Subprime crises "red herring"

Discussion in 'Trading' started by karajan123, Nov 17, 2007.

  1. "The fallout from subprime investment declines in the U.S. has mostly been played out, Bennett said. He says he's undone most of his short bets on real estate and banks.

    ``It's a red herring,'' Bennett said. ``As we are all gazing at U.S. subprime, the problem is coming from behind our back in the east.''
  2. maolman


    If Bennett is right, it doesn't matter anyway. Credit card default is next and is just around the corner. So, don't be too quick to jump back into the financials.

    Looks to me like Bennett is a member of the PPT. :D


    Mike Collier
    Oak Harbor, WA
  3. ronblack


    Thanks for the link. It seems that Bennett's performance this year has been very poor and he is trying to panic small investors in Baltic stock markets. If those markets fall now, he can buy cheap and then wait for the devaluation.

    If there is a currency devaluation those markets will explode instead of falling, as he is trying to convince people in the Bloomberg article.

    Currency devaluations make local shares less expensive for foreign investors. Such events usually mark the start of a huge bubble market. In the US despite subprime problems and rising energy prices, the stock markets have been going up due to the steady devaluation of the US dollar.

    Of course, devaluations are good provided they occur either slowly, like in the US, or once in a while by a bigger amount, otherwise foreign investors start factoring in currency exchange losses.

  4. Mike,

    as my accounts are denominated in EUR and one might consider that we might have slowly topped out in EUR / USD ( one ET member naming it the "Giselle Sell" - refering to top model Giselle Buendchen not accepting anymore being paid in USD ; LOL !!! ), it might be a very good time in relation to HPR ( holding-period return )

    HPR = ( Ending price of share - beginning price + cash dividend ) / Beginning price

    If I expect further a risk free rate of let´s say 4,5 % and USD CPI running at 3.5 % (YOY) where do you think is the "rigth place" to invest in ?
  5. Ron, thanks for insights, looking at the baltics index it appears deval 'panic' Feb 15 didn't harm their stock market[]=OMXBBGI

    at the same time, if he's buying depressed stocks in local currency his gains would be offset by the forex loss, the US market didn't go up when measured in EUR
  6. maolman


    A.S., I really enjoy the links you have been digging up about the various economic oddities going on almost unnoticed around the Globe. You are way more experienced in this stuff than I am. While I can't give you an iron-clad answer to your question, I do have a few thoughts, which you will CERTAINLY be allowed to scoff at ... :D

    EUR/USD is leveling out. I think this is a little early and there could be one more downside shakeout. While I don't really see the U.S. economy as being all that weak, I don't see any real value in our currency at this time. At the same time, the U.S. economy has some perilous times ahead and needs to find a way to get back on its feet under a good head of steam.

    Can this happen soon in the face of the consumers' HIGH LEVEL of credit card indebtedness? Nearly everyone I know is completely maxed-out and has been for MONTHS, now. Additionally, it is all they can do just to meet the INTEREST requirements, let alone to try to pay anything toward the principal balance!

    And now, the new rip-off by the credit card companies here in the USA is to automatically kick EVERYBODY up to high interest rates (18%-24%), whether or not they have impeccable credit ratings, are current and have never missed a payment in their life. This greed by the card companies will make it impossible for a great deal of their customers to keep up with the interest, EXPANDING the ACTUAL BALANCE OWED!!! It won't take too long for this to collapse with tons of defaults and bankruptcies.

    This is why I said credit card debt in America is the next big problem, and I have heard that it could be TWICE as big as the subprime/Alt-A mess.

    I keep hearing that the U.K. is also in a housing/real estate bubble that is finally beginning to bust -- they're going to spend the next 2-3 years going through what we already have. So, the BP should start having difficulties tracking even with the Euro, for a little while.

    There are also wisps of rumors that the subprime mess is FINALLY spreading north of the border into Canada. I don't know how true this is. The word, so far, has been that their banks are bullet-proof. Well, everyone thought the U.S. banks were bullet-proof too, until they all reached the point that they could no longer hide 2 years of losses from their stockholders.

    Everyone knows China's economy is TOO HOT and has been expanding wildly for the last several years. It is now on the verge of being out of control, even for the heavy-fisted communist govt. It must collapse for a short time and re-value. When? 2-3 years? Probably no more than 5 years.

    The European Continent has its own set of special problems. It has lower manufacturing productivity rates than the U.S., its unemployment rate is quite a bit higher than the U.S. and, like the U.S., is staring inflation in the face. If the US can come out of its current problems with the lenders/insurers and somehow greatly avoid the looming credit card problem, the USD will make a MASSIVE recovery against the EURO. There is a little stuttering going on right now, but I don't really see a BIG recovery for about 18-24 months -- longer after much more downside if credit card debt hits the USA.

    I don't know enough about Russia to pass any effective judgement. I only have a feeling. That feeling is that Putin is successfully returning Russia to its former police state status but, at the same time, has quietly made room for some market based policies, like Red China has. Further, that feeling is that Russia is just now entering the phase China was in 5-7 years ago, when they started loosening up. I see a lot of opportunity in Russia right now but, because of the ubiquity of the Russian criminal element and the wholesale corruption of the government, this is WAY too risky for my taste. You may be alright with this.

    After 15 years, I still can't quite seem to put my finger on Japan. It seems as though their currency is going to start gaining value, now. The trouble with this is, in spite of their fairly vibrant economy over the last several years, it's STILL the same ole status quo with the BOJ -- they just don't seem to be pulling out of the doldrums and this is where all of their reserves should be. I haven't yet seen an honest and viable case for the strengthening of the Yen -- just a bunch of wishes by a bunch of talking heads.

    Although I'm not sure how this works, I think that, as the USD/YEN-carry unwinds, it is possible that there will very soon be a great YEN-carry opportunity with the Australian Dollar or, especially, the New Zealand Dollar, due to the large interest rate spreads in current bank rates in Japan, Australia and New Zealand. Somewhere, I read that there is some sort of overhead involved in this trade that is not present with the USD, so it doesn't work as well. This is just a thought that might bear investigation.

    Mainly, my "mega-view" sees rapidly rising world population, a much larger percentage of this overall population suddenly being brought out of 3rd world status and into relative personal financial improvement and security, and an equivalent and EVER_INCREASING strain upon ALL of the basic commodities that makes the world run.

    Therefore, all this was to say that, for the next 10-20 years, finding ways to invest in commodities-related companies would be the right way to go. Look to the countries rich in commodities. Right now, Australia, Canada and possibly some spots in South America should be pretty fair and hold their Euro values pretty well. Then pretty soon, the USA will be back, and, after a while, China, Russia and Africa will finally come along.

    I don't invest in stocks, bonds or funds. I spread-trade futures/commodities contracts. I have a fairly small account, but I'm doing fine with it. But, I have to find the opportunities, wherever and whenever they might be. It could be Gold; it could be Wheat; it cold be Oil; it could be Orange Juice, Lean Hogs or Copper. It could be ANYTHING traded on the CME, CBOT or NYMEX, as the opportunity presents itself.

    For this reason, I try to read a little bit of everything, but especially, to bone up real well on the particular item I might be trading for that particular day/week. I also follow economics somewhat closely because this is all about the ebb and flow of money in the various parts of the world at any given time and this often has a large effect on which opportunity comes along.

    This is ALL i know -- and it DAMN SURE isn't very much :eek:

    Anyway, I hope SOMETHING I wrote makes sense to you :) :cool:

    Keep bringing those great links!!!


    Mike Collier
    Oak Harbor, WA
  7. S2007S


    Credit Card Defaults havent even surfaced yet, but when they start to it will be as big or even bigger than subprime. Nearly $1 Trillion worth of Credit Card Debt in the US.
  8. AK100


    So a fund manager is saying 'now's the time to buy'.

    Who would have thought it..............
  9. I guess that's why Visa wants to IPO? They know what's coming and they want to cash in before the crash.
  10. maolman


    A.S., just one more thought: Preservation of current monetary denomination value (i.e., the Euro).

    You say your accounts are in the Euro and it looks like its topping out vs. USD.

    Swiss Franc is 30% Gold-backed, as opposed to EVERYONE ELSE in the world with 100% fiat-based currency. Consider trading either on the Forex (NOT regulated = dangerous) or on CME's IMM (REGULATED = quite a bit safer than Forex).

    If you decide to trade the Forex, SELL (go SHORT) the EURCHF pair. This is a long term position trade, NOT a daytrade, so overnight charges and a whole mess of other hidden stuff applies to a Forex trade. Plus, your OWN BROKER will be the MARKETMAKER (!) -- you will be trading against him, and he will be front-running all of your trades -- the apparent pip-spread you will be getting will be AT AN ARTIFICIAL PRICE (your BROKER's price!), even if the spread appears to be in proper order!

    But, if you MUST trade Forex, additional remarkable opportunity exists by SELLing (going SHORT) the GBPCHF pair over the long term. This trade has a much larger potential, but is also quite volatile and you can get heavily whipsawed.

    If you wish to trade either of these on the CME, instead, you will need a futures/commodities account. You will need to BUY 3 x SF and SELL 2 x EC contracts to get the reduced margin for spread trades. At this time, I recommend the June '08 contracts, so this would be: BUY 3 x SFM08 -- SELL 2 x ECM08. TOTAL Initial Margin for this 3x2 trade is currently a shade over US$2,000 (about Eur 1,380). This is a well-ratioed trade at the moment. It turned around in late-October in favor of the Swiss Franc and will continue to trend nicely and evenly in your favor with very little risk likely for an extended period of time. This amounts not to mere capital preservation, but outright profit, as well.

    For the British Pound on the CME, this trade would be BUY 1 x SFM08 -- SELL 1 x BPM08. That's right, in this case, it's a 1x1 trade that gets the reduced spread trade margin. TOTAL Initial Margin for this trade is around US$1,700 (about Eur 1,170). This also turned in favor of the SF in late-October, but has since trended very steeply. I think it is overdue for a good pullback, but the overall long term direction should still be in your favor with this trade. As above, this trade has a LOT MORE potential but, because of volatility, there will also be whipsaws and more risk than with the SF/EC trade.

    The CME is REGULATED, as opposed to the UNregulated Forex. All charges, commissions, margins and exchange fees are completely TRANSPARENT and can easily be determined. The commissions charged by the average brokerage on the CME contracts is FAR SMALLER than the pip-spread on Forex.

    You might think this would make it more attractive for futures brokers to front-run their clients' trades; however, although this is done to a small degree (then, they lose clients real fast!), front-running of clients' trades by their brokers remains FAR MORE PREVALENT in the Forex market!

    This means that it is not only much safer to trade futures/commodities than Forex, it is also far less expensive and trade entries and exits are far more dependable.

    People trade Forex because you can open an account as small as $200 with many Forex brokers and start trading. Discount futures brokerages require beginning account sizes in the range of $5,000-$10,000 (by law, at least $25,000 if you wish to DAYTRADE STOCKS, not futures). This makes it difficult for the average "Joe" to just leap in and gamble, as is done in the Forex market.

    So, it's up to you to consider this idea. As I mentioned, here you have a chance to NOT worry so much about 4.25% annual portfolio improvement if you can bring good profit to your capitalization, instead of mere inflation-pacing.

    Whatever you decide to do:

    GTTY :) :cool: :)


    Mike Collier
    Oak Harbor, WA
    #10     Nov 20, 2007