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303 comments on DrumBeat: May 9, 2007

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Leanan on May 9, 2007 - 9:31am Permalink | Subthread | Parent | Comments top

Thanks for the tip.

Here's a link that's not behind a paywall:

Clarium Capital bets on rates to rise more

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HeIsSoFly on May 9, 2007 - 10:25am Permalink | Subthread | Parent | Comments top

Subprime America infects Asia and Europe

By selling foreign investors its bad debt, America has shot itself in the foot. Because America is now the world’s #1 debtor, because America needs over $1 trillion in foreign investment capital each year to pay its bills—and because it was foreign investors that were primarily burned by Wall Street’s subprime CDOs, the flow of foreign capital to the US may soon be going elsewhere.

Today, the word “de-couple” is increasingly heard where global markets are discussed. No longer referring to freight trains or dogs in delicto flagrante, de-coupling refers to the distancing, i.e. de-coupling, of global economies from the US, to wit, the increasingly perceived expeditious act or art of separating still-healthy economies from the slowing US economic engine.

While it is true the US has been the driver of the global economy, it is no longer. The sobriquet “has been” is literally correct in this instance. The US share of global economic growth so far in 2007 is 10%, a figure analogous to Barry Bonds batting .134.

Global capital flows, like tsunamis, are not something to be taken lightly. If the flow of foreign money to the US slows, the US dollar will collapse and the US will be forced to raise interest rates to continue attracting foreign capital. And, if US interest rates are raised, the US economy will collapse.

Greenspan might call this a conundrum. Other people might call it and Greenspan something else.

.... because most people don’t know a financial crisis is in progress, they will have little chance of survival. This summer, America’s subprime CDOs are coming home to roost, and not just to the US.

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Alfred on May 9, 2007 - 11:33am Permalink | Subthread | Parent | Comments top

Deutsche Bank wins on subprime gamble

By Ivar Simensen in Frankfurt

Published: May 9 2007 03:00 | Last updated: May 9 2007 03:00

Deutsche Bank made a large profit from betting on the weak-ening of the US subprime mortgage market, the German bank said yesterday as it reported record first-quarter earnings.

Unlike some of its peers,Deutsche Bank benefited from the market correction in March, when the subprime mortgage market nearly collapsed, by placing bets on the US mortgage market weakening.

The fixed income desk late last year entered short positions in the ABX index, a derivatives basket on high-risk mortgages and home equity loans, which paid off when the market went into meltdown in March.

"Someone saw an opportunity and that was a good move," Josef Ackermann, chief executive, told the Financial Times.

The bank declined to say how much it earned on the trade. Revenues in the fixed income proprietary trading desks were between €340m (£231m) and €510m.

Deutsche Bank's success stood in stark contrast to some of its peers. Last week, Swiss rival UBS said it would close its external hedge fund unit, which had been spun off from its credit proprietary trading desk, and reintegrate it into the bank after the fund lost SFr150m (£61.9m), mainly in the US subprime mortgage market.

Pre-tax profits at Deutsche rose 22 per cent to a record €3.2bn in the first quarter. The investment banking business was again the main driver, accounting for 75 per cent of pre-tax profits as currency, debt and equity trading volumes boomed in volatile markets and takeover activity was strong.

The rising profits in the investment banking division helped the bank beat market expectations, but could not prevent further disappointment in its asset and wealth management businesses.

The businesses were hit by a slowdown in the US property market. Pre-tax profits in asset management fell 19 per cent to €188m, primarily due to lower performance fees from its US property funds businesses.

Mr Ackermann warned of the possibilities for further short-term volatility but gave an upbeat outlook for the bank.

"Despite the ongoing correction in the housing market, the US economy remains fundamentally resilient. Growth momentum and business confidence in Europe appear solid," he said.

Today's FT had the above article. Obviously, not everyone is going to be a winner out of net loss of $1.5 trillion!

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musashi on May 9, 2007 - 1:55pm Permalink | Subthread | Parent | Comments top

“This is the time of the vulture. For the vulture feeds neither upon the pastures of the bull nor the stored up wealth of the bear. The vulture feeds instead upon the blind ignorance and denial of the ostrich. The time of the vulture is at hand.”

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NeverLNG on May 9, 2007 - 4:09pm Permalink | Subthread | Parent | Comments top

Do the Chinese have a Year of the Vulture in their calendar cycle?

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musashi on May 9, 2007 - 1:37pm Permalink | Subthread | Parent | Comments top

Well, it's either going to go Thiel's way or "helicopter" Bernanke's way. If we had the answer we could afford to outbid the Bush family for their retreat in Paraguay.

Question is, are you willing to bet on the fed doing the right thing for the people of the US? Mr. Thiel seems excessively optimistic.

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rude crude on May 9, 2007 - 5:16pm Permalink | Subthread | Parent | Comments top

Speaking of Paraguay...

Hezbollah builds a Western base

From its Western base in a remote region divided by the borders of
Paraguay, Brazil and Argentina known as the Tri-border, or the Triple Frontier, Hezbollah has mined the frustrations of many Muslims among about 25,000 Arab residents whose families immigrated mainly from Lebanon in two waves, after the 1948 Arab-Israeli war and after the 1985 Lebanese civil war.

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musashi on May 9, 2007 - 8:47pm Permalink | Subthread | Parent | Comments top

Yeah, that tri-border area pretty much is like the Bermuda triangle, everything goes and no one has any real control.

The Argentine army going in there is like the LAPD going into south central, it can be done, theoretically. LOL.

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HeIsSoFly on May 9, 2007 - 9:52pm Permalink | Subthread | Parent | Comments top

The Hezbollah article is priceless. Washington is alarmed not because of terrorists going to the US from the Triple Frontier, but because they all bought property in the area themselves. Oh, and there's already a large Arab population there. Sounds like fun for everyone.

Why are they all so anxious? There is a very good reason to settle in the region: water. Meet the Guarani Aquifer.

And it gets better still, quote Wikipedia:

Concerns of U.S. strategic presence

The Argentine film called Sed, Invasión Gota a Gota ("Thirst, Invasion Drop by Drop"), directed by Mausi Martínez, portrays the military of the United States as slowly but steadily increasing its presence in the Triple Frontera (Triple Frontier, the area around the common borders of Paraguay, Argentina and Brazil). The overt reason for the increasing presence of U.S. troops and joint exercises, mainly with Paraguay, is to monitor the large Arab population which resides in the area. However, Martínez alleges that it is the water which brings the Americans to the area, and she fears a subtle takeover before the local governments even realize what is going on.

Similar concerns were lifted following both the signature of a military training agreement with Paraguay, which accorded immunity to U.S. soldiers and was indefinitely renewable (something which had never been done before, while Donald Rumsfeld himself visited Paraguay and, for the first time ever, Paraguayan president Nicanor Duarte Frutos went to the White House), and the construction of a U.S. military base near the airport of Mariscal Estigarribia, within 200 km of Argentina and Bolivia and 300 km of Brazil.

The airport can receive large planes (B-52, C-130 Hercules, etc.) which the Paraguayan Air Force does not possess. [2] [3]. The governments of Paraguay and the United States subsequently ostensibly declared that the use of an airport (Dr Luís María Argaña International)[1] was one point of transfer for few soldiers in Paraguay at the same time.

According to the Argentine newspaper Clarín, the U.S. military base is strategic because of its location near the Triple Frontier, its proximity to the Guaraní Aquifer, and its closeness to Bolivia (less than 200 km) at the same "moment that Washington's magnifying glass goes on the Altiplano [Bolivia] and points toward Venezuelan [president] Hugo Chávez — the regional devil according to the Bush administration — as the instigator of the instability in the region" (El Clarín [3]). The U.S. State Department firmly [denies][2] these allegations.

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musashi on May 9, 2007 - 11:47pm Permalink | Subthread | Parent | Comments top

On the other hand the US is rapidly losing influence in Mercosur, they are not going to roll over and play dead.
The background info is there but these things are pretty fluid and some links are either recycled or outdated.

We live in interesting times.

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DelusionaL on May 9, 2007 - 8:42pm Permalink | Subthread | Parent | Comments top

The edge is getting sharper and we will fall off on one side or the other. I still think its a toss up.
History would point to "inflate or die" as the last gasp most societies take.

I take the position that the Fed is in a catch 22. raise interest raise to keep foriegn investment in US debt and stiffle domestic demand or cut rates to increase domestic consumption and loose foriegn investment. Screwed either way. I wonder if in the rear view mirror how close we were to cratering with Greenspan, and if now we are shooting over the top.

KSA and Opec are in a catch 22 as well. Tell the world oil is running out and start a panic or tell the world we don't feel like pumping oil, could cause some nasty problems as well. I see they are taking the course of blaming refineries. A very good move imo. But what are they going to do long term?

Eventualy both of these groups will have thier hands forced by circumstances beyond thier control.
May we live in interesting times....

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greenish on May 9, 2007 - 9:43pm Permalink | Subthread | Parent | Comments top

Say, what's the deal on Paraguay, anyhow? Should we all be looking into it?

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musashi on May 9, 2007 - 9:58pm Permalink | Subthread | Parent | Comments top

IMO you should look into an area along the lines of it, meaning really autonomous and under no ones direct control, or at least remote enough to be more then one tank of gas removed, but you need a knowledge on the lay of the land.
Most people would probably be better off playing the cards they know very well even if they are not the best cards.

Your typical urban US citizen would probably last about 24 hours there if he is lucky.

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303 comments on DrumBeat: May 9, 2007

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