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November 21, 2008

Just the Facts...
by Doug Noland

For the week, the S&P500 dropped 8.3% (down 45.5% y-t-d), and the Dow fell 5.3% (down 39.3%). The Morgan Stanley Cyclical index was pounded for 11.9% (down 59.8%) and the Transports for 10.6% (down 31.7%). The Morgan Stanley Consumer index dropped 4.6% (down 31%), while the Utilities added 0.4% (down 31.3%). The broader market was weak. The small cap Russell 2000 sank 10.9% (down 46.9%), and the S&P400 Mid-caps dropped 11.3% (down 48.6%). The NASDAQ100 fell 8.0% (down 47.9%), the Morgan Stanley High Tech index 7.1% (down 51.4%), and the Semiconductors 10.5% (down 55.8%). The Street.com Internet Index fell 5.2% (down 43.5%), and the NASDAQ Telecommunications index dropped 6.9% (down 48.9%). The Biotechs sank 11.5%, increasing 2008 losses to 30.8%. Financial stocks were hammered. The Broker/Dealers sank 21.8% (down 72.9%), and the Banks dropped 23.7% (down 58.3%). With Bullion rallying $58, the HUI Gold index rose 14.2% (down 48%).

One-month Treasury bill rates ended the week at an amazing 0.03% and three-month yields at a stunning 0.01%. Two-year government yields declined 12 bps to 1.09%. Five-year T-note yields dropped 31 bps this week to 2.01%. Ten-year yields sank 54 bps to 3.20%, and long-bond yields dropped 56 bps to 3.67%. The implied yield on 3-month December '09 Eurodollars fell 22.5 bps to 2.145%. Benchmark Fannie MBS yields declined 24 bps to 5.30%. The spread between benchmark MBS and 10-year T-notes widened 29 to 210 bps. Agency 10-yr debt spreads widened 11 to a record 161 bps (intra-week high of 191). The 2-year dollar swap spread declined 7.5 to 107bps, the 10-year dollar swap spread declined 12.5 to to 21.5 bps, and the 30-year swap spread declined 21.5 to an astounding negative 21.5 bps. Corporate bond spreads took a turn for the worst. An index of investment grade bond spreads surged an incredible 70 to a record 270 bps, and an index of junk bond spreads widened 17 further to 997 bps.

Investment-grade debt issuance included Verizon Wireless $3.5bn, Kroger $600 million, Sempra Energy $750 million, Southern California Gas $250 million, Westar Energy $300 million, Noble Corp $250 million, DCP Midstream $250 million and Delmarva Power & Light $250 million.

I saw no junk or convert issues.

International issuance this week included Canadian Housing Trust $2.0bn, Nordic Investment Bank $1.0bn and British Sky Broadcasting $250 million.

German 10-year bund yields dropped 26 bps to 3.34%. The German DAX equities index sank 12.4% (down 48.8% y-t-d). Japanese 10-year "JGB" yields fell 10 bps to 1.39%. The Nikkei 225 declined 6.5% (down 48.3% y-t-d). Emerging markets were under pressure as well. Brazil's benchmark dollar bond yields jumped 49 bps to 8.61%. Brazil's Bovespa equities index sank 13.2% (down 51.1% y-t-d). The Mexican Bolsa dropped 7.4% (down 38.2% y-t-d). Mexico's 10-year $ yields rose 44 bps to 8.12%. Russia's RTS equities index sank another 9.9% (down 74.7% y-t-d). India's Sensex equities index declined 5.0%, with y-t-d losses boosted to 56.1%. China's Shanghai Exchange declined less than 1%, with y-t-d losses of 62.6%.

Freddie Mac 30-year fixed mortgage rates declined 10 bps to 6.04% (down 16bps y-o-y). Fifteen-year fixed rates dipped 4 bps to 5.73% (down 10bps y-o-y). One-year ARMs declined 4 bps to 5.29% (down 13bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates 2 bps higher this week to 7.54% (up 95bps y-o-y).

Bank Credit jumped $42.6bn to $9.913 TN (week of 11/12). Bank Credit has expanded $700bn y-t-d, or 8.6% annualized. Bank Credit posted a 52-week rise of $767bn, or 8.4%. For the week, Securities Credit rose $35.5bn. Loans & Leases increased $7.1bn to $7.182 TN (52-wk gain of $484bn, or 7.2%). C&I loans expanded $9.2bn, with y-t-d growth of 12.9%. Real Estate loans increased $10.4bn (up 6.0% y-t-d). Consumer loans were little changed, while Securities loans declined $9.5bn. Other loans slipped $3.5bn.

M2 (narrow) "money" supply increased $29.6bn to $7.907 TN (week of 11/10). Narrow "money" has expanded $444bn y-t-d, or 6.9% annualized, with a y-o-y rise of $518bn, or 7.0%. For the week, Currency added $0.2bn, while Demand & Checkable Deposits declined $21.2bn. Savings Deposits surged $48.0bn, and Small Denominated Deposits rose $8.1bn. Retail Money Funds declined $5.4bn.

Total Money Market Fund assets (from Invest Co Inst) jumped $43.9bn to $3.681 TN, with a y-t-d expansion of $568bn, or 20.6% annualized. Money Fund assets have posted a one-year increase of $635bn (20.8%).

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 24% of comparable 2007. Home Equity ABS issuance of $351 million compares with 2007's $232bn. Year-to-date CDO issuance of $31bn compares to the year ago $306bn.

Total Commercial Paper outstanding increased $11.1bn this week to $1.614 TN, with CP down $171bn y-t-d. Asset-backed CP was little changed, with 2008 posting a decline of $31.8bn. Over the past year, total CP has contracted $228bn, or 12.4%.

Federal Reserve Credit declined $19.3bn to $2.179 TN, with a historic 10-wk increase of $1.291 Trillion. Fed Credit has expanded $1.305 TN y-t-d (165% annualized) and $1.291 Trillion y-o-y (151%). Fed Foreign Holdings of Treasury, Agency Debt last week (ended 11/19) declined $6.8bn to $2.501 TN. "Custody holdings" were up $445bn y-t-d, or 23.9% annualized, and $475bn y-o-y (23.5%).

International reserve assets (excluding gold) - as accumulated by Bloomberg's Alex Tanzi - have dropped a notable $209bn over the past five weeks. During the past year reserves were up $775bn, or 13.0%, to $6.738 TN.

Global Credit Market Dislocation Watch:

November 18 - Financial Times (Michael Mackenzie): "Further stress emerged in the long-term US interest rate derivative market on Monday, with the latest episode of pain coming from impaired exotic trades based on the Japanese yen. The 30-year swap spread traded around minus 20 bps, the most extreme level yet seen since the market became dislocated in the wake of Lehman Brothers'... The swap spread should normally trade in positive territory as it reflects the risk premium of trading with a private counterparty above a US Treasury yield. Investors use swaps to lock in interest rates for 30 years or more, trading a floating rate, based on the Libor, for a fixed rate. A negative swap spread implies investors believe that the credit of a private counterparty is better than the US government. However, the dislocation in the market is a function of poor liquidity... The negative turn in spreads is compounded by exotic trades backfiring... Strength in the yen has sparked a need by banks to transact 30-year swaps in order to protect their positions... 'The 30-year spread market continues to be dominated by exotics hedging desks needs with some effects into 10-year spreads,' say UBS . 'Our advice . . . get out of the way or get run over.'"

November 19 - Bloomberg (Jody Shenn): "Yields on Fannie Mae and Freddie Mac's $1.7 trillion of corporate debt rose to records relative to benchmarks, widening as spreads on competing investments rose and helping drive mortgage-bond spreads to the widest in three weeks. The difference between yields on Washington-based Fannie's two-year debt and similar-maturity Treasuries rose 19.5 basis points to a record 177."

November 19 - Bloomberg (Gabrielle Coppola and Caroline Salas): "Yields on speculative-grade corporate bonds surpassed 20% for the first time in at least two decades as a declining economy increased the risk of default... Junk bonds have lost more than $187 billion in market value since August... Merrill data show."

November 15 - Bloomberg (Alex Ortolani and Mike Ramsey): "General Motors Corp., burning through cash as sales slump, would cost the government as much as $200 billion should the biggest U.S. automaker be forced to liquidate, a forecasting firm estimated. A GM collapse would mean 'more aid to specific states like Michigan, Ohio, and Indiana, and more money into unemployment and extended benefits,' Nariman Behravesh, chief economist at IHS Global Insight Inc.... said..."

November 17 - Bloomberg (Gabrielle Coppola): "The number of companies at risk of running out of cash reached the highest level since 2002 in October as job losses and tightening credit weakened consumer spending, according to Moody's... The percentage of companies with an SGL-4 rating, Moody's lowest level of liquidity rating, rose to 14% last month from 12.6% in September... analysts led by John Puchalla wrote... What began as a cash crunch for small companies with limited amounts of debt has spread to major U.S. companies, with 'tens of billions' of dollars in rated debt being downgraded, Moody's said."

November 19 - Bloomberg (Shannon D. Harrington and Michael Shanahan): "The cost of protecting corporate bonds and loans from default rose to a record in the U.S. as the prospect of automaker bankruptcies and a dismal holiday shopping season helped extend a sell-off across credit markets."

November 19 - Bloomberg (Alexis Xydias): "Analysts have cut profit estimates for 48% of stocks they cover worldwide, the most in at least 15 years, and more downgrades are likely as the economy slows, JPMorgan Chase... said. Predictions of next year's earnings were reduced for 60% of U.S. stocks in the four weeks through Nov. 11... In Europe, 44% were downgraded, the study, which covers data since 1993, said."

November 21 - Bloomberg (David Olmos and Rob Waters): "The global economic crisis has cut funding for biotechnology companies to the lowest level in a decade, triggering bankruptcies and threatening development of drugs based on biomedical breakthroughs. In the past month, at least five biotechnology businesses have sought bankruptcy protection... and others may be heading toward a similar fate."

November 19 - Bloomberg (Erik Holm and Shannon D. Harrington): "The cost of protecting against default by Warren Buffett's AAA rated Berkshire Hathaway Inc. has almost tripled in two months... The cost to protect against Berkshire being unable to meet its debt payments, based on credit-default swaps, is more than four times that of rival insurer Travelers Cos. At those levels, the swaps are typical of companies rated Baa3 by Moody's.... one level above junk. The price may have risen on concern that the billionaire's firm could lose a $37 billion bet on world stock market values..."

November 21 - Bloomberg (Laura Cochrane and Lester Pimentel): "Developing nations' borrowing costs rose the most in a month this week, hampering the ability of governments to refinance $1.2 trillion of short-term debt and hastening appeals for international bailouts. The extra yield investors demand to own emerging-market government bonds instead of U.S. Treasuries climbed for an eighth day, to 7.76 percentage points from 6.7 percentage points last week..."

November 21 - Bloomberg (Laura Cochrane and Denis Maternovsky): "Developing nations' borrowing costs rose the most in a month this week, hampering the ability of governments to refinance $1.2 trillion of short-term debt and hastening appeals for international bailouts... 'Clearly we are in the early stages of a crisis in emerging markets,' said Neil Dougall, head of emerging-market research at Dresdner Kleinwort... 'The fact we have already seen $80 billion penciled in for possible dispersion indicates that the IMF is going to be facing quite significant pressure.'"

November 19 - Bloomberg (Maria Levitov): "Russia's foreign-exchange reserves are draining fast and may take almost a decade of economic stability with them. Russia's international reserves... have fallen $122.7 billion, or 21%, since Aug. 8 as the central bank tried to shore up the ruble. At the same time, President Dmitry Medvedev... has pledged more than $200 billion of tax cuts, loans and other measures to maintain economic growth, threatened by plummeting oil prices and investor flight."

Currency Watch:

The dollar index jumped 2.1% to 88.19. For the week on the upside, the Japanese yen gained 0.5%. On the downside, the Brazilian real declined 7.0%, the South Korean won 5.8%, the Swedish krona 4.2%, the Mexican peso 3.9%, the Canadian dollar 3.3%, the South African rand 2.7%, the New Zealand dollar 2.7%, the Australian dollar 2.5%, the Norwegian krone 2.5%, the Swiss franc 2.2%, and the Euro 0.5%. In the so-called emerging currencies, the Chilean peso declined 6.1%, the Indonesian rupiah 4.4%, and the Iceland krona 4.4%.

Commodities Watch:

November 19 - Bloomberg (Nicholas Larkin and Pham-Duy Nguyen): "Gold demand rose 18% in the third quarter as lower prices encouraged purchases by jewelers and as investors sought a haven from the credit crisis, the World Gold Council said. 'We live in pretty difficult times and that's being reflected in the world of gold,' George Milling-Stanley, a director at the...group, said... 'More and more investors are seeing the long-term strategic benefits gold can have.'"

November 19 - Bloomberg (Caroline Alexander and Hamsa Omar): "Pirates demanded a ransom for an oil-laden Saudi supertanker amid reports three other merchant vessels have been hijacked in one of the worst spates of attacks in the Gulf of Aden and off the East African coast... Since January, at least 88 vessels have been attacked in the Gulf of Aden..."

November 18 - Bloomberg (Stewart Bailey and Rob Delaney): "Chinese scrap-metal buyers have reneged on about $1 billion in contracts from U.S. merchants as the market for the steelmaking raw material collapses, the Institute of Scrap Recycling Industries said... Steelmakers, foundries and traders, ranging in size from 'small to very large' and some with partial state ownership, have canceled contracts, refused delivery of shipments or demanded lower prices, said Robin Weiner, president of the... scrap merchants' trade group."

November 18 - Bloomberg (Carlos Caminada): "Sugar prices will rise next year as a credit shortage drives some mills out of business and cuts output, the head of the world's second-biggest cane processor said."

November 17 - Bloomberg (Shruti Date Singh): "Cotton users are halting orders from the U.S., the world's biggest exporter, at the fastest pace in at least a decade as the economic slowdown erodes demand from China... Delays, cancellations and order reductions of U.S. upland cotton by foreign buyers rose almost sevenfold from a year earlier to 329,600 running bales (74,752 metric tons)..."

Gold rallied 7.8% to $800, and Silver added 1.3% to $9.65. December Crude sank another $7.13 to $50.47. December Gasoline dropped 13.6% (down 56.8% y-t-d), while December Natural Gas increased 3.3% (down 12.9% y-t-d). December Copper fell 6.4%. December Wheat sank 10% and Corn 11%. The CRB index lost 6.5% (down 35.5% y-t-d). The Goldman Sachs Commodities Index (GSCI) sank 9.1% (down 39.6% y-t-d).

China Watch:

November 17 - Bloomberg (Li Yanping): "China, spending 4 trillion yuan ($586 billion) on a stimulus plan, may take 'preemptive' measures to revive growth as the financial crisis increasingly takes its toll on the economy, the central bank said. The People's Bank of China will be flexible and has 'ample room' for policy changes, it said... It will ensure money supply liquidity, the bank said. 'The global financial markets are in severe turbulence, world economies are seriously shocked and the negative impact on China is emerging and intensifying,' the bank said. The impact on China 'shouldn't be underestimated.'"

November 19 - Bloomberg (Tian Ying): "Automakers in China are seeking government aid and lower sales taxes to help revive waning demand in the world's second-largest vehicle market. 'The situation is really severe,' said Zeng Qinghong, general manager of Guangzhou Automobile Group... 'We hope the government can introduce policies to stimulate demand.'"

November 17 - MarketNews International: "Chinese demand for oil is falling fast as the global financial crisis takes hold on the domestic economy, the head of the one of China's biggest producers said... 'As the international financial crisis worsens, the impact on our economy and finances is getting bigger,' China National Petroleum Corp. general manager Jiang Jiemin said... 'The company's production and operations have suffered a relatively big negative impact, and this impact has become more clear particularly since September.' Jiang said that prices for both refined products and chemicals are falling sharply..."

November 19 - Bloomberg (Judy Chen): "China will limit deferred payments for the nation's exports to stem capital outflows as the government halts yuan appreciation to help the economy..."

November 21 - Bloomberg (Judy Chen and Jiang Jianguo): "The yuan had the biggest weekly decline in almost a month on speculation China is seeking to protect exporters and prevent a recession in the world's fourth- largest economy."

Japan Watch:

November 17 - Bloomberg (Jason Clenfield): "Japan's economy... entered its first recession since 2001 last quarter and the government and economists say conditions may get even worse. Gross domestic product shrank an annualized 0.4% in the three months ended Sept. 30..."

November 19 - Bloomberg (Theresa Barraclough and Yumi Ikeda): "Japan's top universities are falling victim to the global financial crisis that has caused $964.6 billion in writedowns and losses at financial institutions. Keio University, the alma mater of numerous Japanese politicians including former Prime Minister Junichiro Koizumi, said it has 22.5 billion yen ($233 million) in unrealized losses on investments ranging from hedge funds to real estate investment trusts. Waseda University, a training ground for Japanese politicians since 1882, said it expects a 500 million yen loss on investments as of March to deepen significantly. 'The universities' revenues are declining, so naturally they are turning to investing money to boost revenue,' said Daisuke Okuyama, a bond strategist at Mitsubishi UFJ Securities Co...."

India Watch:

November 19 - Bloomberg (Sumit Sharma): "Property prices and rents in India may be poised for a 'major correction' as supply of affordable housing remains limited and office space exceeds demand, according to Goldman Sachs... Prices and rents in some regions could fall as much as 30%, Goldman said..."

Asia Bubble Watch:

November 18 - Bloomberg (Tim Culpan and Yu-huay Sun): "Taiwan will distribute NT$83 billion ($2.5 billion) in shopping vouchers to its citizens and unveil further measures in the next two weeks to spur its flagging economy, the government said."

November 20 - Bloomberg (Kim Kyoungwha and Shin Saeromi): "South Korea's won slid below 1,500 per dollar for the first time in a decade and stocks fell for an eighth day, the longest losing streak since 2003, as a global recession prompted investors to pull funds from emerging markets."

Latin America Watch:

November 17 - Bloomberg (Laura Price and Katia Cortes): "Brazil's central bank President Henrique Meirelles said consumer credit for automobile purchases has almost returned to pre-crisis levels. 'I got the news today that in the last couple of days credit has almost returned to normal in the automobile industry,' said Meirelles during an event at the Sao Paulo State Federation of Industries..."

November 18 - Bloomberg (Daniel Cancel and Matthew Walter): "Venezuelan bank lending rose at the fastest pace in 11 months in October... Lending at the country's 52 biggest financial institutions... increased 28.1% from a year earlier, Softline said."

Unbalanced Global Economy Watch:

November 17 - Bloomberg (Jim Polson and Dan Lonkevich): "Petro-Canada, the country's third-largest oil company, has delayed the C$25.3 billion ($20.6 billion) Fort Hills oil-sands mining project in Alberta because of rising costs and falling oil prices."

November 17 - Bloomberg (Brian Swint): "The U.K. economy will contract the most in almost three decades next year and house prices are now falling at the fastest pace since at least 2002, two industry reports showed."

November 20 - Bloomberg (Gonzalo Vina): "British banks will face growing pressure for 'full-scale nationalization' unless they resume lending to the nation's 4.7 million small companies, John McFall, a ruling Labour Party member of Parliament said... Banks 'are not shaping up to the task at hand,' McFall said... 'If the banks do not play ball, and will not resume lending, then the demand for full-scale nationalization may well grow.'"

November 20 - Bloomberg (Jennifer Ryan): "The U.K. fiscal deficit swelled as tax receipts stagnated, and economists warned of worse to come as the recession deepens and the government embarks on a budget giveaway. The 37 billion-pound shortfall ($55 billion) in the first seven months of the fiscal year was the largest since records began in 1993..."

November 17 - Bloomberg (Ian Guider): "Irish mortgage lending fell 37% from a year ago as higher borrowing costs and falling house prices deterred buyers."

November 19 - Bloomberg (Maria Levitov): "Russia's inflation rate in the year through Nov. 17 reached 12%, Interfax reported, citing an unidentified government official."

November 21 - Bloomberg (Tracy Withers): "New Zealand faces the most prolonged recession in 18 years as a slowing world economy curbs exports, farm incomes and tourist arrivals, forcing companies to fire more workers, economists say."

Bursting Bubble Economy Watch:

November 20 - Associated Press: "New claims for unemployment benefits jumped last week to a 16-year high... The government said new applications for jobless benefits rose to a seasonally adjusted 542,000... In addition, the number of people continuing to claim unemployment insurance rose sharply for the third straight week to more than four million, the highest since December 1982, when the economy was in a recession."

November 19 - Bloomberg (Timothy R. Homan): "U.S. housing starts and permits for future construction both dropped to record lows in October... Construction starts on housing fell 4.5% in October... to an annual rate of 791,000 that was the lowest since records began in 1959... Building permits... dropped 12% to a 708,000 pace, the lowest since at least 1960."

November 21 - Bloomberg (Philip Lagerkranser): "The bloodletting in the financial- services industry will accelerate in coming months, with job cuts doubling to about 350,000 worldwide by mid-2009, said Brian Sullivan, chief executive officer of search firm CTPartners. Reductions on that scale would be equivalent to 20% of the global workforce at financial companies before the credit crisis began..."

November 18 - Bloomberg (Jeff Wilson): "Declining crop profitability and reduced investor demand will reverse the surge in U.S. farmland values of the past five years, according to Iowa State University economist Mike Duffy. Corn and soybean prices have tumbled more than 40% since reaching records earlier this year, while fertilizer costs, which doubled in the past year, have been much slower to decline. Farmers are backing away from buying land... 'The boom in land demand has ended and ended much sooner than anyone expected,' Duffy said... 'Land values appear to have reached a plateau and property is not bringing as much as it was a few months ago.'"

November 18 - MarketNews International (Claudia Hirsch): "With few exceptions, U.S. retail food prices remained high or were still climbing in September and October, despite falling commodity prices, according to grocers and industry data. Crop and crude oil values may have dropped in recent months, but retail food price declines have lagged as grocers' and manufacturers' input costs remain inflated..."

November 18 - Bloomberg (Mason Levinson): "Almost half of U.S. golfers and skiers likely will cut back spending on their sports because of the recession, according to the Seton Hall Sports Poll. The poll also found that consumers probably will spend less on tickets to sports events and buy less team merchandise this year because of the economic slump."

November 17 - Bloomberg (Laurel Brubaker Calkins): "Homeowners fleeing underwater mortgages in California and Florida know where to come up for air: Texas. 'Texas is an extremely friendly place to live if you owe money and do not want to pay,' said Marjorie Britt, a bankruptcy attorney with Britt & Catrett... 'If you have a lot of money and even more debt and want to shelter your assets, you can live fairly normally.' Distressed borrowers can hang on to luxury cars, a primary residence, paychecks, Retirement accounts, and even jewelry that creditors might claim elsewhere, Britt said."

GSE Watch:

November 21 - Dow Jones (Ronald D. Orol): "In their latest attempt to keep people in their homes during the holidays, Freddie Mac and Fannie Mae announced... they have ordered mortgage servicers and foreclosure attorneys to suspend foreclosure sales and evictions for certain properties. 'Freddie Mac is on track to help three out of every five troubled borrowers with Freddie Mac-owned loans avoid foreclosure this year,' Freddie Mac Chief Executive David Moffett said..."

November 17 - Bloomberg (Jody Shenn): "The Federal Home Loan Bank of Seattle delayed filing its third-quarter report while it completes an assessment of its investments. The bank hasn't been able to complete its evaluation of other-than-temporary impairments of some investments, the FHLB system said... The bank said it had losses of $4.2 million related to the September bankruptcy of Lehman Brothers Holdings Inc."

MBS/ABS/CDO/CP/Money Funds and Derivatives Watch:

November 19 - Bloomberg (Pierre Paulden): "Credit markets from commercial mortgages to junk bonds fell to record lows as concerns grew that the slowing economy would overwhelm government efforts to stem the worst financial crisis since the Great Depression."

Real Estate Bust Watch:

November 18 - Bloomberg (Kathleen M. Howley): "Home prices fell in 80% of U.S. cities in the third quarter, a record spurred by distressed foreclosure sales across the country. The median price of a U.S. home fell 9% in the third quarter from a year earlier and distressed sales accounted for at least a third of all transactions, the... National Association of Realtors said..."

Speculator Watch:

November 21 - Wall Street Journal (Kevin Kingsbury): "Investors withdrew $40 billion from hedge funds last month amid the stock market's crushing declines. Coupled with $115 billion in losses, the industry's assets fell by the biggest one-month amount on record, according to Hedge Fund Research. The once-hot industry, which managed $1.56 trillion as of Oct. 31, has seen numerous funds shut because of big losses this year, and the number of funds is expected to be nearly halved to around 5,000 before the dust settles. The $155 billion drop in hedge funds' assets follows a $210 billion decline in the third quarter. Year-end redemption requests from investors, meanwhile, are expected to be massive."

November 17 - Bloomberg (Saijel Kishan): "Hedge-fund assets may fall to about $1 trillion by the middle of next year, a decline of almost 50% from their peak in June, because of market losses and client withdrawals, Citigroup Inc. said..."

November 18 - Financial Times (Henny Sender and Francesco Guerrera): "Citigroup is liquidating its Corporate Special Opportunities hedge fund after it lost 53% of its value last month... CSO, which managed almost $4.2bn at its peak, has a net asset value of about $58m and debt of about $880m, investors say. People familiar with the matter say investors in the fund are likely to receive no more than 10 cents on the dollar. The fund faltered even though Citi supplied it with $450m in credit lines and equity infusions of about $320m. It also bought assets with a notional value of $1bn that it placed in the fund."

November 18 - Bloomberg (Simon Packard): "Office rents in Mayfair and St. James's, the London districts with Europe's biggest concentration of hedge funds, are falling for the first time since 2005 as the alternative investment industry has its worst year in two decades."

Muni Watch:

November 18 - Bloomberg (Darrell Preston): "Illinois Governor Rod Blagojevich proposed a plan to close a $2 billion deficit through spending cuts and short-term borrowing and by seeking federal stimulus funding... The second-term Democrat asked the legislature to approve emergency powers that will allow him to cut expenditures by as much as 8%. The governor sliced 3%, or $1.4 billion, for the year that began July 1... Illinois is $4 billion behind in paying its suppliers of goods and services, Comptroller Dan Hynes said..."

November 20 - Bloomberg (Michael Quint): "Declining house prices are hurting local governments and may force them to increase levies on homeowners to avoid service cutbacks, according to a report by New York Comptroller Thomas DiNapoli. 'Property taxes are the foundation for local tax revenues, but that foundation is weakening,' DiNapoli said... 'With no end in sight to the housing crisis, many local governments will find their finances stretched pretty thin in order to maintain services.'"

New York Watch:

November 17 - Bloomberg (Michael Quint): "New York Governor David Paterson lacks support among fellow Democrats as he strives to cut school and health-care spending to eliminate a deficit totaling $14 billion over the next 16 1/2 months, which he said may grow further... Paterson must also overcome Republicans, who oppose higher taxes and object to his proposals for spending cuts and increased fees."

November 19 - Bloomberg (Henry Goldman): "New York Mayor Michael Bloomberg said his administration wouldn't send $400 property-tax rebate checks due this month to owners of apartments and houses because the slowing economy threatens to worsen a widening budget gap."

California Watch:

November 21 - San Francisco Chronicle (Tom Abate): "As the state (California) releases its latest unemployment report today, the fund that pays jobless benefits will soon run out of cash, and while federal loans will keep the checks coming, state lawmakers are debating a plan to restore the program to solvency... among the proposals before them will be a program from Gov. Arnold Schwarzenegger to revive the fund requiring employers to pay between $56 and $417 more per employee, per year starting in 2010. Schwarzenegger has also proposed cutting weekly jobless benefits by between $1 and $44 per week..."

November 19 - Los Angeles Times (Peter Y. Hong): "With the median price of Southern California homes down more than 40% from its peak, the housing market has now slid further than most economists expected. The median sales price for homes in the region fell to $300,000 in October, a level not seen since 2003 and a 41% drop from the peak price set in the spring and summer of 2007, according to... DataQuick."

November 21 - San Francisco Chronicle (Carolyn Said): "With banks unloading a record number of foreclosures, Bay Area home sales soared and the median price plummeted in October... Most of the action - and the bargains - were in areas where bank repossessions have become a fact of life. Almost half of all existing homes sold were foreclosures. Their bargain-basement prices sent the Bay Area median tumbling 45% during the past year to $375,000, according to... DataQuick..."

November 21 - Los Angeles Times (Marc Lifsher): "As if plummeting real estate values weren't enough, insurance rates are heading up for many California homeowners. State Insurance Commissioner Steve Poizner late last month quietly approved rate-increase requests from two of the state's three largest homeowner insurance companies. No. 1 State Farm Mutual got the go-ahead for a 6.9% increase...while rates at third-place Farmers Group Inc. will rise 4.1%. A similar request for a 6.9% increase from No. 2 Allstate Corp. is pending..."

Crude Liquidity Watch:

November 19 - Bloomberg (Fiona MacDonald): "A Kuwaiti government rescue plan to establish a fund to shore up the local stock market includes a proposal that may involve it buying as much as 10% of stock of listed Kuwaiti companies, Abdul Majeed al-Shatti, chairman of the Commercial Bank of Kuwait said."

November 19 - Bloomberg (Camilla Hall): "Kuwait's budget surplus narrowed 85% in September from a month earlier as revenue from oil more than halved, the central bank said."

November 19 - Bloomberg (Arif Sharif): "Holdings by United Arab Emirates banks in the construction and real estate industries and the affect they may have on asset quality and the cost of equity is a concern, Citigroup Inc. said. Citigroup raised its estimate of the cost of equity for U.A.E. banks to 11.6% from 10.5% to reflect the 'higher risk environment' from a decline in property prices in the country..."

November 17- Zawya Dow Jones (Majdoline Hatoum): "Dubai's government has hired financial advisors to help it restructure its economy as it struggles to cope with the global credit crunch that has pushed up the cost of financing its $70 billion debt..."

November 17 - Bloomberg (Camilla Hall): "Outstanding mortgage loans in the United Arab Emirates almost doubled in the year through June..."

Just the Facts:

I would like to apologize for only writing a "Just for Facts" this evening and apologize in advance for what will likely be a few more over the next month or so. Thanks for reading!

Doug Noland
The Credit Bubble Bulletin
PrudentBear.com

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