Look Out Below!
By Barry Ritholtz - November 26th, 2009, 4:20PM
Looks like there’s gonna be trouble!
Economist: The government of Dubai requested a six-month “standstill” from creditors on paying back debt accumulated by Dubai World, causing a prompt downgrade to government-related debt from credit-rating agencies. The state-owned conglomerate is behind some of the Gulf emirate’s most ambitious ventures of recent years, including the Palm Jumeirah residential resort. Once feted by businessmen the world over, Dubai’s government and state-backed companies are reckoned to have racked up as much as $80 billion in debt. See article
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I am not convinced that its all really due to Dubai — that’s just an excuse for a little overdue whackage.
David Kotok, however, has some thoughts on the issue . . .
November 26th, 2009 at 4:33 pm
Keep in mind this “my hair is on fire” hysteria was during extremely low volume illiquid electronic trading – a few inexperienced traders from Asia or a couple of hedgies could have done it (most real traders in the US were eating turkeys).
November 26th, 2009 at 5:40 pm
Ok, I am going to do a little victory lap here…..Black Swans do not drift in, they are delivered by a cruise missile in the middle of the night, holidays, or on the weekend.
http://oahutrading.blogspot.com/2009/11/chart-of-charts-112109-slam-down.html
http://oahutrading.blogspot.com/2009/08/mania-chronicles-and-dubai.html
http://oahutrading.blogspot.com/2009/11/blow-off-top.html
http://oahutrading.blogspot.com/2009/11/30-year-gap-study-and-some-political.html
As America tryptophans out and wakes up weary tomorrow, with half a trading day to “panic out with”, this could be very interesting. Looks like nearly “perfect timing” by our financial overlords. Lots of Turkeys (aka Lemmings) getting cooked today.
November 26th, 2009 at 6:11 pm
“Dubai World had $59.3 billion in liabilities and $99.6 billion in total assets at the end of 2008, subsidiary Nakheel Development Ltd. said in an August statement. Dubai owes $4.3 billion next month and $4.9 billion in the first quarter of 2010 through government and corporate debt, Deutsche Bank AG data show.”
A perfect case of the pimple on an elephant’s butt wagging the elephant?
I agree Dubai news was a silly emotional excuse to whack the global markets down by ~3% — it does not make any sense fundamentally, maybe whacking the emerging markets or whacking the specific European bank stocks, but whacking the S&P futures (US banks are not involved) down by ~3% was a pure mechanical knee-jerk overreaction).
This too shall pass.
November 26th, 2009 at 6:33 pm
I don’t think there’s any way to know where the Credit Anstalt moment will come from. I had thought the PIGS or the Baltic would be a much more likely point of origin.
November 26th, 2009 at 6:38 pm
And I look on Bloomberg right now and see green. Dow +13, S&P +2.90.
Look at the yen tonight.
~~~
BR: Those are stale quotes from Weds — I see -175 at this instant
November 26th, 2009 at 6:53 pm
well . . .seeing a post by climategate- i have to post this little clip-
http://www.youtube.com/watch?v=nEiLgbBGKVk&feature=player_embedded
also- climategate- i suggest you use adjust your long postions tomorrow or use it as an awesome buying opportunity- lol-
assuming of course you are one of the “real” traders and not an inexperience Asian trader-
good luck
November 26th, 2009 at 6:56 pm
zackattack-
look here-
http://www.cnbc.com/id/17689937/
November 26th, 2009 at 7:54 pm
Dubai is symptomatic of the whole problem of greed and excess. It’s pure Donald Trump tackiness and excess in the Gulf. Golf courses in the desert, ski slopes indoors and 6-Star hotels. All done with money borrowed on top of oil revenues. And now, same end result as the US of A. Dubai is certainly a part of the same problem.
November 26th, 2009 at 8:02 pm
Adding to Philipat, all the Dubai excess in the face of squalor in other parts of the middle east…wonder where all that hatred comes from?
Our whole problem is borrowed money…we are the boy with his finger in the dike…it could spring a leak anywhere. This leak happens to be Dubai…we have about $50 Trillion in excess debt world-wide. Plenty more of this to come.
November 26th, 2009 at 8:09 pm
@ call me ahab
Re: ClimateGate
http://www.youtube.com/watch?v=Ydo2Mwnwpac
Re: ” i suggest you use adjust your long postions tomorrow”
Only a completely clueless headline chasing retail daytrader would even consider rebalancing tomorrow (holiday low volume and short trading day), but thanks for such not so bright suggestion anyway.
November 26th, 2009 at 8:10 pm
Futures down 184 at 8:07PM EST…a few stories of slow Black Friday sales and you will see down 250.
BTW, stories of Wednesday airport traffic ststed that traffic was about the same as a normal travel day…this shocked me. That’s really bad for the day before Thanksgiving, if true.
November 26th, 2009 at 8:12 pm
You’ve got a number of places on the brink: Baltics, Ukraine, Greece and the middle east, most being propped up by the EU. The problem is fear of the domino effect. One going down will tighten credit that could in turn take down some of the other problem spots.
A sign of the panic from last year: Treasuries soaring:
The 5 year was pushing 2.5% a few weeks ago; it’s now 2.011%.
The two year yield at Monday’s auction was .80%, the lowest since.7% during the panic early this year; it’s now .66%.
My guess is some big breaks until the Fed sends in the PPT and China sends in its equivalent.
November 26th, 2009 at 8:16 pm
The retail sector (and many others) will be a truly ripe short soon, if not tomorrow.
November 26th, 2009 at 8:18 pm
@Steve: To be fair, I think that many holiday travelers were traveling earlier than normal this year and staying longer to avoid paying higher plane fares. Of course, that makes one wonder how so many people can get off from work for that long, but if you don’t have a job, are on extended unemployment, and not paying your mortgage, why not go earlier and stay a little longer?
November 26th, 2009 at 8:19 pm
Manny: all you need are a few stories about a world wide panic and the US markets down a bunch. Probably won’t affect the Walmart shoppers, but high will feel it.
BTW, Dubai should have been no surprise to anyone. Believe I had posted a link to this video from early this year: http://www.youtube.com/watch?v=sk9Sbpnkd-4
If the debt hadn’t been sovereign, it would have been declared in default a long time ago.
November 26th, 2009 at 8:20 pm
@Mike: I don’t disagree with that at all.
November 26th, 2009 at 8:29 pm
I posted this earlier…it is from a year ago, but the money quote gives a clue to at least one casualty here…of course it is Citi, which was involved in just about every bad idea of the last decade…
“Citigroup Chairman Win Bischoff said yesterday that the bank has “lots of billions” of dollars of exposure to Dubai. “I suspect the business model is not a bad one, based on trade, raw materials, services,” he said.”
They probably now have lots of “million” invested.
http://www.bloomberg.com/apps/news?pid=20601085&sid=aKyMem0zXVoI
November 26th, 2009 at 8:30 pm
@Steve: And yet C must be saved at all cost. I guess we can’t have the bond and shareholders, namely the Saudi Prince (among other high rollers), biting the bullet on his massive holdings.
November 26th, 2009 at 8:43 pm
No worries. Prince All Wally stands behind Vikram Pandit. Of course Pandit is looking nervous – you know what the Arabs think about Indian employees…
It doesn’t have to be a big hole in the dam to drown a lot of folks living downstream, and it deosn’t really matter where the leak is. The pressure builds at that point and weakens the structure.
Climategate, your understanding of the dynamics suporting global markets seems tenuous, to say the least. Believe me, when the leveraged traders start unwinding the carry trade, you will be the pimple on the elephant’s arse….
November 26th, 2009 at 8:46 pm
Everything has been so screwy all year. Perhaps the oft-expected Santa Rally will become the opposite? I have sneaking suspicion that the holiday shopping season is going to massively disappoint.
November 26th, 2009 at 8:50 pm
lefty: Still got your long bonds or the equivalent funds?
November 26th, 2009 at 8:52 pm
Vietnam is whacking its Dong. Blame it on Dubai if you want, but a weak Dong never inspires confidence.
November 26th, 2009 at 8:56 pm
This is from Dubai World’s webpage:
“The Sun Never Sets on Dubai World”, our investment portfolio extends across 100 different cities in the world. We are spread across a wide spectrum of strategic industries and sectors ranging from Ports Management, Property Development, Hospitality and Tourism, Free Zone Operations, Private Equity Investment, Retail to sectors as diverse as Aviation, Commodities Exchange and Financial Services.
I wonder if they’ll be forced to sell anything to cough up the money?
November 26th, 2009 at 9:00 pm
Dubai = Vegas sans the “charm”.
November 26th, 2009 at 9:05 pm
http://screencast.com/t/NzEzZmY5
silly to argue about where futures are, just look at them.
November 26th, 2009 at 9:31 pm
@ Mike: Been long 5y and 7y Ts since July, also have a small amount of long bonds. 3.20% on the 10y will probably be resistance so would probably look to hedge with TBT tomorrow.
“a weak Dong never inspires confidence.”
Macro Man devoted an entire post to this pun yesterday. Vastly entertaining.
November 26th, 2009 at 9:41 pm
lefty: If 3.20 is resistance we may see before tomorrow. It’s already there.
Got myself some long treasuries after getting pissed at this bubble’s refusal to pop and I had bought some American Century long treasury funds in my wife’s pcra since she can’t buy individual securities. Looking good. Hell, even the Euro bond fund has done well, although I suppose a rally int he dollar will hurt.
November 26th, 2009 at 9:46 pm
Bunds actually may be a very safe bet, Mike as long as the Euro bulls hold sway. I like all govies into EoY.
The yen weakened slightly after BoJ jawboning but it is gaining strength again the last hour. Since there is still some EUR:JPY carry, and a lot of AUD/CAD:JPY/USD carry, the prospects for some unwinding seem to be quite strong. Then we’ll see whether JOHNNY buys the dip.
November 26th, 2009 at 9:48 pm
It’s at 3.19 and change according to CNBC’s page
November 26th, 2009 at 10:30 pm
I figure this must be Cramer at it again…you know….Do Buy….
November 26th, 2009 at 10:55 pm
Check the banks that have exposure to the dodgy Dubai debt. It’s a lot of the same players and the magnitude of the debt is on the same order of magnitude as banks prior exposure to AIG CDS. Remember Bernanke and Geithner telling us that this size of bank exposure could bring down the world’s finacial markets if we did not bail out AIG. Want to bet if the world’s financial markets are going to melt down tomorrow?
Remember the Fed refusing to tell us who got the AIG bail out money because it would endanger the survival of the recipent banks? Want to be that the Dubai exposed banks continue to exist?
Bernanke and Geithner lied to us.
November 27th, 2009 at 12:29 am
Futures down that much? Let’s see how the PPT handles this. Can’t spoil the holidays.
Can’t say I feel badly for Dubai. Glad to see their backers whacked actually. Elites building a new paradise in the sand. Oh, house on the sand. Biblical myth. Fits.
Didn’t Halliburton announce moving their headquarters their? Cheney? Does that mean Timmy, Ben and
BS Obama will engineer another bailout?
November 27th, 2009 at 1:25 am
CDS explosive bolts are starting to explode. Time for debt evaporation part 2?
November 27th, 2009 at 3:02 am
You need to update your Futures screen-shot…it’s gotten a lot worse.
DJIA INDEX 10,125.00 -317.00
S&P 500 1,067.70 -41.20
NASDAQ 100 1,724.75 -69.50
OUCH!
November 27th, 2009 at 4:37 am
Rather amazing. It’s like all the carry traders are heading for the exits at once with treasuries and the dollar soaring.
Euro/Dollar from 1.51 to 1.485 in one day.
US 2yr down to .63%
5 yr to .199% lowest since May
10 yr down to 3.185 lowest since May bypassing what Lefty thought might be resistance.
Oil down almost $4/ 5% overnight to $74
Gold down 35 to 1153
DJ futures down over 200
SP over 30
November 27th, 2009 at 4:38 am
CNBC headlines are funny: about the holiday shopping season as if anyone is watching that right now.
November 27th, 2009 at 4:44 am
Mish says it well:
“Given the US markets were closed yesterday, I have the same question floating in my mind as a day ago, wondering if this is another one day wonder rally in the dollar (and another one day wonder selloff in equities) or if this is the start of a long awaited correction in both the dollar and equities.
Time will tell, but it will not be pretty for dollar bears or equity bulls if it is.”
November 27th, 2009 at 6:32 am
The Dubai crisis is simply reminding us: a) the financial crisis is not over b) any debt needs to be paid back, no matter if it’s private or sovereign or a mix of the two…
http://mgiannini.blogspot.com/2009/11/rich-countries-bond-defaults-or-debt.html
November 27th, 2009 at 7:22 am
[...] noted yesterday (Look Out Below!), the sovereign debt default warning by the nation of Dubai has caused some [...]
November 27th, 2009 at 12:14 pm
I wonder if any of the sheiks will go to debtors prison, until they pay back everything? Or do their laws not apply to themselves?
November 27th, 2009 at 12:40 pm
@Mike in Nola
I find Mish has excellent analysis whenever he’s not on his Libertarian anti-union/stuff the workers in general bender. While I agree when it comes to public sector unions, the steady erosion of workers’ rights with the lions’ share of the benefits of increases in productivity going to the top is one of the major contributors to this financial crisis. Also, I don’t think all gov’t spending is bad and that it can’t stimulate the economy – but it has to be the RIGHT spending and that’s the current problem.
But he was certainly correct in his post last month “A Watched Bubble Never Pops” in warning that while everyone was obsessing about possible dollar collapse the most likely blow-up would be elsewhere.
Also agree with your 8:12 post…
November 28th, 2009 at 1:58 am
I am not inclined to believe that it is a kneejerk reaction. Rising asset prices due to liquidity flow has masked a lot pain that needed to be played out. Equity prices all over the world has moved up much ahead of economic fundamentals. Just like the pre crisis period, risk has again been seriously under-priced, which was reflected in the CBOE VIX plummeting to as low as 20 before the Dubai crisis emerged. Yesterday it jumped to 24 and change.
While the Dubai incidence, in itself, is no big deal, it is symptomatic of the larger problem that is waiting to be unfolded. As a large number of financial giants started to report better numbers on the back of write-ups following rally in asset prices, suddenly the world seemed a better place again.
Overall, the financial sector fundamentals are still weak and the real sector fundamentals questionable. Brace for more such pains in the coming months.