Libor Hits 20 Year High, Global Warming ‘s Silver Lining, An HD Play, Champagne Shortage, and More!

by Addison Wiggin & Ian Mathias

  • Libor keeps rising… U.K. banks face 10 days of hell… the first victim of the U.K. credit squeeze goes down hard…
  • Did your hedge fund beat the S&P 500 in August? Probably not…
  • Climate change makes shipping around the world easier… less expensive… stakes raised in the Arctic scramble…
  • Where jobs are still plentiful… Seven countries reaching 40-year highs in hiring
  • Sharper pictures, sizeable profits… A rare opportunity in home entertainment graces The 5
  • C’est impossible! A champagne shortage… celebratory emerging markets pinch the bubbly biz… seriously


The London Interbank Offered Rate (Libor), a key lending rate in London, hit a 20-year high this morning.
At 6.89%, not since 1987 has borrowing cash on a wholesale level in London been so expensive.

“A lot of borrowing in the corporate and individual sectors is linked to Libor” warns the Royal Bank of Scotland. “The longer the escalated level of interbank rates continues, the greater the danger of spillover into the real economy.”

And it could get worse this week. In rare quirk of timing, up to 20% of the “short-term” loans issued by European banks are coming due between today and Sept. 19. “Britain’s biggest banks could be forced to cough up as much as £70 billion over the next 10 days,” says the Telegraph.

This morning comes word, too, that the credit squeeze has buried its first British subprime lender.
“Adverse credit” specialist Victoria Mortgage says it will no longer be funding new loans and will be forced into “administration.” Victoria’s secret is nothing on the scale of the Countrywide fiasco. But it is a sign that the subprime contagion is not slowing down.

Nearly 8% of British home loans originated last year were subprime.

The dollar hit another new milestone last night.
We reported yesterday that the St. Louis Fed’s dollar reserve has dropped below 77. Well, this morning, the JPMorgan index of the nation’s currency had dropped to 79… its lowest rank in 15 years.

As if on cue, Iran announced this morning that it will conduct all its foreign currency transactions in euro or yen. The euro was trading at $1.38 this morning. Yen at 113. The pound… $2.02.

U.S. markets…yawn… stretch… did nothing worth noting yesterday.

Hedge funds in the U.S. lost 1.3% in August, their worst month in more than a year.
According to Hedge Fund Research Inc., the funds’ biggest losses came from “stocks, emerging markets, junk bonds and so-called macro strategies.” Those funds in the business of investing only in other hedge funds were the biggest losers, and lost an average of 2.1%. Over the same period, the S&P 500 gained 1.5%.

Year to date, the average hedge fund is up 6.2%… beating the market by 1%.

The nations of OPEC meet today in Vienna to discuss production.
Nigeria, Iran, U.A.E., Kuwait, Venezuela, Qatar and Libya have all said they’ll vote to keep output at current levels. Saudi Arabia, says the industry scuttlebutt, will most likely up production anyway.

At $77, a barrel of light sweet crude is less than a dollar away from all-time highs.

Thanks to global warming trends, the mythical Northwest Passage — a shipping lane through the Arctic that connects the Atlantic and Pacific — is more open and navigable than ever.

Climate change is your friend
“To pass through the Northwest Passage from China on your way to Europe is about 5,000 miles shorter than going through the Panama or Suez canals,” notes Chris Mayer. “An oil tanker could make the trip from the Russianport city of Murmansk to the east coast of Canada in a week by crossing the Arctic Ocean. That is about half the time it takes to get an oil tanker from Abu Dhabi to Galveston, Texas.”

“More than 90% of all goods in the world, measured by tonnage, make their way by sea. And the rapid surge in trade with China and India is putting a lot of strain on ports around the world. In recent years, the volume of container shipments has grown 5-7% annually — basically, doubling every 10-15 years.

“If the world just melted itself a new navigable ocean, the effects on trade could be immense. Much shorter shipping distances and quicker shipping times will lower the cost of doing business. It could lead to big increases in trade and, certainly, a major shift in sea lanes.”

Shippers began monitoring the passage in 1972, and nearly ice-free conditions this year have added yet another layer to the Wild West-style action happening in the Arctic Circle. See: Capital & Crisis.



“We had the pleasure of meeting Kevin Kallaugher,” says The 5’s Ian Mathias this morning, “the cartoonist for The Economist since 1978, this time last year when his cartoons were on display at the Walters Art Museum.”

“The Economist’s strict anonymity policy never sat well with him… so he hides his, his wife’s or his children’s names in nearly all of his drawings. Since he shared this little piece of information with us, we spend at least 10 minutes a week trying to find ‘KAL’ in these damn cartoons.”

Japan, Germany, India, Sweden, Australia, Costa Rica and Peru are all reporting the most optimistic hiring conditions in 40 years,
says the Manpower Employment Outlook Survey released today.

While these seven nations tout stellar employment conditions, countries such as the U.S., Ireland, Taiwan and China are all reporting slowing trends in the jobs market. Hmmn…

Food costs have jumped over 18% this year in China.
A shortage of pigs and poultry has intensified the food shortage there.

Overall, consumer prices rose 6.5% in China last month compared with a year earlier. This marks the third straight month China has missed its 3% goal. Inflation is running at a 10-year high. Talks of the central bank raising borrowing costs for the fifth time since March have already begun.

“At the end of 2006,”
reports Bulletin Board Elite’s Greg Guenthner, sniffing out the rare high-tech opportunity, “there were 85 million installed high-definition multimedia interfaces around the globe. By the end of 2010, industry experts are predicting more than 1 billion…”

“Two unexploited areas that are growing due to the recent HD revolution,” says Gunner, “are digital visual interface specification (DVI), a standard to maximize the video quality of digital displays, including PCs and TVs, and serial advanced technology attachment specification (SATA), a technology for connecting hard drive disks and other storage devices. This allows for a faster transfer than either parallel advanced technology attachment specification (PATA) or USB connectors.”

Uh… yeah. What he said.

Gunner has just recommended a “penny” play that specializes in both DVI and SATA. If you’re interested in slicing and dicing margins out of the ultra-competitive home entertainment market, you can learn all you need to know here.

A global spike in demand has caused a champagne shortage.

“For 30 years,” whines Frederic Cumenal, president of Moet & Chandon, “the industry has always succeeded in coping with demand. Today that’s no longer the case. We’re at maximum yield and we will soon hit a wall.”

Champagne producers blame massive demand spikes from China, Russia, India and Japan for their booming business. French bubbly makers estimate a 30-fold increase of Chinese consumption alone… with the Shanghai Composite Index returning over 100% this year, we can’t blame them.

Because true champagne is only be grown in a specific French region, the snoots appear genuinely concerned that demand will outpace supply to such an extent that celebrating Chinese might start choosing… gasp… sparking white wine instead.

Mon dieu… c’est pas vrai. Impossible. Non. Non. Non!


Addison Wiggin,
The 5 Min. Forecast


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