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Counter Trade Dubai
I wrote a piece on Wednesday evening that discussed my own experiences with market volatility over Thanksgiving. It ended with:
The rates on your screen Friday morning will be meaningfully different than the ones you are looking at today.
I
got the Vol. right. But I had no clue that the source of the hiccup
would be Dubai. The reason is, as many have pointed out, this is “old
news”. To be sure, there have been some new and important developments.
But I doubt that Dubai is the issue that sinks the ship.
The
talk is of $80-90 b of exposure. Say half of that is lost money. Of
that, 70% is deep pockets in Abu Dhabi. That gets to an ‘outside the
Gulf’ loss of only $15 b. A few European Banks will get hit. There is
very little US exposure to this mess. The numbers do not look that big
to me.
How big of a surprise was this? I suspect not so big for
those who have big stakes in Dubai. These were WSJ headlines from
11/23. Three days before before the Tday blowup.
If
you are a big bondholder you keep an eye on whether the contractors are
getting paid. If there is no money for the vendors then it is just a
matter of time before the creditors get stuck. This comment from a gulf
paper Six months ago:
Nakheel, for example, has asked its suppliers to take discounts of between 25 per cent and 35 per cent.
There
are dozens of examples of press reports that Dubai was in arrears for a
long time. So I do not buy that this is a nexus for the market.
I
think that by next week market focus will again return to those that were steering markets on Wednesday. A weak dollar, strong gold and busted monetary policy. Dubai
is a side show that was aggravated by our holiday and an overreaction
in Asian markets. We will revert back to the main event.
Note: In looking at this I saw these comments. Someone has to say things like this. It still strikes me funny:
November 24, 2009!!! US Consul General Justin Siberell to “Emirates Business”.
"We are certainly bullish on Dubai".
»
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Dubai may not be news but the MSM has seized on and sensationalised it in a way that the slow drip drip drip of the credit crunch never matched. The Sheeple are nervous and while they will bail out Wall Street, buying the line that it saves Main Street, they sure as f#ck won't pay for Dubai to get away with stiffing its creditors. It would be a political disaster to buy those loans up.
There is also no way the local dictator will give asset title and land to foreign banks so there isn't really any collateral there. At least there is a pretence that the slow work out of US impaired assets on the Fed's sheet will return some value. The boys that signed loans to Dubai are going to take it all on the chin while the ruling families sort out the asset carve ups in a back room.
The banks might actually have to take these write downs where it hurts with no bandage from the Fed. It may not be huge but unlike MBS etc, it can't be shuffled on to the govt tab.
I agree. Dubai is not the big story that has been made to be. There is either more to this story, orf the real story is elsewhere in an Eastern European country.
admin
http://invetrics.com
have to respectfully disagree with the notion that all is well, don't mind what goes on behind the curtain. Alarm bells ringing across the globe, Nikkei now 15.5% off highs. Dubai bonds dropped 60 points in one day - if you were short bully for you but it looks like this hit with no 'warning'.
Your premise appears to be that this is NOT Thailand in 1998. Interesting that the 'pooh pooh' rhetoric is the same. My play is to be short, cover only if we manage newe highs in the SP. And definitely get short the EM bonds on a bounce, the next year there should be very profitable on the short side.
As further thought, my chart analysis suggests a plunge to the July lows is a possible course by mid December. A large reward against rising a few pct against new highs.
May I add that, in GOOD waterfront, you look out over the ocean (not out at your neighbors across the canal looking back at you), and there is a coral reef offshore that you can snorkle to, and a breeze for sailing, and sometimes waves for surfing, and most of all clear clean water that isn't full of oil from nearby tanker lanes or refineries, or sewage from nearby cities. Does Dubai World have ANY of that good waterfront? NO!!! It's just a bunch of nasty little dredge-up finger-islands right next to a city and shipping lanes. The water is not going to be clear or clean. It sure as heck isn't going to have any coral reef. The finger-islands aren't big enough to have beaches. They built tons of this stuff in Florida back before they realized that it killed all the fish, and now they don't built any of it anymore. What are the people in Dubai so stupid that they can't even read before they start ad development what others who have done the same type of development thought of it after they did it, and whether they decided it was worth continuing to do, or whether they had learned that it was maybe not such a good thing to do?
Plus, people with that much money can go anywhere. Why would they go to Dubai. Pretty boring place to go, right?
Abu Dhabi HAD been bailing out Dubai.
The market expected that would continue.
But the music stopped and the dance is over.
THAT is what the news is all about.
Who can say how much of the Indian Au tonnage is headed for Abu Dhabi?
BTW when Dubai paper drops from 110 to 40 in 72 hours one can fairly say the market DID NOT anticipate the new now.
The question fairly is how many broken dreams are in hiding at Royal Dubai?
Do not ask for whom the tell tolls: the hand has been dealt.
If there was a stupid business idea, that was Dubai World. Those people should go back to trading in pearls and spices.
Is it safe ?
Let the Santa klaus Ralley begin!
I remember reading an article about 2 years ago (I think it might've been on the Daily Reckoning site) on Dubai. I was sort of half interested in buying an apartment there. Most people were indeed bullish about property. I'd get people at work & friends in Dublin saying 'yeah it'd be a great investment' and things like 'oooh, look at all those pretty skyscrapers' & 'it's all funded by oil so it must be safe'.
The author took a dimmer view. Whilst he did marvel at the architectural ingenuity of projects like 'the world' and others, he pointed to smaller things on the periphery of it all. Like the routine & massive traffic snarl ups, the often poor infrastructure and the way the unskilled/semi-skilled foreign construction workers were treated. Other things like the huge electricity bills & a lack of accountability on anything for members of the ruling family & their mates put him right off. And then I also thought, what if there is an attack on Iran, it's just across the gulf and I'm sure a good chunk of that region would go up in flames.
You refer to this issue as if it is "curtained off" from other events. The markets haven't behaved that way in a long time. The head fake will be the perception you envision - rather than the possible fractals that spread into chaos. It's no time to abandon contrarianism - yours included!
This was actually a comedy item: billionaires not buying islands in stupidest real-estate development ever: scattering of islands in possible future naval battlefield for control of Arab Oil. Also, billionaires girlfriends not buying condos in stupidest high-rise condo ever: 200-story building which would be clearest target ever in possible future naval battlefield. If Dubai had more brains than Dubya, they woulda asked a Florida realtor what really really stupid overpriced waterfront real-estate could be sold and what couldn't. But no....
Warning: lieing on your application for this government job will be a felony.
Warning: lieing once you have this government job will be required.
If Ben and Timmy cannot stop the dollar carry trade with their last remaining piece of wet spaghetti, why wouldn't they help manufacturer a crisis that creates demand for dollars, however temporary? The Dubai default has been coming for a year and isn't news to bankers, so the official announcement of restructuring is merely a statement of the obvious. So, what is the agenda served here? Burning the dollar shorts and gold longs in order to dampen speculative excess...just as they have with stocks in bringing VIX from ~80 to 20. The dance will be to crush the dollar shorts and carry traders without crushing the US stock market bubble...er, recovery.
This is what I was thinking. This crisis seems manufactured, especially the timing of the news. Some are making a bunch of money off it already, and have forced the market down. Their bets have already been placed.
Could a forced downturn be an attempt to get more dollars buying in on a down dip day, getting more of the money still out there off the table? I wonder...
I never liked to gamble, now I feel forced to roll the dice everyday with my retirement, and the cards are always stacked in favor of the House.
I still don't understand how credit default swaps can be considered legal except that Rubin, Summers, Greenspan & Geithner made them so with their Commodities Futures Modernization Act. And right around Christmas in between administrations. Can't take your eye off the ball for one minute while the greedy bastards push their legislation through. Greed is greed and theft is theft and there is nothing new or modern about it. Just wait for the next few rounds of legislation. Ought to be real humdingers.
F'ers.
This seems plausible. I think there is enough going on with gold, independent of all the other things going on that would normally drive it down, that it will not get quite so burned. Drawing fire by drawing attention to the fact that US banks have loaned them money after they bailed us (Citi) out, and you have some really nice diversionary material, providing ground cover while you move on something else that you do not want public attention on.
With all that said, it could still be a disaster letting this thing rip. It would be arrogant to think you could control all the consequences.
When even the bearish crowd is writing about how Dubai is inconsequential---and this well before all of the facts are in---mirroring the outlook if not the wording of CNBC et al, then perhaps the market has finally reached that extreme of complacency which marks a major turning point. We shall see.
To read the build up, you'd have thought someone had just taken a crap in an operating room. Dow off 150 points? How many times have we seen this lately, even in the path of this recent power move. Much overblown, I'd say. If you're looking for fun, wait until either the CRE situation crests with lots of bank failures or the dollar rebounds or both.
Right. The markets responded from ignorance. As information circulated and understanding developed, the "news" was discounted. Btw, its not just CRE, but leveraged loans and banks balance sheet debt that all together are coming due in the many trillions.
When I was up late last night, Dow futures were off -371, Gold dropped in one dramatic move to 1138 (from 1195), silver followed, and the dollar was dropping to the low side of 74. Other markets were off as much as 8% and the Yen hit a record high. Screw it, it looked bad. I'm not sold on the idea that all is okay yet.
<"I'm not sold on the idea that all is okay yet.">
I would bet most of us have a deep down inside wish that the entire corrupted finance world would blow up big time , and the sooner the better . Loss of money is only thing mobsters understand . But there will be a huge "shotgun" effect on others .
MsCreant I agree with your statement . Logic says if our TBTF have 50% min unmarked assets yet on the books , that the same spirit of decpetion and dishonesty is going on in worldwide finance orgs. Dubai World no exception , Muslim or not, this spirit of greed ,corruption , and outright lies, has taken over many an institution - No, things are not okay yet !
Agreed
Agree!
I think that by next week market focus will again return to those that were steering markets on Wednesday. A weak dollar, strong gold and busted monetary policy >>>>> Great post. And certainly what I would "expect", but then I didn't expect the reaction to the Dubai revelations, regardless that everyone should have known about it.
proves that investors had their heads up their asses and overreacted to .... you can fill in the blank here with just about anything, can't you?
but rather the public reaction to the 'news' that is of most interest ...... So True! Sh*t happens to everyone everywhere all the time .... the difference is in how we react. As traders, we should know that more than most?
Dubai is the strategic financial hub and trading window to the world for Iran. Interesting to see which influence they will exert.
Other than that Dubai sounds like somebody cried fire in a crowded theater where there was none.
it is still to early to comment; except to state that it is to early to comment.
"Reality" maybe nothing more than the last ten or so media/blog stories you've read.
I remember my shock at TARP. $700 billion was an incomphrensible number at that time. I've gotten used to it. I now have to digest the number 'trillion' and on a daily basis. But...we didn't get to where we are one billion at a time. We got here one real estate agent's commission at a time! $10,000 or so at a time until it really added up to UBS announcing $40 billion write downs and AIG running to the US government for $182 billion.
Dubai? Hell, I have no idea. The fact that everyone but me has been there when, as Gertrude Stein observed about Oakland, Ca., "there is no there there" makes it opaque to me, though I suspect a lot more money went down its various rabbit holes than we wish, today, to acknowledge.
The world's tallest building? By a thousand feet or more? Come on! This was not 1930 when industrialists, banks and financiers competed over a few tens of feet for the honor and used the state of the art technology to do so. This was a boondoggle write large with no hope of a ROI.
Dubai's consequences remain to be seen just as some lousy Southern Californian or Cleveland, Ohio's handiwork remained undiscovered until we learned that it was not just one or ten engaged in fraud but legions. Let's hold our judgement as to exactly what the failure of Dubai means until we've seen its cards, face up, on the table!
Leo,
It really does almost no one any good long term even if this market rallies as you believe it will shortly. Because everyone with a shred of sense knows that this market will tank big time somewhere between now and the middle of 2010. The fact that a small group of traders can make some money does not really help fix the economy. We need our President and government to quit taking care of the bankster, and start taking care of the country.
<<
The talk is of $80-90 b of exposure. Say half of that is lost money. Of that, 70% is deep pockets in Abu Dhabi. That gets to an ‘outside the Gulf’ loss of only $15 b. A few European Banks will get hit. There is very little US exposure to this mess. The numbers do not look that big to me.
>>
The subprime mess was not big, it was very small part of the total mortgage market
Dubai CDS counter party chain reaction risk.
Do we have any idea how big is it ??
And at this time no govt can provide any more additional bailout to banks.
<<
This will look like a blip in the chart in a week. Wait 'til they announce November job figures. Then you'll see this market really take off and the USD rally
>>
Feel in line with following
* Oil going higher shows we are recovering, while gas consumption keeps going down.
* After summer break is over we will see volume back in market.
* Money manager chasing performance for end of year, while we see volume keeps going down
* Devaluing dollar will fix the trade imbalances.
* Retail sales are improving, while sales tax revenues of states keep falling.
* Unemployment going down, while number of people on extended unemployment benefits keep on growing.
- sky
Nice post sky! Not a lot of standing buys under any of the markets and that is noteworthy. Almost like the team took the weekend off--or they're already short and all the gtc's were sell adds to short positions on level breaks. Spending the weekend checking the counts geometry.
Your last bullets' perfectly reflect the factual "reality" breaks I've been amazed at. Transitioning the wishful-thinking, "better than expected" spin from earnings reports to economic reporting. My long term favorite is (4). How far does the dollar have to fall for a $60/hour UAW employee to compete with a $2/day chinese auto worker? (Where GM actually makes money.) "I've been wondering, just how do square fish swim?".
After a year of watching this circus, I've actually gotten a lot more pessimistic. The counterparty risk is STILL the elephant in the corner. Unlimited naked put writing on god knows how much bad credit of all types. There are no adults in the room; no cops on the corner. TPTB could have unwound this mess-just bust the trades and settle up--at very favorable rates. Obviously, the big boys have wanted to hold onto all their toys; the cds earnings printing machine. This to me is the best single indicator of who is really in charge. I'm just not convinced, as they evidently are, that they can extend and pretend this risk indefinitely. I didn't vote for Jamie Dimon. So far, the sucker at the poker table has been us--the taxpayer. If everybody's assets vaporize in a cloud of CDS's, there will be a worldwide run on pitchforks.
These are california ghosts.
Like totally booo duuudeeee!!!
A different backdrop to the spam the establishment has been pushing; "Recovery, banks okay, investment flows, China, developing countries ..."
The possibility arises of sovereign default, not necessarily Dubai, but Greece, Ireland, Venezuela, etc. Exposure - and scrutiny - has shifted from toxic assets held by insolvent banks to insolvent governments.
You have to know there is more bad debt orbiting the Dubai nexus. All this is more of the same, crap held off- balance sheet that doesn't see the light of day until the very end when it cannot be concealed any longer. Nobody knows who holds what. I suspect Dubai World's $50b is just the tip of the iceberg. Who are counterparties to DW CDS's?
Just another card fallen from the collapsing house of cards.
*Saud Masud, a real estate analyst with UBS, said Dubai's debt could include huge off-balance sheet liabilities that could "imply a total debt burden well above the $80bn to $90bn markets have estimated so far".*
http://flq.us/EB
Northern Rock was nothing to worry about too!
I ran money for the Emirates for many years , and I can state unequivocally, $80bb is chump change. Thye have more than that in gold bars stashed in the house safe. Threat of default is a nice way to start a negotiation with creditors though. In Dubai they jail you if you don't pay your mortgage, I wonder if Sheikh Maktoum will be forced to do a perp walk? not likely.
300 000$ for each massive gold bar.
80 000 000 000 / 300 000 = 266 666 gold bars.
That amount of gold bars apparently would weight - 3 306 tons. That would be one hell of a house safe.
OMG you just said it.
It's all about gold!!!
http://business24-7.ae/articles/2009/5/pages/12052009/05132009_4d115a2aa...
He meant ETF's.
I was wondering the same thing on a different thread yesterday. I was reminded that Muslims have one set of rules for themselves and another for outsiders, so that is how they could threaten this without hypocrisy.
MsC - your comment is quite inappropriate - for your community service in lieu of... spend some time here:
http://www.akdn.org/about.asp or perhaps here http://www.muhammadyunus.org/
I'd like to thank all who came to my defense.
Meanwhile, I screwed up.
It's funny, when the commenter in question answered my question on the other thread, he got junked and I did not understand it and told him so. Here my comment got junked and 2 negative comments. I knew I was missing something but had no way to figure it out or repair it. The two commenters only expressed anger.
Thank you anynonmous.
My mistake is "universalizing" all Muslims as one thing. These organizations are clearly compassionate and inclusive of everyone, not one set of rules for one group, one set of rules for another. My comment was offensive. Mostly ignorant.
Anynonmous took the time to express distaste, but also gave me the material I needed to see my error. Class act.
I am grateful that I got to see that I am still capeable of a screwing up in this manner. Hope I have not hurt others mindlessly like this. Probably have.
I am sorry.
Never say your sorry it is a sign of submission. Mistakes can happen and adults understand that. There is always a explanation. The children of Abraham know the difference and not an ideological premise posited as retort of works. So they work at a hospital and fund small business. Good for them, and all who do. I have family and friends from, and in the region for decades just as many do also. Some people hang teenagers for having the wrong currency in there pocket and some will murder you for currency in your pocket. There are many standards if we look closer and thats when you see thought police.
Submission would imply I was trying to dominate, and lost. I lose nothing admitting I am wrong. I might even gain. My regret was genuine. When I imagined myself Muslim reading my post, I cringed. I failed to do that before I wrote it.
All ethnic groups/religions have folks who do great things and bad things. All of them.
Part of having ideas out in the open like this is that they can be challenged. All of us have fucked up thinking. It is okay for me to see some and change my mind.
You seem pretty compassionate. Understanding that some groups hate your group and taking precautions is wise, realistic. Assuming they all do is not.
Your holier-than-thou snearing attitude really is repulsive and diminishes this site.
I live at Ft Hood...so STUFF IT!!!
You've obviously never lived anywhere near the Middle East. MSC sounds like she's speaking from experience. Her comment certainly jives with my time over in sand land.
I don't think you are aware that most of us are very fond of the regulars for good reason. It is a good thing you have that bag over your head and no one knows your name. Double penalty when you pick on the ladies. Your post struck a very discordant note on what is generally a wonderful site. Do not do it again.
I wouldn't make the mistake of thinking the anons aren't regulars. Many of us have good reasons for the 'bag'. And there are plenty of 'regulars' here who should never have left yahoo.
??? Lived in the Middle East for two years. There are multiple, well-defined social and economic striations in most of the GCC countries that make the OECD countries look equalitarian by comparison. Muslim vs. non-muslim. Citizen vs. non-citizen. Royal family member vs. non-RFM.
And I'm not sure where you got the idea that the comment was "snearing", unless you consider a crisply delivered statement with insight "repulsive". Please go grace some other blog with your neurotic projections.
It is just the "Attack of the Anonymous Zombies."
Imagine you are one of the half dozen people trapped in the Penn. farm house in the original Night of the Living Dead. You are looking out the window through the boards at the zombies staggering toward you.
Some times on ZH, there is one anonymous zombie, sometimes three anonymous zombies, sometimes a dozen anonymous zombies staggering toward you... sort of like Wall Street TBTF banks...
And Lux Fiat, you did just like the people in the farm house learned to do... you shot the anonymous zombie in the head with logic...
Who are you talking to and what is your malfunction, Anon 144224?