Global Credit Market Dislocation Watch:

December 31 – Bloomberg (James Sterngold): “It has been a year of record misery: the largest bankruptcy, bank failure and Ponzi scheme in U.S. history; $720 billion in writedowns and losses by financial institutions; $30.1 trillion in market valuation wiped out. The biggest loss and the hardest thing to recover, though, may be something that can’t be precisely measured -- confidence in the markets and the firms that rely on them. ‘The wholesale funding model lost its credibility,” said David Hendler, senior analyst at… CreditSights Inc. “That started the semi-nationalization of funding in the financial markets. It’s a real chink in the armor of capitalism as supposedly the best process for allocating capital. The government is now deciding who gets access to capital.’”

January 1 – Dow Jones (Rob Curran and Kejal Vyas): “This was the worst year for equities and many other investments since the depths of the Great Depression. The Dow Jones Industrial Average fell 34% in 2008, its biggest loss since 1931… The broader S&P 500 ended the year down 38%, the largest loss since 1937… The technology-oriented Nasdaq Composite shed 40.5%, the worst performance in a history dating back to 1971… ‘Devastation,’ said Howard Silverblatt… analyst at S&P…”

December 31 – Bloomberg (Gabrielle Coppola and Bryan Keogh): “U.S. corporate bond sales fell 28% in 2008 to the lowest in three years as a recession and seizure in credit markets pushed borrowing costs higher. JPMorgan Chase… and… Verizon Communications… led $805 billion of investment-grade offerings, a 21% drop from 2007. High-yield sales were the lowest in at least a decade. Financial issuance plunged 31%.”

December 23 – Wall Street Journal (Gerald F. Seib): “The new edition of Foreign Affairs magazine has a pair of articles about the global financial mess that carry these disturbing headlines: ‘A Weakening of the West,’ reads one, and ‘The Rise of the Chinese Model’ the other. Those two pieces frame a serious but little-discussed strategic problem for President-elect Barack Obama. The meltdown in financial markets hasn’t simply damaged the American economy. It also has tarnished the U.S. economic model, and threatens to reduce Washington’s ability to exert influence around the globe. The ‘Anglo-Saxon brand of market-based capitalism’ is under a cloud, Roger Altman, former U.S. deputy Treasury secretary… writes in one of the Foreign Affairs pieces. ‘The U.S. financial system is seen as having failed.’ That can’t be good for America’s moral authority.”December 24 – Bloomberg (Stanley White and Shigeki Nozawa): “Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co. The dollar may lose as much as 40% of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes ‘drastic measures’ to help bail out the U.S. economy, Mikuni said… ‘It’s difficult for the U.S. to borrow its way out of this problem,’ Mikuni said… ‘Japan can help by extending debt cancellations.’”

December 31 – Bloomberg (Jeremy R. Cooke and Michael McDonald): “The worst year for municipal bond investors since 1999 may further reduce demand for tax-exempt debt just as state governments face the biggest budget deficits in at least a quarter-century. State and local borrowers sold $385 billion of long-term bonds through yesterday, down 9% from 2007, according to… Thomson Reuters… The combination of the worst financial crisis since World War II and the collapse of the $330 billion auction-rate debt market will leave 41 states and the District of Columbia with shortfalls just as financing sources diminish.”

January 2 – Wall Street Journal (Craig Karmin): “After suffering through 2008, some big pension funds are having second thoughts about their exposure to private-equity firms, hedge funds and other nontraditional investments. Across the U.S., pension-fund managers and investment officers have been scrutinizing their asset allocations, especially toward so-called alternative investments. In addition to wilted returns, pension funds are leery because some hedge funds have made it hard to cash out… ‘What we saw as an asset before, we now see as a liability,’ says Christopher Ailman, chief investment officer of the California State Teachers’ Retirement System, the country’s second-largest public pension fund by assets.”

January 2 – Bloomberg (Lindsay Fortado): “Linklaters, hired to advise on four of the 10 biggest deals in 2008, led all law firms in mergers and acquisitions during the smallest deal market in four years… Sullivan & Cromwell ranked second among firms representing buyers and sellers as total announced mergers, acquisitions and divestitures plunged 38% to $2.50 trillion from $4.06 trillion last year.”

December 30 – Bloomberg (Makiko Kitamura and Alan Ohnsman): “Toyota Motor Corp. and Honda Motor Co., Japan’s two largest carmakers, may modify their so-called ‘just-in-time’ manufacturing system to avoid possible supplier bankruptcies disrupting production. General Motors Corp. and Chrysler LLC are battling to restructure after winning $13.4 billion in emergency federal loans to keep them operating through March. Detroit’s woes could lead to a ‘supplier shock,’ crippling U.S. production at Japanese and other foreign carmakers, according to the Center for Automotive Research.”

December 30 – Bloomberg (Rebecca Christie and David Mildenberg): “GMAC LLC, bolstered by a $6 billion federal bailout, resumed lending to General Motors Corp. customers with lower credit scores as the U.S. widened its effort to keep the automaker in business.”

Bursting Bubble Economy Watch:

January 2 – Bloomberg (Shobhana Chandra): “Manufacturing in the U.S. shrank in December at the fastest pace in almost three decades… The Institute for Supply Management’s factory index fell to 32.2…the lowest level since 1980, from 36.2 the prior month…”

December 29 – Bloomberg (Heather Burke): “U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years. Retailers will close 12,000 stores in 2009, according to Howard Davidowitz, chairman of retail consulting and investment- banking firm Davidowitz & Associates…”

December 30 – Wall Street Journal (Gary Fields): “At Society Hill Loan, a pawnshop in a middle-class neighborhood here, a steady rain fell outside as a fashionably dressed young man parked his Cadillac Escalade outside. Looking around warily, he came in to speak with Nat Leonard, co-owner of the store. The visitor was a 29-year-old engineer who was laid off earlier this year from one of the local chemical companies. Since then, he’s been cleaning planes at the airport for less than half the salary he was earning a year ago. Now he needs a $2,500 loan on his watch -- a Movado Fiero with a diamond bezel -- to pay his mortgage note. ‘I want to help,’ said Mr. Leonard. But unlike Rolex and a few other brands, ‘there’s no market’ for Movado in his pawn universe.”

January 2 – Wall Street Journal (Matthew Futterman): “For all the talk of slumping ticket sales and sponsorships, the most troubling scenario for the sports industry is the growing trend of team owners beset by financial problems in their principal businesses. The issue crystallized last month when Tribune Co., owner of the Chicago Cubs, filed for bankruptcy-court protection. The problems have been spreading as the souring economy diminishes the fortunes of team owners. That jeopardizes the essential ingredient of the sports business: rich people who can afford a really expensive hobby. ‘The willingness or tolerance for future losses is very, very low,’ says Allen and Co.’s Steve Greenberg, an investment banker to the sports industry and former deputy commissioner of Major League Baseball. ‘More owners are looking to operate at break-even or better. The problem is, it’s hard to turn a $15 million to $25 million loss into break-even in a short period of time.’”

December 30 – Bloomberg (Terrence Dopp): “It’s 3:45 a.m. in Atlantic City, New Jersey, and Jimmy Panagiotou just walked away from the poker table after 5 1/2 hours, about $200 lighter. The 43-year-old professional gambler, wearing a World Series of Poker baseball cap and leather jacket, is on a cigarette-and-coffee break outside Caesar’s casino, pondering his next move. Looking around, he takes his loss in stride as he notes the eerie quiet of the largest gambling district in the U.S. after Las Vegas. Only diehards remain. ‘It’s not like it used to be,’ Panagiotou said. ‘All of the casinos are struggling. People are not going to find money to gamble when they need to find it just to live.’”

Central Banker Watch:

December 30 – Bloomberg (Brian Parkin): “Interest-rate cuts by central banks to counter the global financial crisis may repeat the problem that led the banks to act in the first place, German Finance Minister Peer Steinbrueck said… Germany should forego spending its way out of the crisis by tapping cheap consumer credit as interest rates fall, he is quoted as saying. ‘We should avoid letting a policy of cheap money create a new credit-financed growth bubble,’ Steinbrueck is cited as saying. Germany’s ruling coalition should focus its economic stimulus policy on infrastructure programs that offer long-term benefits rather than fan private consumption, he said.”

Muni Watch:

January 2 – Bloomberg (Jerry Hart): “More local governments face credit- rating downgrades than during any recession in the past 40 years because of their reliance on property taxes amid the housing market’s collapse, Moody’s… said. State and federal aid cuts, lower income from economically sensitive fees and increased demand for services will also pressure local finances… Governments dependent on short-term financing may be denied credit-market access… ‘The downturn in real estate values has exacerbated the general economy’s impact on municipal governments’ budgets,’ Moody’s analysts including Lisa Cole wrote… Some local governments “will potentially face material stress over the next few years.’”

California Watch:

December 24 – Bloomberg (Michael Janofsky): “Just $5 million of work is needed to complete a new California Court of Appeals building in Santa Ana. The state may not have the money, and come July judges may be writing opinions in their living rooms. ‘I’ve been on the bench for 23 years, and I’ve never seen anything like this,” said David G. Sills, the presiding justice for the Fourth District Court of Appeals…”

December 29 – Bloomberg (Michael McDonald): “The California Housing Finance Agency remains under Moody’s… scrutiny amid rising delinquencies and falling prices. Moody’s said… that it is still reviewing the credit rating on $1.4 billion in bonds the state agency sold to finance mortgages in California, including $1.3 billion for multifamily projects.”

New York Watch:

December 29 – Bloomberg (Michael McDonald and Michael Quint): “Six years after embarking on an effort to lower borrowing costs using derivatives, New York is watching those savings evaporate. The state says it paid bankrupt Lehman… and other Wall Street banks at least $75.9 million since March to end interest-rate swap contracts that were supposed to lock in below-market rates. That money and the costs of issuing new debt to replace bonds linked to swaps gone awry are eroding the $207 million in savings New York budget officials say the derivatives produced since 2002. New York isn’t alone.”

Crude Liquidity Watch:

December 30 – Bloomberg (Abdulla Fardan): “Gulf Cooperation Council’s leaders may defer a decision on the start of a monetary union to their biannual meeting in May, Bahrain’ Al-Wasat said, citing unidentified G.C.C. officials. Members countries couldn’t agree on which country would host the proposed central bank for the group, the newspaper reported…”