Sunday, September 30, 2007

UBS latest victim of credit turmoil / FT

I assume that this kind of news is already "priced in"( update UBS down 4% after forecasting quarterly loss, now unchanged ). I think we will here similar news for quarters to come form almost every financial company . And i doubt that the future anouncement are also already priced in.....

Ich denke das die heutige Nachricht wohl schon "eingepreist" ist ( Update UBS down 4% after forecasting quarterly loss, inzwischen unverändert) . Diese Art Meldung wird und wohl noch diverse Quartale weiter begleiten. Ich kann mir schwerlich vorstellen das auch die zukünftigen Wertberichtigungen in Mrdbereich bereits in den Kursen enthalten sind......

UBS is expected to announce Monday the departure of its investment bank head as it warns it will write down billions of dollars of fixed-income assets, making the Swiss banking group one of the year’s biggest casualties of financial market turmoil. The bank is expected to say it has written down its fixed-income portfolio by more than SFr3bn ($2.6bn), triggering a Q3 loss of at least SFr600m ($516m), say people close to the matter.

Lex notes that new UBS chief Marcel Rohner has been thrown head first into the current credit crunch, and concludes that while trading activity has boomed for UBS over the past five years, as for all banks, it is also likely that risk is not being properly measured, or even that it is disappearing “off balance sheet”.

Bloomberg UBS Has Loss, to Cut Jobs, After Subprime Writedowns

Hat tip to New York City Housing Bubble

> Fascinating to see that often the same "experts" that praised the financials and the investmentbanks in particular have siwtched now after the earnings are "gone" already switched to the "book value" argument. They probably havn´t read some dirty secrects about the not very conservative accounting as shown in Earnings Quality Part XXIII........ & via Mish Bank Balance Sheets and Earnings.

> Erstaunlich das etliche die bis vor kurzem das niedrige KGV als Kaufgrund angeführt haben, nun da oft überhaupt keine Gewinne mehr ausgewiesen werden , inzwischen nahtlos auf das Argument "günstig im Vergleich zum Buchwert" umgeschwenkt sind. Denen sei nochmals gesagt das gerade die Bilanzierung nicht immer sehr "konservativ" ausfällt. Nachzulesen in Earnings Quality Part XXIII........ & Bank Balance Sheets and Earnings

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Recession isn't an 'if' but a 'when' / Fleckenstein

Tough times if you are a bear for the overall market.......

Harte Zeiten für alle Bären die auf die Martktkorrektur der großen Indizes warten......

As I think about recent developments on Wall Street, I am struck by the absurdity of the current mentality. By that I mean: The latest run in the stock market, which peaked as the structured-credit problems made themselves known, had been powered by leveraged-buyout madness, which itself had been powered by lunacy in various forms of structured credit.

Nevertheless, when it became clear that the plumbing of structured credit was a disaster -- witness the lines around the block at England's Northern Rock branches and, to a lesser extent, at Countrywide Financial here -- the Federal Reserve felt compelled to cut rates by a surprise half a percentage point. In doing so, Bennie and the Inkjets(thanks to my friend Colin for that moniker) have tanked the bond market and the dollar.

King Quants often gets what he wants
Of course, stock bulls responded on cue -- by racing in for more. Apparently, those with the most stock-market votes, i.e., those who run the most money these days, seem to believe in some sort of immutable law of physics that says stocks must go up each and every day.

Within that money-running group, I have a sneaking suspicion that the bizarre action in tech stocks is a function of quant funds. It seems they don't operate as they once did, when stocks were picked based on fundamental statistics. These days, the characteristics (volatility, correlation, membership in an index, etc.) of stock-price movement are all that matters.

Skies bluish versus bearish
What I expect to unfold is a recession and severe weakness in the equity market. To get a sense of the timing, I was therefore eager to hear the comments of noted speakers last week at a New York conference held by Jim Grant of Grant's Interest Rate Observer. To my surprise, it seemed most of them were not too terribly concerned about the stock market or the economy.

That is not to say everyone felt that way. But I think it accurately encapsulates the opinion of investor Sam Zell, who was downright bullish on world gross-domestic-product growth. He seemed to think that we'd most likely muddle through and that the recent hiccups in liquidity and the markets would not lead to anything very troubling or long-lasting. (Though he just concluded a $40 billion sale of commercial real estate, he didn't sound too bearish on that asset class, either.)

Mohamed El-Erian, Harvard's former endowment chief who is now moving to Pimco as a co-head, was similarly sanguine. But he felt that we would see plenty of volatility in the future and that folks had better learn how to manage risk. He thought the innards of the financial system hadn't quite caught up to all the changes in the world and indicated that would continue to raise issues for folks.

I guess GMO Chairman Jeremy Grantham came the closest to being downright bearish. He was unequivocal in his belief that housing prices will revert to the mean. Likewise profit margins in corporate America (which are at a record) and price-earnings ratios -- implying stock prices were going down a fair amount or, as an asset class, would generate negative real returns for an extended period. Obviously, if he is right about housing prices, I don't see how the trouble I envision is going to be avoided.

The nitty-gritty of the president's committee
An item that I felt folks would find most newsworthy is that the president's working committee on financial markets, known by some as the PPT, or plunge protection team, now has about 20 outsiders who attend certain meetings to advise the committee. One of them is none other than noted short-seller Jim Chanos, who left Grant's conference early last Tuesday to attend a PPT meeting. In response to my question as to why the committee had chosen him and others, he cited one reason: that the panel was worried about adverse publicity and wanted to communicate that there was no nefarious buying of S&P futures, as is constantly rumored.

This is a story that I'm sure will have legs. Though not an earthshaking development, given all the emotion that the PPT evokes, it's a fact worth knowing. Even Chanos -- who is quite bearish on structured finance and who pointed out many of the absurdities that readers are familiar with, such as Level 3 accounting, otherwise known as mark-to-fantasy -- didn't seem overly bearish. However, I did not specifically question him as to his opinion.

Bottom line: For what's often thought of as a bear's conference, I did not detect much bearishness. Perhaps it's right not to be bearish. But it does strike me that perhaps to be quite bearish about the economy and the stock market might be one of the most contrary thoughts of all.

Thanks to Bespoke Now vs. 1998 and 1987
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Friday, September 28, 2007

Collision Course "Rammstein Meets Oktoberfest" :-)

Most of US visitors know Rammstein probably only as the largest US Air base outside the US. It is also a very popular band in Germany and they are probably one of the most successful German bands in the rest of the world. Some say that tells it all.....

I´m pretty sure i don´t need to tell anybody what the Oktoberfest in Munich is....

It looks like at least a few in Germany have a good sense of humor and one has put up this amusing clip

Bei den deutschsprachugen Besuchern kann ich mir die einleitenden Worte getrost sparen. Viel Spaß.


Here the more "traditional" Rammstein

Have a nice weekend

Allen ein schönes Wochenende

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Rant Of The Week.... Mike Morgan

Mike Morgan is probably one of the best housing experts out there and was spot on since i followed him almost 2 years ago via Mish. Take Morgan vs Cramer as one of many example how consistent he was all the time long in times other "professionals" were still drinking the Kool-Aid. It is almost impossible to highlight something out of his posts. So i suggest to read the entire report starting with the quote of the week ”Florida’s going to have a sonic boom when this happens.” Governor Crist commenting on the real estate boom coming to Florida .

Mike Morgan ist wahrscheinlich einer des besten oder gar der beste Experte in Sachen US Immobilien. Seit ich die ersten Artikel von ihm vor 2 Jahren via Mish gelesen habe liegt seine Trefferquote nahe 100%. Beispielhaft für etliche seiner Aussagen steht Morgan vs Cramer als immer noch etliche "Profis" nicht erkennen wollten was tatsächlich Sache ist. Da es fast unmöglich ist besondere Highligts aus diesem Posts herauszufiltern empfehle ich den kompletten Link ”Florida’s going to have a sonic boom when this happens.” Governor Crist commenting on the real estate boom coming to Florida zu geniessen.

> When i think of housing several other "species" are popping up that could easily qualify for the list..... :-)

> Im Zusammenhang mit dem Immobilienmarkt fallen mir spontan noch etliche "Exemplare" ein die sich ebenfall für diese Liste qualifizieren würden ..... :-)

There is no better source from ground zero than the updates from Mike Morgan. Make sure you don´t miss the latest one...

Da es generell keine besseren Updates als von Mike Morgan gibt sollte man auch die neuesten Posts mit Interesse verfolgen

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Thursday, September 27, 2007

Credit markets "Still gloomy" / Economist

Will be interesting to see how long the program "The Fed has saved us..." will continue to run in heavy rotation...... In the long run i think the Fed move was one of the worst decision and has undermined the little bit of credibility that was left .....

Es wird spannend zu sehen sein wiel lange die Phase "Die Fed hat den Markt gerettet..." noch anhält. Bisher wird sowohl das lange Ende der Zinskurve, der verfallende $, die haussierenden Rochstoffe, die gewohnt desaströsen Makrodaten und wie üblich auch die schlechten Unternehmenszahlen konsequent ignoriert...... Am schwerwiegensten ist aber wohl der endgültige Verlust der letzten Glaubwürdigkeit den besonders Bernanke noch bei einigen wenigen Naiven genossen hat.....

Credit markets "Still gloomy"
WAS that it then? From a shareholder's standpoint, it certainly looked as if the Federal Reserve had administered a miracle cure to stockmarkets with its spoonful of easy money on September 18th. Bankers began to talk of the worst being over and done with.

> Here is the perfect "Anti Spin" from Hussman Knowing What Ain't True that will be remembered after the "animal spirit" has run out of food....

> Hier sachliches von Hussman Knowing What Ain't True das wohl erst dann wieder Beachtung finden wird nachdem einige realisiert haben das die Gier mal wieder gesiegt hat.....

In the debt markets, however, a more jaundiced view prevails. Lingering pessimism—in overnight money markets right along the yield curve to long-term bonds—is likely to make the Fed's task harder as it seeks to revive the economy.

For one thing, the reaction of America's bond market to the interest-rate cut was different from previous rate-cutting cycles (see chart). Instead of falling, as they have in the recent past, ten-year bond yields rose, as investors fretted that the Fed's largesse would stoke inflation. In America and the euro zone yields came off their highs on September 25th, when weak economic data eased inflationary concerns. But economists polled by Bloomberg still expect ten-year yields in America to remain above their levels before the rate cut.

That does not bode well for American mortgage rates, which tend to rise along with long-term Treasury-bond yields. Indeed, the price of a 30-year fixed-rate mortgage has risen by seven basis points since last week, according to, a personal-finance website. That raises concerns about how little the Fed's rate cuts may help the housing market.
Elsewhere, banks continue to find it hard to get funding from other banks over short time-periods, because of their over-stretched balance sheets as a result of America's subprime mortgage crisis. The London Interbank-Offered Rate (LIBOR) in dollars, euros and sterling at overnight and three-month maturities remains higher than normal. Even future rates do not indicate much hope of improvement. Last week, LIBOR traders expected sterling rates to fall to 5.96% by the year-end from 6.35% today. Now traders still expect a drop, but only to around 6.16%.

Like the ten-year yields in America, higher LIBOR rates affect mortgage rates in Britain. Although mortgages are linked to the Bank of England's official rate, which has not changed since July, high-street banks partly fund their loans using LIBOR. If the rate moves up, or does not fall as much as expected, banks are likely to pass on the cost to mortgage borrowers.

Companies, too, are likely to be affected. Corporate-bond markets have re-opened since the Fed cut rates. But given the reluctance of banks to lend, those firms that need ready cash in short-term markets such as commercial paper are likely to feel the squeeze. “Those companies who last rolled over their short-term debt in July are likely to be in for a rude shock when they try to do so again in December,” says John Wraith of the Royal Bank of Scotland. Prepare for a long convalescence.

John Authers: Two views on the Fed Funds rate cut There are notes of caution - the main indices are not back to their highs, and defensive stocks have outperformed for the last week - but the cut has made stock investors a lot of money, he notes.

“Intriguingly, it has also made money for commodity investors,” he adds. The S&P GSCI non-energy commodity index is up a cool 16 per cent since the Fed cut the discount rate in August.

But the Fed was not acting for these people, Authers reminds us. “It wanted to relieve the crisis of confidence in money markets, where doubts about the quality of collateral had sent soaring the rates at which banks could raise funds.”

To look at it in two ways: First, the dollar Libor rate, at which banks lend to each other, fell by the full 50 basis points. Having touched 5.725 per cent, it is now 5.23 per cent. In asset-backed commercial paper 90-day paper rates reached 6.25 per cent and have come back down to 5.37 per cent.

So the rate cut reduced the cost of finance, bringing it back down to the levels before the crisis. This is important.

To look at it a second way, though: “Normally Libor and commercial paper are closely tied to fed funds. Both tend to be only slightly higher than fed funds, reflecting only slightly higher risks. When those spreads suddenly widened, it signalled a crisis of confidence.”

Those spreads are as wide as they were before the rate cut. In July, commercial paper traded at only 4bp above Fed Funds. That spread is now 62bp. Three-month Libor usually trades at 10 or 11bp above Fed Funds: that spread is now 45bp.

So the rate cut euphoria has not flushed the underlying lack of confidence out of the system. The money market shows banks are still fearful of ugly surprises in the next few months. Maybe that should temper the roaring equity and commodity markets.

> I don´t have heard "Don´t fight the Fed" during the last few years at times when the Fed was hiking rates ;-)

> Besonders der Spruch "Don´t fight the Fed" gefällt mir besonders gut. Komisch nur das man diesen Spruch nicht in Zeiten hört wenn die Notenbanken die Zinsen anheben ;-)

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Wednesday, September 26, 2007

Earnings Quality Part XXIII........

Another example why you should read the earnings news especially from financial with great scepticism......Add this to the list of "creative accounting" like Negative Amortisation, Level 3 " Mark-To-Make-Believe Gains", Level 2 "Mark-To-Model", "Preferred Measurements Of Income", loan loss "politics" Part 1 & Part 2 etc.......
Einmal mehr Beleg dafür das man besonders die Ergebnisse der Finanzinstitute mit einer gewissen Portion "Skepsis" betrachten sollte......Hier ein paar weitere Beispiele die belegen das nicht wirklich "konservativ" bilanziert wird Negative Amortisation, Level 3 " Mark-To-Make-Believe Gains", Level 2 "Mark-To-Model", "Preferred Measurements Of Income", Risikovorsorge Teil 1 & Teil 2 etc.......
Brokers' Head-Scratcher / WSJ
Still, some investors remained concerned about earnings quality, in part, because the firms all benefited from a tumble in the value of their own debt. Accounting rules require firms to take a gain on such declines if they are applying market values to some forms of debt or financial instruments.

At Bear Stearns, the already dismal quarter would have been even worse without about $225 million in such gains. Morgan Stanley, which also had a rocky quarter, said it booked $390 million in such debt-related gains, while Goldman said it benefited from nearly $300 million in this way. Lehman didn't specify its gains, but said they helped lower to $700 million the hit the firm took from markdowns on loans and securities.
Hat tip to Barry Ritholtz
Keep this in mind when Wall Street is pointing to low pe´s......They also often forget to mention that financials are the biggest sector of almost every major US index....
Behaltet all das im Hinterkopf wenn der nächste Analyst mal wieder auf die niedrigen KGV´s verweist....... Zudem wird nur zu gerne unterschlagen das Finanzwerte der mit Abstand wichtigste Sektor aller US Indizes sind....
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Tuesday, September 25, 2007

European Mortgage Market / Percentage Of Variables Rates

OUCH! Combine this with the following charts House prices / Through the roof & Mortgages / Housing burdensand you can smell "trouble". Except you are a central banker or an "expert"...... ;-)

Oh Oh! Kombiniert das mit den nachfolgenden Charts House prices / Through the roof & Mortgages / Housing burdens und man kann das kommende Unheil ausserhalb von Deutschland förmlich "riechen". Es sei denn man ist Zentralbänker oder sonst ein hoch bezahlter "Experte".... ;-)

I want to highlight The Coming Storm / Pimco on UK that has much more details on how the rate increases are already impacting the consumer

Ich möchte in aufgrund der Bedeutung des UK Marktes gesondert auf The Coming Storm / Pimco on UK hinweisen wo ziemlich anschaulich beleuchtet wird wie die bereits beschlossenen Zinserhöhungen den Konsumenten und die Wirtschaft treffen.

Dank an die FAZ
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Number Of The Day....China IPO´s Click here for more posts on the most fascinating market and the often "stretched" valuations.......Would be interesting to know how much margin buying is goin on there........ Klickt bitte hier um mehr Details zu dem wohl momentan interessantesten Markt weltweit zu erhalten. Ich würde zu gerne wissen in welchem Maße kreditfinanzierte Aktienkäufe in China genutzt werden.

The last six IPOs in China surged by an average 250% on their first day of trading.
China Construction Bank, which has traded in Hong Kong since October 2005, rose as much as 40% on its first day of trading in Shanghai in the world’s second-largest share sale this year
The stock traded 34% higher by mid-morning at 8.67 yuan, giving the Beijing-based bank a value of $218bn. Chinese investors, undeterred by high valuations for traded companies, are clamoring for IPOs as returns on bank savings lag the nation’s inflation rate.
China Shenhua Energy Co., the nation's largest coal producer, attracted a record of more than 2.6 trillion yuan ($350 billion) in orders for its Shanghai share sale, said two people with direct knowledge of the transaction.
Shenhua drew 1.9 trillion yuan from institutional investors and more than 700 billion yuan from individuals seeking the stock, the people said, citing preliminary tallies and asking not to be identified before an official announcement. Beijing-based Shenhua will sell as many as 1.8 billion shares at between 34.99 yuan and 36.99 each, it said Sept. 23.
Chinese investors, undeterred by the world's highest valuations for traded companies, are rushing to buy into a stock market that has almost tripled in size this year as returns on bank savings lag behind inflation.
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Fed, Greenspan & Bernanke Bashing Part XXII......

Enjoy! Viel Spaß!

Open Letter to Federal Reserve Chairman Ben S. Bernanke From: Eric Janszen / iTulip

Greenspan Cartoon

With the trouble just beginning and more and more people waking up i ´ll bet that the credibility of almost all central banks will take a significant hit. But when you have to fund big deficits like the US the problem is getting worse.....

Nachdem der Ärger gerade erst begonnen hat und immer mehr Leute aufwachen ist es nicht gewagt zu prognostizieren das das Vertrauen in die Zentralbanken ( auch ausserhalb der "Bloggerwelt" und den "Goldbugs") rund um den Globus erheblich leiden wird. Das ganze wird besonders für die Staaten zum Problem die hohe Defizite wie z.B. die USA finanzieren müssen....

Hat tip to New York City Housing Bubble & The Mess That Greenspan Made
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Monday, September 24, 2007

Jim Rogers "Who Are These Clowns In Washington"

Click on the headline to watch Jim Rogers at his best
Klickt bitte auf die Überschrift um Jim Rogers in Hochform zu sehen.

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Kass: How the Market Will Unravel

There is not much more to add to Kass. But so far the market is still in denial and is playing "Fed will safe the market" nonsense. I think they will wake up very soon and realize that after the next cpi number ( close to 4%) and the rising 10 year treasury yield there is zero chance that the Fed will cut without making them looking like George Bush..... I think the next chip that the bulls will have to play is the inevitable "year end rally"..... I´ll give the market another 4-6 weeks until Cramer and the rest plays the last remaining straw ;-)

Eigentlich gibt es den Ausführungen von Kass nicht viel hinzuzufügen. Bisher ist es eindeutig so das der Markt geblendet von der Vorstellung das die Fed den Markt schon orgendwie retten wird. Ich denke das die Marktteilnehmer demnächst erwachen werden und spätestens bei der nächsten Konsumenteninflationsnummer die nahe 4% liegen dürfte und den weiter steigenden 10 Jahresrenditen bemerken wird, das die Fed 0% Spielraum für niedrigere Zinsen hat und eine Senkung die Fed endgültig zur Witzfigur wird....Ich wette das die nächste Karte die vom Bullenlager gespielt werden wird die der unvermeindlichen "Jahresendrally" sein wird..... Dieser dann wohl letzte Strohalm wird wohl in gut 4-6 Wochen zum ersten Mal von Cramer und Co "gespielt" werden....

Kass: How the Market Will Unravel
The bearish case for stocks is predicated on the notion that the massive creation and accumulation of debt -- particularly the consumer sector -- contributed to a large portion of the domestic economic (and stock market) gains experienced since 2000.

WSJ Lenders Require Higher Credit Scores

Until this summer's subprime crisis, a score of 720 or higher earned you some of the best interest rates, says John Ventura, director of the Texas Consumer Complaint Center at the University of Houston Law School. Borrowers now need a score in the high 700s to get the same benefits, he says.

This added liquidity from nontraditional lenders dulled the effect of the Fed and served to buoy the low credit markets, allowing companies that should have failed to have access to large sums of equity and bonds. This created the feeling that all was well with the business world as stock markets rallied around the world and corporate default rates hit all-time lows by early 2007.

But that was an illusion.

Today, the nontraditional (and creative) credit originators are in intensive care and will not fuel growth anywhere near the degree to which they have in the past. The binge of mindless mortgage (and other forms of) borrowing abetted by generous strangers and central bankers abroad, by legions of unscrupulous mortgage lenders in the U.S. who fed the machine of packagers of credit on Wall Street and, most importantly, by a too easy Federal Reserve -- is now being reversed. The credit unwind in the upcoming years can be expected to have a profoundly negative impact in the current down cycle of economic activity -- possibly for years to come

> These days are gone..... Diese Tage sind sicher vorbei....

Thanks to Randy Glasbergen

Other factors:
Lower Business Spending Based on a Weakening Domestic Economy: In the coming months, the credit market's unwind will most likely be felt by a reduction in hirings and delays in business fixed investment. Last week's ISI Group surveys -- trucking and shipping, U.S. CFO Diffusion Index (Fuqua), U.S. Small Business Optimism Index, the North America Business Confidence Index, U.S. CFO Employment Expectations (Fuqua), U.S. CFO Capital Spending Expectations (Fuqua) and U.S. Small Business Trends (NFIB) Capex Plans -- all point to multiyear lows in confidence and are supportive of a marked slowdown in business spending.

The Industrialized Nations' Economies are Beginning to Weaken: The same poor domestic trends are being seen in surveys in Europe and Japan. The latter is particularly discouraging as the Japan Consumer Confidence Index (ESRI) and Japan Business Confidence Index (ESRI) were the most negative in almost three years in light of "declining wages and financial market turmoil" and a much-weaker- than-expected second quarter 2007.

Supporting this notion, semiconductor equipment shipments in August fell dramatically and well more than forecast. Importantly, the U.S. does not have a concession on poor mortgage lending practices -- investing/trading in housing and heavy mortgage equity withdrawals have spurred housing speculation and consumption binges in Europe . Indeed the resort areas of Europe (like Costa Del Sol, Spain) are no different than the Miami, Fla., market a year ago -- dotted with construction cranes and now with an excess of unsalable housing inventory.

The Emerging Growth Markets Will Not Be Insulated from the Industrialized Economies' Deceleration: Despite the Bulls' marginalization of a weakening U.S. economy -- BRIC remains the catalyst for growth -- the industrialized nations (Germany, England, Japan, etc.) are turning more sluggish. That weakness coupled with our domestic weakness could finally impact even the high-growth regions of the world.

Housing Is Replacing Technology as the Achilles Heel of Future Growth: The parallels between the excesses of technology in the late 1990s (daytraders goosing share prices, overpriced IPOs delivered by Wall Street, zero cost of capital leading to capacity increases and unrealistic expectations of a new paradigm of uninterrupted growth) and the residential real estate market in the early 2000s (daytraders (investors/speculators) in homes goosing home prices, a too-easy Fed that delivered generational-low mortgage rates and a Wall Street community that demanded and packaged products of nondocumented subprime mortages) are clear. Following the stock market bubble in the late 1990s, it was tech that was dreck (and plagued by excess capacity). In the most recent cycle, it was the housing sector that bubbled up and is now plagued with excess capacity. In my debate last week, economist Brian Wesbury was a devout economic bull, citing that housing represented only about 6 percent of GDP.

From my perch, bears are not overstating the multiplier effect of a sustained housing downturn (homeowners have only just begun to acquiesce to a deteriorating market) nor the negative wealth effect of a decline in housing prices. (A 20% drop in home prices equates to over $4 trillion of lost consumer wealth.)

Supportive of a 20%-plus drop in home prices was last week's CME extension of the futures market of the S&P Case-Shiller Home Price Index to five years from only one year. ....

The Salutary Inflation Environment of the Last Decade is In the Process of Being Reversed: The (previous) benefits of globalization, productivity and technology gains -- which served to reduce inflation over the last decade -- will be losing their effect in the cycle ahead. Inflation, understated as it might have been over the last several years, will begin to accelerate as emerging markets continue to produce a demand pull.

Based on continued strength in the emerging markets, the recent commodity cost pressures (oil and food), a sharply lower U.S. dollar placing upside pressure on import prices, and, more importantly, a projected rise in the Owners Equivalent Rent (the irony is that currently tight rental markets -- the consumer can't readily access the mortgage market and home prices remain high -- should produce a 4%-plus rise in the housing component (31%) of the CPI) it is reasonable to expect an alarming rise in the CPI over the next few months.

Gold is rocketing and TIPS (Treasury inflation-protected securities) spreads are already widening. (Higher inflation is the inference of Greenspan in his recent book in which he candidly admits that his own efforts at containing inflation were helped by "the potent disinflationary force" of "globalization's vast economic migration" of cheap labor into competitive markets. In the next two decades, Greenspan relates, the benefits will be played out and will be replaced by inflationary influences.

The Democratic Tsunami Bodes Poorly for Stocks: As the schism between the haves and have nots grow, the political tide is turning ever further towards populism -- RealClear Politics' Head to Head polls point to a Democratic presidential victory in 2008.

And with that likely success will be rising trade protectionism and higher corporate and individual tax rates. Again, as Brian wrote in the WSJ. "Populism is in the air these days, and the threat from tax hikes, trade protectionism and more government involvement in the economy is rising." (To select a candidate that is most aligned with your views, take this quiz!.

Slowing Top-Line Growth, Cost Pressures and Higher Corporate Tax Rates Augur Poorly for Profit Margins: The outlook for corporate profit growth for the last half of 2007 and 2008 remains too optimistic and, as a result, P/E ratios are higher than the bulls contend. Already, the nonexport domestic economy is slowing. (Domestic nonfinancial profits and cash flow were down 1.4% and 1.8%, respectively, in the second quarter of 2007).
> This video from Minyanville sums ist The Earnings Parade

> Folgendes Video von Minyanville trifft es recht gut The Earnings Parade

Pushing on a String: Pushing on a string means that the positive impact of lower interest rates is overwhelmed by the reduction in credit availability and the desire to borrow as lenders try to improve the quality of their loan book and borrowers, at the same time, repairing their balance sheets.
In all likelihood, the Federal Reserve's loosening of the monetary reins will not only hasten the depreciation of our currency -- it will do little to bring the housing market back into balance. The 50-basis-point reduction in the discount rate and the federal funds rate is like treating a patient wracked with cancer with antibiotics.

When the injections of antibiotics wear off, the patient's body is still disease-ridden. That body of stressed and stretched individual mortgage holders, a consumer levered far greater than in prior cycles, the quickening pace of mortgage resets in 2007-08, crippled (capital weak) nontraditional lenders and a record inventory of unsold homes will act as a weight against economic recovery.

Strangers Might No Longer Be Kind Enough to Underwrite our Consumption and Growth: Faced with the prospects for an unsteady and perhaps precipitous drop in the U.S. dollar, the nations that underwrite our consumption binge in the last decade will diversify away from the U.S. dollar -- denominated assets into more sound currencies, serving to raise the cost of financing our country's economic growth.

Bullish Sentiment Is Elevated: Forget the negativity bubble -- investors are getting downright giddy. Short interest fell a whopping 5% last month on the NYSE. Moreover, the Investors Intelligence survey indicated that nearly 54% of respondents were bullish (up from 40% a few weeks ago) while bears slumped by 10 percentage points to 27%. (Not surprisingly, many technical analysts -- who often counted short interest and the II survey in their bullish repertoire -- have ignored these technically bearish signs.)

Minyanville is asking Where Are The Bears

According to Bloomberg, despite a housing slump that has shaved $5.6 trillion from global markets, Wall Street strategists are the most bullish they've been since 2000. Where are the bears?

  • The rally has taken the S&P 500 to within 5 percent of strategists' average year-end forecasts of 1,595, the most bullish since December 2000, Bloomberg said.
  • "You couldn't mix a better drink for the stock market,'' gushed James Paulsen, who helps oversee $175 billion as chief investment strategist at Wells Capital in Minneapolis, to Bloomberg.
  • Meanwhile, none of the Wall Street strategists tracked by Bloomberg cut their 2007 S&P 500 forecasts during the August sell-off.
  • In fact, they actually become more optimistic during the year, bringing the average estimate to 1,595, up from 1,550 in January.

> But what else do you expect from "Wall Street Finest"

> Was anderes sollte man auch sonst von den immer "objektiven" Wall Street Größen erwarten.....

The History of Market Performance Following Rate Cuts When the Markets are Near 52-Week Highs Is Uninspiring: The virtuous cycle of 2002-07 is over.

The equity markets are currently moving on the fumes of that past cycle.

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Northern Rock still lending ‘recklessly’

What else would you expect when the BOE, FSA and the government come to the rescue as shown in Northern Bailout / Chancellor Guarantees All Northern Rock Bank Deposits to prevent a crisis ...... Hard to believe that the first posts on this topic Bank of England To Rescue Northern Rock / Stock Tanking / BOE A Paper Tiger ? & Northern Rock- Here’s What a Bank Run Looks Like are just 14 days old......

Was anderes soll amn aiuch erwarten wenn alles was in UK Rang und Namen hat(te) ;-) zur Rettung einer nicht rettungswürdigen weil extrem agressiven Bank eingreift (siehe Northern Bailout / Chancellor Guarantees All Northern Rock Bank Deposits )........ Kaum zu glauben das die ersten Posts Bank of England To Rescue Northern Rock / Stock Tanking / BOE A Paper Tiger ? & Northern Rock- Here’s What a Bank Run Looks Like erst knapp 14 Tage her sind.......

Northern Rock still lending ‘recklessly’ / Times
Northern Rock stands accused of “reckless” lending after it emerged this weekend that the beleaguered bank is still offering mortgages of six times salary to potential borrowers.

Despite provoking the worst banking crisis for decades, the bank last week offered a reporter posing as a first-time buyer a £180,000 mortgage even though he had a salary of only £30,000.

The loan was at least £30,000 more than other leading lenders were prepared to offer. Repayments for the loan would have accounted for more than 60% of the fictional buyer’s take-home salary.

>And once again i have to quote Jeff Matthews "I´m not making this up". This ad campaign is real! Make sure you click on the link to see all ads... Link to NR Ad campaign. Comedy gold even without Photoshop

>Und bei dem nächsten Link muß ich wohl ausdrücklich betonen das dieses eine reale Anzeigenkampagne von Northern Rock ist. Undedingt alle Motive der Werbung "bestaunen" Link to NR Ad campaign. Comedy gold even without Photoshop.

>And you also should read this Northern Rock- No Words Just Pictures via the UK House Price Crash Forum.

>Und es wäre eine Schande sich den nachfolgen Link Northern Rock- No Words Just Pictures vom UK House Price Crash Forum entgehen zu lassen. .

bigger / größer to read the fineprint / um das Kleingedruckte zu lesen!

Hat tip to DissipatedYouthIsValuable

The reporter, posing as another potential customer, was also offered a so-called “negative equity mortgage” worth 117% of the value of the property he claimed to be interested in buying. The mortgages offered by other banks to the same potential borrower were significantly lower.....

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Sunday, September 23, 2007

Show Me The Money! / Hussman

On top of Hussman´s post i think it is good advice to read Turning a BB Gun Into a Machine Gun? from Russ Winter on the latest Fed and central bank action around the world. While i agree with Hussman on the data and facts i think Bernanke and the Fed have given the wrong message to the market. Too bad that the $index and the long end of the yield cirve didn´t play out like they have hoped .....

Zusätzlich zu den Ausfühtungen von Hussman ist es ratsam sich Turning a BB Gun Into a Machine Gun? von Russ Winter hinsichtlich der Notenbankaktionen in letzter Zeit durchzulesen. So sehr ich auch mit Hussman was die Faktenlage angeht übereinstimme so sehr muß man jedoch auch sagen das Bernanke und die Fed dem Markt praktisch eine Einladung gegeben haben die zwar kurzfristig gute Laune verspricht mittel bis langfristig aber kontraproduktiv sein wird. Dumm nur das sowohl der $Index als auch das lange Ende der Zinskurve die Partystimmung nicht teilen kann .....

These quotes sums it up ........Diese Zitate treffen es ziemlich gut

Scott Reamer / Minyanville
Bravo to Ron Paul for giving voice to the hundreds of millions or pensioners,savers, working stiffs, poor, fixed income beneficiaries, laborers, gasoline-, bread-, milk-, and egg-buyers who weren’t able to ask Mr. Bernanke why he – like every Fed chairman before him since 1913 – screwed them for the benefit of the top 5% of the population of this country.

Bernanke: The anti-Robin Hood / Fleckenstein

The Federal Bank of Guardian Angels roared down Wall Street last Tuesday. Its mission -- to bail out the stock market -- was a success (for now).

But the rate cut was no gift to Main Street, which lies outside the
loop of crony capitalism.

Bobble-head Fed Long ago, the Fed abdicated its responsibility under then-Chairman Alan Greenspan. But now chief Ben Bernanke and the boys at the Fed have taken irresponsibility to a new level, where they have clearly demonstrated that they work for Wall Street -- and when Wall Street says jump, the Fed asks, how high?

I don't quite have the database to research this, but I seriously doubt that we've ever experienced a 10% fed funds rate cut, or discount rate cuts of better than 15%, with the stock market a few percentage points off an all-time high.

Show Me The Money!
Investors were cheered last week when the Federal Reserve lowered its target for the Federal Funds Rate by 50 basis points, and lowered the Discount Rate (the interest rate it charges on loans to the banking system) by 50 basis points as well. It's important to emphasize that the impact of these changes is mainly psychological, and outside of a pool of a few billion dollars, won't have any effective bearing on the “liquidity” of the banking system, nor on the solvency of $3.4 trillion in real estate loans, and $6.3 trillion in total bank lending. ...

Much ado about nothing
....If you examine the data you'll find that the total level of “liquidity” that the FOMC deals with is minuscule in relation to a $13.8 trillion economy, and the variation is even smaller. The total reserves of the U.S. banking system are about $40-$45 billion, and are very stable. The Fed simply does not “inject” meaningful amounts of “liquidity” to the banking system.

Indeed, the latest cuts in Fed controlled interest rates were effected without any injection of “liquidity” into the banking system at all. Total borrowings by depository institutions from the Federal Reserve (i.e. borrowings at the Discount Rate) actually fell last week to $2.421 billion, from $3.158 billion the preceding week. That couple of billion dollars is the sum total of all outstanding borrowings at the Discount Rate. Though these figures are still higher than the typical level of discount window borrowing (a few hundred million), they are minuscule. Yet these are the figures that investors are revved up about as if this “liquidity” will save the mortgage market.

Meanwhile, there has been no material change in the “liquidity” provided by the Federal Reserve in the federal funds market either. It's kind of funny (and just a little pathetic) how the press and investors get all excited every time the FOMC does an open market operation, as if they represent fresh “injections” of liquidity into the banking system. They are generally nothing but rollovers of existing repurchase agreements.

Open market operations come in two flavors: permanent and temporary. As I've frequently noted, about 99% of the monetary base created by the Federal Reserve represents gradual and predictable increases in the amount of currency in circulation. Year-to-date, the Federal Reserve engaged in what it classifies as “permanent” open market purchases amounting to $1.9 billion in February, $6.1 billion in April, and $2.7 billion in May, for a year-to-date “permanent” increase of $10.7 billion in the monetary base. Not surprisingly, most of this has been drawn off as currency in circulation, which has increased by $9.1 billion since January. Simply put, “permanent” open market operations are simply the way the Fed increases currency in circulation. It is simply incorrect to believe that these open market operations add meaningfully to the “liquidity” from which banks are able to make loans.

Temporary open market operations generally take the form of “repurchase agreements” whereby the Fed takes collateral in the form of Treasury securities or U.S. government backed agency securities, and provides funds to banks for periods typically ranging from 1 day to 2 weeks. At the end of that period, the banks are obligated to repurchase the securities from the Fed at the sale price, plus interest.

Since reserves are only required on checking deposits, the total amount of reserves in the U.S. banking system is only about $40 to $45 billion. Banks don't hold stack a pile of idle cash in a corner of the vault to maintain these reserves. Instead, they hold securities like Treasury bills and U.S. government-backed agency notes, and if they find themselves in need of reserves, they just pledge these securities to the Federal Reserve as collateral.

Look at the last month of data. We know that total bank reserves during this period have ranged between about $40 to $45 billion. Using data on the last 25 FOMC operations reported by the New York Fed, we can tie out the amount of outstanding repurchase agreements on any given day. Recall that total reserves include those obtained through discount rate borrowing and Fed repos (though “nonborrowed reserves” exclude discount borrowings). Evidently, the majority of the reserves in the U.S. banking system are represented by a continuous rollover of outstanding “temporary” repurchase agreements. If one set of repurchase agreements for $10 billion matures 3 days from now, you can pretty well predict that the Fed will enter new repurchase agreements of nearly this amount when the existing agreements expire. As a result, the total amount of repos outstanding is fairly stable. On balance, the Fed injected nothing – repeat nothing – this week.
Importantly, investors are misled when they interpret each new repurchase agreement as if it is a “new injection of liquidity” into the banking system. The bulk of these repos do nothing more than to replace the ones that are due. .....

Simon Says
The simple fact is that while the Federal Reserve lowered the Fed Funds Rate and the Discount Rate last week, it did not do so by “injecting” any new funds at all into the banking system. Rather, the Fed lowered these rates strictly by announcing they were now lower.

It's easy to understand this in the context of the Discount Rate, because the Fed is the only entity that charges that rate. With Fed Funds, you can understand how the announcement alone can change the rate by understanding a) that the entire variation in bank reserves that determines the Fed Funds rate amounts to only a few billion dollars, and b) banks are generally willing to follow the rate “called out” by the Fed so long as it doesn't affect the spread they earn.

Outside of the banking system, you'll notice that while Fed-controlled interest rates dropped last week, market-controlled interest rates rose. Treasury yields increased at nearly all maturities, as did mortgage rates, including those on 30-year conventional mortgages. Indeed, the only “relief” to borrowers was on rates tied to LIBOR, which fell. But even this is not “new purchasing power” for the economy, because the drop was matched by a reduction in deposit rates, so any relief to borrowers with rates tied to LIBOR came entirely at the expense of savers.

Again, the argument is not that interest rates are irrelevant, or that there is no relationship between total government liabilities and inflation (though the tightest relationship is between government spending growth, regardless of how it is financed, and inflation – particularly over horizons of 4-5 years). The argument is that there is no credible mechanism by which Fed actions control the economy.

The bottom line – the much celebrated move by the Fed last week created no new liquidity, no new reserves, and no new purchasing power. Given all that, it's unlikely that all of this will result in any material improvement in the solvency of the mortgage market

Market Climate
..... Presently, the trailing net P/E on the S&P 500 is 17.9, with a dividend yield of just 1.84 and a price/revenue multiple of 1.55.

Indeed, only two of those “second Discount Rate cuts” occurred with the S&P 500 P/E above 15 and advisory bullishness running over 50%. Those instances were December 1971 and January 2001. The average subsequent performance of the S&P 500 following those cuts was -1.22 over 3 months, 0.92% over 6 months, and 3.17% over the following year. Knowing What Ain't True / Hussman
A year-over-year CPI figure of about 4% or more, as I've mentioned before, is statistically baked-in-the-cake by November.

.....In precious metals, the Strategic Total Return Fund continues to have about 10% of assets in these shares. While this market appears overbought in the near term, we've already clipped our exposure enough to allow for some retrenchment, and given the continued favorable Market Climate overall, there is no reason to lighten our position so much that we would have to hope for weakness in order to reestablish a base position. As our position stands, we'll be inclined to increase our exposure on any substantial weakness, but we also don't have any need to “chase” the market in order to obtain exposure, should precious metals move higher from here.
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Friday, September 21, 2007

Update Blogroll

I promise to put the links on the blogroll in alphatecial order at some point..... Have a wonderful weekend

Ich verspreche hiermit hoch und heilig demnächst auch die Blogroll alphabetisch zu ordnen.... Allen ein schönes Wochenende

Mike Morgan

Accrued Interest

Sudden Debt

Financial Armageddon

Dr. Housing Bubble


Zeitenwende ( also hat tip)

Credit Bubble Stocks

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Ron Pauls vs Bernanke

This quote from Scott Reamer/Minyanville sums it up!

Diese Aussage von Scott Reamer/Minyanville trifft den Nagel auf den Kopf!

Bravo to Ron Paul for giving voice to the hundreds of millions or pensioners, savers, working stiffs, poor, fixed income beneficiaries, laborers, gasoline-, bread-, milk-, and egg-buyers who weren’t able to ask Mr. Bernanke why he – like every Fed chairman before him since 1913 – screwed them for the benefit of the top 5% of the population of this country.

Click here to start the audio file

Klickt bitte hier um Ron Paul zu hören.

Here comes the take from Minyanville

“I want to follow up on the discussion about moral hazard. I think we have a very narrow understanding about what moral hazard really is. Because I think moral hazard begins at the very moment that we create artificially low interest rates which we constantly do. And this is the reason people make mistakes. It isn’t because human nature causes us to make all these mistakes, but there is a normal reaction when interest rates are low that there will be overinvestment and malinvestment, excessive debt, and then there are consequences from this. My question is going to be around the subject of how can it ever be morally justifiable to deliberately depreciate the value of our currency?”

His statements continued (about how much oil, gold, wheat, corn, etc. has gone up since the rate decrease) but the heart of his question was the following moral question: ...consciously depreciating the value of the USD has winners and losers (Wall Street/banks/the rich and everyone else), Mr. Bernanke. How do you constantly choose Wall Street over the rest of America?

You will not be surprised to know that B-52 Ben didn’t answer the question. He couldn’t answer the question (at least truthfully). .....

But his non-answer is not germane. The element that Ron Paul introduced is: the morality of the Federal Reserve’s constant injection of credit into the system at the slightest hint of macroeconomic distress. And I mean slightest: we haven’t even seen a GDP print below 0. We were only down 4.2% from the ALL TIME high in the Dow (the Fed’s own research suggests that the stock market is the best leading indicator of the economy).

On top of this Jeff Matthews & Mish has some must read post Fed Chairman Flunks Final Jeopardy! & Price Stability & Top Secret Missions

Zudem hat Jeff Matthews und Mish entwaffnende Posts Fed Chairman Flunks Final Jeopardy! & Price Stability & Top Secret Missions veröffentlicht das ich jedem ans Herz legen möchte.

I hope nobody is asking any longer why gold is soaring......

Damit dürfte wohl auch geklärt sein warum Gold sich zu neuen Höhen aufschwingt.....
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Thursday, September 20, 2007

Gulf States Counter M&A Slowdown With $25 Billion of Takeovers

This should be really no surprise. What else ( except gold ) should they buy with the depreciating $......This trend is going to be a support for the equity market for years to come and with the recent central bank action the appetite for bonds should be "subpar"......

Das sollte wirklich keinen überraschen. Was sollen die auch anderes (ausser Gold) mit Ihren täglich verfallenden $ kaufen...... Dieser Trend wird sicher noch auf Jahre hinaus eine wichtige Unterstützung für die weltweiten Aktienmärkte spielen. Und nach den letzten Aktionen der Notenbanken rund um den Globus dürfte das Vertrauen in Bonds generell gelitten haben......

Key will be to identify the markets which will benefit the most. And i doubt that US$ assets will be a winning bet.....

Entscheidend wird wohl sein die Märkte zu identifizieren die am meisten von diesen gewaltigen Geldströmen profitieren werden. Und ich nicht davon aus das der Dollarraum zu den Gewinnern zählen wird.

via Brad Setzer

Norway has long held only about 35% of its oil revenue in dollars, Russia now has less than 50% of its reserves in dollars and a few Gulf states have also rather clearly trying to reduce the dollar’s share of their (growing) portfolios. In 2000, for example, as much as 85% of the Kuwaiti investment authority’s assets may have been in dollars. That total is now probably under 50% (KIA’s equity portfolio is certainly under 50%). ADIA reportedly shifted toward emerging economies a few years ago. And a host of Gulf funds now want to invest in emerging Asia …

In his now classic paper on the oil-exporting economies, Ramin Toloui of PIMCO calculates that if oil exporting economies invest 60% or more of their rising revenues in dollar assets, an increase in the price of oil is dollar positive (see figure 14). And if they invest less than 60% in dollar assets, a rise in the price of oil is dollar negative.


The news that pushed the dollar lower on Thursday came from Saudi Arabia, where the central bank, which has pegged its currency to the dollar, decided not to follow the Fed by cutting by 50 basis points. That prompted speculation that the Saudis no longer want to peg to a currency in freefall.

Further, a long-term link between the dollar and the oil price has broken down. A high oil price used to mean a strong dollar as oil exporters put their money in dollars. But now we have record crude prices and the weakest dollar in decades.

The biggest risk is probably that there is some kind of protectionism going on to block state owned (also from China etc) in general. The discussion is already heating up in Europe (except in the UK).

Das größte Risiko ist wohl darin zu sehen das immer mehr Regierungen generell überlegen wie solche Deals die von staatlich geführten Fonds unternommen werden verhindert werden können. Der Trend zur Abschottung ist sowohl in Europa ( Ausnahme UK) als auch in den USA nicht zu übersehen.

Gulf Counters M&A Slowdown With $25 Billion of Deals
Sept. 21 (Bloomberg) -- The Persian Gulf states, flush with cash from burgeoning oil revenues, are buying overseas assets at a record rate and countering the paucity of acquisitions hampered by the summer's surge in corporate borrowing costs.

Abu Dhabi agreed yesterday to pay $1.35 billion for 7.5 percent of Carlyle Group, the world's second-biggest private equity firm. Dubai and Qatar took competing stakes in Nasdaq Stock Market Inc., London Stock Exchange Group Plc and Nordic bourse OMX AB. Qatar also won approval to examine the financial records of J Sainsbury Plc, the second-largest U.K. supermarket chain.

All told, the deals are worth $25 billion, according to data compiled by Bloomberg. The pace of international investments by Gulf states, which earn $1.2 billion a day from oil exports, is quickening as they seek to diversify beyond energy. The nations have already spent a record $68 billion on overseas acquisitions this year, the Bloomberg data show.
``They are not just putting their money in bank deposits and government bonds any more,'' said Eckart Woertz, chief economist for the Gulf Research Center in Dubai. ``They are after strategic assets.''

The record pace of global mergers fell in August to the slowest in two years as rising costs for credit eroded investor confidence. The three-month dollar London interbank offered rate, a lending benchmark, rose to 5.73 percent on Sept. 7 from 5.36 percent at the end of July. The rate fell to 5.21 percent yesterday after the Federal Reserve reduced interest rates for the first time in four years earlier this week.

Slowest Month
About $188 billion of deals was announced last month, the lowest amount since July 2005, according to data compiled by Bloomberg. The value of deals dropped after losses in subprime mortgage bonds contaminated debt markets, prompting a sudden increase in corporate borrowing costs and a slide in stocks.

Not in the Persian Gulf. The pace of takeovers may accelerate as oil trades at a record high and Dubai and Qatar race to lure international banks, asset managers and brokerages. Oil reached a record $83.90 a barrel in New York yesterday.

Based on the share prices of LSE, Nasdaq, OMX and Sainsbury on Sept. 19, Dubai's investment would be $2.5 billion and Qatar's would be $21.5 billion. ....

``Qatar is a clone of Dubai,'' said Haissam Arabi, a Dubai- based managing director of asset management for Shuaa Capital PSC. ``They have taken their lead from Dubai on most fronts. Dubai had Emirates airline, then Qatar set up Qatar Airways. Dubai established itself as a tourist destination, and then Qatar tried to position itself as such. And now as financial centers, Dubai moved and Qatar followed.''

Dubai and Qatar are overshadowing Bahrain's traditional position as the Persian Gulf's financial hub. Dubai is the second-biggest sheikhdom in the United Arab Emirates after Abu Dhabi. The six Gulf Cooperation Council states are the U.A.E., Bahrain, Kuwait, Qatar, Oman and Saudi Arabia.

Mubadala Development Co., an investment company owned by the government of Abu Dhabi, will buy a 7.5 percent non-voting stake in Carlyle.

Sainsbury, based in London, yesterday softened its opposition to a takeover bid by Qatar after the emirate said it would borrow less to fund the deal.

Cooperative Takeovers
The Gulf states sometimes cooperate on acquisitions. Sheikh Hamad bin Jassim bin Jaber al-Thani, the Qatar Investment Authority's CEO and since April Qatar's Prime Minister, said in February the country may buy as much as 10 percent of Airbus SAS parent European Aeronautic, Defence & Space Co. because the shares are undervalued.

When Dubai International Capital LLC bought 3.12 percent of EADS in July, some of its money came from Qatar, according to Chief Executive Officer Sameer al-Ansari.

Blocked Ports
Dubai generated 3 percent of its gross domestic product from oil last year and has a population of about 1.5 million. As oil wells run dry, the emirate is building the world's tallest tower, offshore islands in the shape of palm trees, and a leisure park three times the size of Manhattan.

It's also earmarked more than $82 billion for investment in aviation, including construction of the world's biggest airport.

The Gulf's overseas acquisitions haven't always succeeded. Qatar in December lost out to a group led by Macquarie Bank Ltd. in its bid to buy Thames Water Utilities.

Dubai-owned container port operator DP World last year agreed to buy London-based Peninsular & Oriental Steam Navigation Co. for $6.8 billion, only to be forced to sell P&O's U.S. port assets under pressure from lawmakers who threatened to block the takeover on the grounds of security.

New York Democrat Senator Charles Schumer said yesterday a deal that makes Borse Dubai the biggest shareholder in Nasdaq requires scrutiny.

``There are serious issues that need to be investigated,'' he said at a press conference in Washington. ``Questions must be asked and answered before the deal goes forward.''
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