential for making credit-card, auto, education and mortgage loans still shows little sign of improvement -- a development that could have repercussions for both banks and consumers. New data on this ‘asset securitization’ market from… Dealogic reveal that issuers sold just one $500 million securitization deal for the entire month of October. That compares with $50.7 billion worth of deals made one year earlier, and a fraction of the overall $2.5 trillion market for buying and repackaging consumer-based loans.”

COME ON THE PLAN IS EASING CREDIT RIGHT?????????????????????????

November 4 – Wall Street Journal (Kelly K. Spors, Raymund Flandez and Phred Dvorak): “When entrepreneurs can’t get conventional loans, they traditionally turn to loans backed by the Small Business Administration. But in recent months -- as many banks turned away businesses and slashed credit lines -- SBA lending also has dried up substantially. The retrenchment has become especially pronounced in the past couple of weeks… The SBA reported last week that loan volumes made under its flagship 7(a) loan program fell 30% in the fiscal year ended Sept. 30. And in October, overall SBA loan volumes were 50% lower than in October 2007…”

GET READY FOR ALT ENERGY REVOLUTION RIGHT?????

November 3 – Bloomberg (Joe Carroll and Mario Parker): “VeraSun Energy Corp. and U.S. ethanol makers backed by Bill Gates and Vinod Khosla are failing after wrong-way bets on corn prices overwhelmed $20 billion in federal aid and government-guaranteed demand for the fuel additive. VeraSun, the second-largest U.S. ethanol producer, was the latest in a string of distillers stung by imploding hedges when the… company filed for Chapter 11 bankruptcy protection on Oct. 31. Biofuel Energy… and at least six other distillers have shut down or curtailed operations because of volatile corn prices and narrowing ethanol margins… Investors from Wall Street to Silicon Valley took a piece of the action after Congress and the White House ordered oil companies three years ago to almost double ethanol use by 2012.”

DIVIDENDS ARE SAFE????????????????????

November 7 – Wall Street Journal (Annelena Lobb): “Dividends are another investor mainstay weakening in this market, along with 401(k)s, variable annuities, money-market funds and other once-reliable vehicles. This year, dividend payouts have taken a hit… Thirty-six companies listed on S&P’s 500-stock index have cut or suspended dividends 46 times in 2008, sucking some $33.3 billion from investors’ pockets… From that sum, $30.8 billion came from financial companies, representing 37 individual actions.”

LIBOR EASING RIGHT???????????

November 5 – Bloomberg (Christian Vits): “Banks deposited a record amount of cash with the European Central Bank overnight, suggesting they remain reluctant to lend to each other even as money-market rates fall.

LOOK TO THE EAST

November 3 – Bloomberg (Michael Dwyer): “India and China are accelerating efforts to prop up growth as a global slump threatens the world’s fastest-expanding major economies. The Reserve Bank of India on Nov. 1 lowered its benchmark interest rate for the second time in two weeks… China’s central bank removed temporary controls over loans to maintain ‘relatively fast’ growth, Xinhua News Agency reported…”

November 5 – Wall Street Journal (Patricia Jiayi Ho): “Growth in China’s once-roaring auto market has slowed to a near-crawl… Car-producing giants such as General Motors Corp. and Ford Motor Co. have been looking to emerging markets -- mainly China and India -- to provide a much-needed counterbalance to declining sales in the U.S. and Europe… Until midyear, Chinese auto sales had grown at 14% to 24% every month year-to-year…”

Japan Watch:
November 6 – Bloomberg (Naoko Fujimura and Tetsuya Komatsu): “Toyota Motor Corp… forecast the biggest drop in profit in at least 18 years… Net income will likely be 550 billion yen ($5.6 billion) for the year ending March 31, compared with an earlier forecast of 1.25 trillion yen… The new forecast will be a 68% drop from the 1.72 trillion yen Toyota earned last year.”
November 5 – Wall Street Journal (John Murphy): “During Toyota Motor Corp.’s rapid global expansion this decade, residents of the auto giant’s hometown saw their fortunes soar. Those days are quickly ending. Sales of Japan’s biggest company -- widely seen as Japan’s final bulwark against an economic slowdown -- are sputtering… The auto maker has slashed production and cut its temporary work force… by more than 20%... That has sent a chill across the Toyota City region, from its 400 car-related businesses to its real-estate market, department stores and noodle shops.”

LAstly

Real Estate Bust Watch:

November 7 – Bloomberg (Sarah Mulholland): “Commercial real estate borrowers are running out of options as asset-backed markets dry up and alternative financing comes to an ‘abrupt halt,’ RBS Greenwich Capital Markets Inc. analysts said. Regional banks and insurance companies, which had become the primary source of financing since credit markets seized up, have stopped lending… Sales of bonds backed by commercial mortgages slumped to $12.2 billion in 2008, compared with a record $237 billion last year, according to JPMorgan…”