It looks like you have missed the rally and splitting the hairs trying to find yet another silly reason for “a long awaited correction”.

What bubbles are you talking about?

I see only one bubble — GOLD.

All other assets are still 30-50% off their recent two years highs. What kind of bubbles are these?

As far as using CDS for your not holding any water predictions, please re-read Barry’s prior post about CDS.

“CDS are thinly traded, have huge counter-party risk, are difficult to analyze, and are unregulated insurance products. This leads me to this money quote: ‘As with other securities that trade privately and by appointment, assigning values to credit default swaps is highly subjective.’
http://www.ritholtz.com/blog/2008/02/credit-default-swaps-and-financial-wmds/

Key words: “difficult to analyze” and “highly subjective”

Yet it does not stop you from calling a short-term emotional CDS uptick a “contagion” and ignoring that even with this small uptick, other gulf sovereign CDS values are still a mile off their recent highs.

Give us a break James!

1) Alot of hedge funds have had great years and want to protect their gains. Their appetite for taking on new risk through year end will likely be reduced, causing a restriction in liquidity and the potential for pronounced price moves.

2) We are at that the time of year when banks are dressing up their books for year end reporting. There’s always a spike in demand for treasurys this time of year. A sudden aversioin to risk will make the demand for treasurys even more pronounced. I expect to see a handful of days when short duration treasury bills trade with negative yields during December. With new worries about contagion on investors minds, it will be hard for market participants to know how much of the spike in demand for treasurys is hoarding simply in prepartion for “the turn”, and how much (if any) is related to contagion effects.

Dubai owes $60-$80B. Now I know its not the U.S. but we auction off that much in debt in a single day.
The U.K. has the most exposure to Dubai’s debt.
And Abu Dhabi will come to their rescue.

Here’s my question. After hearing about a “Dubai’s sovereign credit default” possibility, investors ran to the safety of the USD and YEN. If you throw in the UK, you have essentially the Big 3 in sovereign debt. So then, why would you park money there if you are running away from money elsewhere for the same reason?

Keep in mind Dubai World and its property and construction arms the originators and first tier developers. Since the value at risk of an apartment building is its costs of development including land, construction and finance, the purchase prices for all the individual units in that building or at resale at the height of a bubble would would have been much higher. Since values have dropped 50% or more in the past year and a half, there would appears to be a lot more exposure in addition to that of Dubai World.

There have been reports of loss of remittances from construction workers who have lost their jobs; $10b.