Prudent Bear data says "I don't think we're in Recovery any more, Toto."

We have the feelling we are approaching the edge again.

Global Credit Market Watch:
Prudent Bear
June 4, 2010

June 4 – Bloomberg (Kate Haywood): “Credit-default swaps on sovereign bonds surged to a record on speculation Europe’s debt crisis is worsening after Hungary said it’s in a ‘very grave situation’ because a previous government lied about the economy. The cost of insuring against losses on Hungarian sovereign debt jumped 107.5 bps to a record 416… Swaps on France, Austria, Belgium and Germany also rose, sending the Markit iTraxx SovX Western Europe Index of contracts on 15 governments 21 bps higher to an-all time high of 174.4.”

June 4 – Bloomberg (Sapna Maheshwari): “Sales of U.S. corporate bonds fell 53% this week and issuance of high-yield company debt halted on sustained concern that the sovereign debt crisis in Europe may slow global economic growth… Overall sales declined to the third-lowest this year…”

June 4 – Bloomberg (Emre Peker): “Calpine Corp., the largest U.S. generator of natural-gas-fueled electricity, and at least five more borrowers are being forced to boost interest rates on proposed loans after the market’s worst month since 2008. The margin Calpine offered to pay over lending benchmarks for a $1.3 billion loan increased by as much as 2 percentage points to 5.5 percentage points, while the remaining companies had to raise rates from 0.75 percentage point to 4.5 percentage points…Prices of high-yield, high-risk loans fell 3.89% during last month…”

June 3 – Bloomberg (Keith Jenkins and Justin Carrigan): “The European Central Bank’s purchases of the region’s government bonds are failing to entice other buyers into the market, Nomura International Plc said. ‘Prospects for country spreads now look to be almost entirely dependent on central-bank purchase operations and there appears to be little buying interest elsewhere,’ Ylva Cederholm… wrote… ‘The program has been successful to the extent that it has brought some relative stability. However, it does not seem enough to generate any self-sustaining momentum and it is hard to see this changing until more concrete judgements on problem-state fiscal progress can be made.’”

June 3 – Financial Times (Tom Braithwaite): “Congressional negotiators are moving to toughen finanical reform legislation, raising the chances that banks will face a strict ban on proprietary trading and a new conflict of interest rule, people involved in the deliberations say. Lawmakers return from recess next week to merge bills passed by the House of Representatives and Senate, and a proposal – opposed by banks – to toughen a ban on proprietary trading and stop them from betting against products they sell to customers has re-emerged during preparatory work. The provision, sponsored by Jeff Merkley and Carl Levin, two Democratic senators, would toughen the ‘Volcker rule’, which bans banks from trading for their own account or owning hedge funds and private equity firms… Mr Levin said even though the Treasury would ‘probably...want as much power as they can get to...modify [the bill]’, he thought Congress should write a strong final version. ‘Merkley-Levin in general is very much alive,’ Mr Levin said. ‘The proprietary trading provisions from a legislative perspective are very much in the mix.’”

June 2 – Bloomberg (Christine Harper): “Wall Street’s biggest firms are considering the suitability of selling opaque financial products to governments, endowments and not-for-profit institutions after the contracts magnified credit-market losses that plunged the U.S. into a recession. ‘There is no distinction among very different groups of investors, and this is where things might change,’ said Dino Kos, a managing director at Portales Partners… and former head of the Federal Reserve Bank of New York’s open market operations. ‘Wall Street cannot pretend anymore that the treasurer of a small town in the Midwest on a civil service salary and no analytical support has the same level of sophistication as a specialized hedge fund.’”

June 3 – Bloomberg (Gabi Thesing): “Overnight deposits with the European Central Bank rose to a record yesterday as the sovereign debt crisis made banks wary of lending to each other. Banks lodged 320.4 billion euros ($394 billion) in the ECB’s overnight deposit facility at 0.25%, compared with 316.4 billion euros the previous day…”

June 2 – Bloomberg (Sapna Maheshwari and Kate Haywood): “The market for corporate bond sales closed as concern European banks will take more writedowns and losses led investors to shun all but the safest government debt. No companies issued bonds in the U.S. yesterday… The global new issue market failed to revive after declining to $70 billion last month, less than half of April’s tally and the least since August 2003…”

Global Government Finance Bubble Watch:

June 3 – Bloomberg (Darrell Preston): “U.S. states reduced spending for a second consecutive year as the longest U.S. recession since the 1930s cut tax revenue, a survey by two associations said. Governors may struggle to raise spending in fiscal 2011… as they close deficits without the aid of federal stimulus money that runs out this year, according to a report by the National Governors Association and National Association of State Budget Officers. States will have dealt with $296.6 billion of budget deficits from fiscal 2009 to 2012, covered in part by $135 billion of federal money received under stimulus legislation, the groups said. Governors still face $127.4 billion of deficits for the rest of fiscal 2010, 2011 and 2012. ‘The federal government has helped states avoid even more significant cuts to state services and/or proposed tax increases,’ according to the report… ‘The loss of these funds combined with the anticipated slow recovery of state revenues is expected to result in the continuation of difficult state fiscal conditions.’”

June 2 – Bloomberg (Andrew Frye and William Selway): “Warren Buffett, whose Berkshire Hathaway Inc. has been trimming its investment in municipal debt, predicted a ‘terrible problem’ for the bonds in coming years. ‘There will be a terrible problem and then the question becomes will the federal government help,’ Buffett, 79, said today at the U.S. Financial Crisis Inquiry Commission… ‘I don’t know how I would rate them myself. It’s a bet on how the federal government will act over time.’”

June 2 – Bloomberg (Keiko Ujikane and Tatsuo Ito): “The Japanese government may suffer fiscal collapse in 10 to 15 years if the ruling Democratic Party of Japan maintains its expansionary spending policy, said Takao Komine, a professor at Hosei University and former bureaucrat. Even though ‘Japan’s fiscal conditions are very severe, people were saying voicing such concern was like crying wolf,’ Komine, 63, said… ‘However, since the wolf has appeared in Greece, people have started worrying it may show up in Japan as well.’”

Currency Watch:

The dollar index rose 2.0% to 88.239 (up 13.3% y-t-d). For the week on the upside, the British pound increased 0.2%. For the week on the downside, the Australian dollar declined 2.8%, the Brazilian real 2.5%, the Euro 2.4%, the Danish krone 2.4%, the Swedish krona 2.1%, the South African rand 2.1%, the Norwegian krone 1.7%, the New Zealand dollar 1.2%, the Japanese yen 1.0%, the Canadian dollar 0.6%, the Singapore dollar 0.6%, and the Swiss franc 0.3%.