Archive - Nov 2009 - Story

Bank of America has provided an extended analysis of foreign exposure to Dubai World and Dubai sovereign. As BofAML points out "the basics of the discussion are threefold in our view: who owes how much to whom, when do they pay, and what happens if they do not? As there are no official debt data on both emirates and federal level, we used the outstanding loan and bond information on the SDC debt database and Bloomberg to estimate Dubai and UAE’s debt burden. We estimate that UAE’s total debt amounts to US$184bn as on end 2009, US$88bn of which belongs to Dubai. Abu Dhabi accounts for US$90bn and the other emirates hold the remaining US$5.6bn. Note that the debt service will be higher as our numbers only include the principal payments." The expectation is that Abu Dhabi will bail out Dubai as moral hazard becomes a sovereign issue. We don't think this is too likely: we believe the "saviour" will likely emerge from a bank that has access to the Fed's or the BOE's money printing machine either directly or indirectly as the Bernanke cartel does not care if his policy to bail any and all risk exposure remains domestic or finally has that much deserved and anticipated world tour.

Normally, discussion of the "Surveillance State" touches on Zero Hedge's core focus (finance) only tangentially. But every once in a while something significant bounces us radar returns in this sector. This definitely qualifies.

"When the crisis was in full bloom last year, there was much talk of banks “de-leveraging” their balance sheets back down to more appropriate levels. Traditionally, banks would “de-lever” by selling portions of their loan portfolios to other banks, but in 2008 there were no buyers for financial assets at any price. Over the course of the last twelve months, however, many people have assumed that the banks were steadily improving their leverage levels from those of 2008. After all – the bank stocks have all rallied dramatically since March. They must be in better shape, right? Closer inspection reveals that they’ve achieved very little in the way of de-leveraging thus far, and have merely been propped up by various forms of government liquidity injections, guarantees, out-right share purchases and support from existing shareholders." - Eric Sprott

First of I apologize for the radio silence the past week as I was traveling. For those of you in the US I hope you and your families had a very happy Thanksgiving. Now straight to the markets, the obvious question is whether black Friday this year will take a different meaning than just a shopping holiday. Obviously if you stuffed your Turkey with Dubai bonds this year you are risking a serious indigestion. A lot more on the follies of that market later. For now here are a few indicators I would look at in order to confirm this move has more legs than what we have seen so far, or whether it is to be faded. - Nic Lenoir

The chicken or the egg problem revisited, as the market stages an amazing if all too expected comeback: the last thing US consumers need at the start of the all too critical holiday shopping season is their 401(k)'s down by 2%. Yen is getting pounded as all "strong" currencies stage an impressive intraday rally: those rate hikes at the ECB are getting so priced in, Greece default be damned.

...please disperse....

NYSE invokes Rule 48, last used the day Jamie Dimon acquired Bear Stearns for pocket change. Wishes everyone good luck in case the 33 Liberty Street trading desk is unable to hold the market together.

RANsquawk 27th November Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 27th November Morning Briefing - Stocks, Bonds, FX etc. (Dubai Special)

Good question, says UBS.

The scramble to identify entities with exposure to Dubai has begun. Almost as desperate as the rush by entities all over the world to reassure markets they have no exposure (or are minimizing it). (Credit Suisse, UniCredit and the Bank of China seem to be leading this race). Bloomberg is citing a JP Morgan report that Royal Bank of Scotland Group was Dubai World's biggest loan arranger over the last two years. Uh oh. We are certain this is totally unrelated news today on Bloomberg:

Royal Bank of Scotland Group Plc said it will issue 25.5 billion pounds of B shares and one dividend access share to the U.K. Treasury and State Aid Commitments.

A brutal risk selloff as Dubai seems to have sparked the "sudden" realization that, you know, stimulus just ain't going to do it all.

Sovereign CDS spreads have been widening since the news, rescheduled conference calls did little for investor confidence and U.S. equity futures have crashed (midnight ET was exciting!) on the order of 4% with crude futures are down 5%. Treasury futures have spiked in inverted sympathy (flight to safety). Spot gold, which was as high as $1191 hours ago has sunk to ~$1140. Japan has intervened following the Yen's 14 year high mark. The Swiss National Bank is rumored to be intervening continually to un-defend the Swiss Franc. Quite a morning so far, and it's just beginning.

The $ PET (Plunge Enforcement Team) will have its work cut out for it tonight and tomorrow, after speculation was rampant that both Japan and Switzerland would intervene in their respective currency markets to halt the dollar's collapse, in essence making Tim Geithner's self-proclaimed job of maintaining a strong dollar that much easier. And even as the Nikkei has terminally decoupled from the US equity market, and is now over 10% down from its 2009 highs, the yen just passed 85, hitting a 14 year high against the dollar and throwing Japan's export economy into a tailspin: that a confirmed deflationary economy is considered a "safe-haven" in today's world should be sufficient to get Keynes boogying to the foxtrot in his grave as his economic gospel falls apart at the seams.

I was looking through the avalanche of economic data today, and it struck me how once again Americans are spending well over their income growth. I thought to myself, well part of this are all the programs where the American government is subsidizing consumption. In fact we're at the point one of every six dollars of consumption are from goverment, meaning you only need to "earn" 5/6ths of your spending power.

But something else hit me... I've written about this in the past in conceptual terms but never put it into an analysis. The true stealth stimulus plan in America is letting so many of its people live "rent free" as they sit in defaulted homes not making a mortgage payment. This "cost savings" allows them to shop and spend, and otherwise support the American consumption society. While it is hard to keep track of all the stimuli, try to think back to the Bush spring 2008 stimulus. (that was about 37 stimuli ago) That goosed GDP quite well for two quarters. But we now have a quasi permanent stimulus plan that goes on quarter, after quarter, year after year.... and its equivalent to have a permanent Bush level stimulus (using VERY conservative figures).

Far be it from us to be so cynical as to suggest that financial disclosures might be delayed to fall on the deaf ears of absent markets (Dubai related evidence notwithstanding) but who else might we expect dire tidings from this long weekend? Whither Failure Friday?