This page has been archived and commenting is disabled.

The Firecracker Report: Dubai Default Examined

Tyler Durden's picture




 
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sat, 11/28/2009 - 12:14 | 144807 AnonymousMonetarist
AnonymousMonetarist's picture

'Do you know where you're going to? 
Do you like the things that life is showing you 
Where are you going to? 
Do you know...?

-Diana Ross 

But we don't know where we've been 
And we know what we're knowin' 
But we can't say what we've seen 
And we're not little children 
And we know what we want 
And the future is certain 
Give us time to work it out 

We're on a road to nowhere' 
-Talking Heads 

'Say your prayers little one 
We're off to never never-land

-Metallica 

'Honey, they don't call it a job for nothin
-Samantha Jones 

Never have so many been so confident of so little done with so much. 

'Tis fiscal and financial pornography, Adventures of the Fed Volume 1 : Gangbanging a string; or as the venerable Todd Harrison has so adroitly observed, the government is all in. 

The dividing lines have been drawn, on one side are the Naysaying Nabobs of Nancy Capitalism that, with beige books extended, are unwavering in their dogma that Chairman Ben will perpetually liquefy their chalice of confidence, and on the other side are the few the proud, the misfits... the Atticus Finchs that believe that reality is the tail risk. With arms extended they proclaim : We are not idealists to believe firmly in the integrity of our economic system. That’s no ideal to us. That is a living, working reality! Now we are confident that you Mr. Market will review without passion the evidence that you have heard, come to a decision, and will uh, uh, well, uh ... 

Then they stop and scratch their head and say ... the government is all in isn't it? 

Yet the game is not over, the chips are up for grabs. Reality is raising, can we cover? Sam says he might not be able to cover, opponents eye his watch, 'Is that gold?' He hands it over. Still not enough. Sam's lady is eyed. 'What's her name?' 

'Liberty. But she ain't for sale.' 

A chuckle is returned,'Everything has a price Mr. Bond.' 

Everything it would seem except legacy grrr I mean troubled grrr I mean toxic grrr I mean bad speculative bets where taxpayers have socialized the downside and banksters have piratized the upside. 

By Aline Van Duyn 
November 28 2009 02:00 
Financial Times 

'There are two strands to working out how much these securities are worth. The first is the shifting macroeconomic environment that affects values. Take mortgages: in spite of the improvement in house prices in recent months, whether another drop will follow is far from clear. This makes it difficult to be sure what the foreclosure rates will be, for example, and the values of bonds backed by such mortgages. 

Second, the value of many of these securities depends on what the rights are of different owners of different tranches and how these rights are enforced. "Tranche warfare" is an apt name for it - getting your money often involves an active battle with other investors. This means other investors can take actions that may hurt the tranche you own. This is one strong reason that more banks are trying to devise ways of putting these assets into "bad bank"-type structures. The skills needed to deal with distressed structured bonds are not the same as handling more traditional debt problems.' 

Bismallah! 

Here's a thought experiment. Put the banksters in a room. Tell 'em that in 5 days they have to come up with a 8&1/2 by 11 showing the current market value of every asset on and off their books or else they will be wiped out and forced to work at minimum wage for the rest of their natural lives. 

How fast would they come back with a number? 

Faster than Mack the Knife could tell Geithner to get f@#&*d.

Sun, 11/29/2009 - 10:54 | 145331 Anonymous
Anonymous's picture

Sam says he might not be able to cover, opponents eye his watch, 'Is that gold?' He hands it over. Still not enough. Sam's lady is eyed. 'What's her name?'

'Liberty. But she ain't for sale.'

A chuckle is returned,'Everything has a price Mr. Bond.'

I'll have what this bloke is drinkin'
Brilliant!

Sat, 11/28/2009 - 12:49 | 144825 Zippyin Annapolis
Zippyin Annapolis's picture

Buy gold on dips--as well as Verizon and AT&T......what am I missing?

 

Utilities and gold? Huh?

 

 

 

Sat, 11/28/2009 - 13:23 | 144844 orange juice
orange juice's picture

makes enough sense, those are cash rich co's (so are utilities) so they shouldn't be effected as much by the contracting credit.  if anything co's with a lot of available cash can expand while credit dependent co's get priced out; i think gold is a hedge against equity delevering in this instance.

Sat, 11/28/2009 - 13:47 | 144857 chumbawamba
chumbawamba's picture

Don't bet on AT&T.  When the markets fail completely and society collapses, AT&T will be broken up.  This time physically, and for good.

I am Chumbawamba.

Sun, 11/29/2009 - 14:33 | 145428 Hephasteus
Hephasteus's picture

Excuse me. These companies are laden with debt.

You're lovely Internation Swaps and Derivitaves Association have already learned how to mess up an entire power grid. When they infiltrated california the brownouts started rolling like tanks on blitzkreig.

They want to set up stupid divorcement ownership where they have the ability to turn off entire grids or pieces of grids when payments aren't made. You sure are going to get a false meter on that one. They'll set up smart grid and turn every household into a burden tax. Hey they can afford it turn up their meter. Hey that guy has skipped out on a bill overcharge him and when he can't pay it'll be double or triple or quadruple punishment.

AT@T stole without peer or pressure from anybody and they still don't own anything. Verizon when I called them to shut down phone service gave the old "the computer is not bringing up your account. One second" while the guy runs off to get a customer handler to jerk me around like he has a RIGHT to for an hour. Then they pad my bill with fake charges and hand it to collection. It's like gangs. You can leave but you have to be beat out. We're only being nice to you because your in the gang paying it's bills. You try to leave and we'll show you how rough we can get, kind of crap.

When are zerohedgers going to learn. There aren't any cash rich companies. There's cash and cash equivalant rich companies. And crap is an equivalant to cash to them. How do you resolve Microsoft bragging about being rich at the start of the crash and then borrowing 3.5 billion a couple months ago. RESOLVE the conflicting DATA.

Mon, 11/30/2009 - 09:39 | 146097 Anonymous
Anonymous's picture

Some interesting points here, but it's a stretch to suggest the ISDA folks had much of anything to do with the California power crisis. That situation was caused primarily by shoddy legislative efforts at deregulation. As usual, California can't quite leave well enough alone, so they left things sort-of-part-deregulated, leaving huge regulatory gaps to be manipulated by energy traders. The traders -- Enron, yes, but also just about every other major electricity merchant out there -- deserve some blame, but taking advantage of regulatory gaps is the name of the game, and it was a gray area as to whether what they were doing was truly illegal.

Anyway, ISDA has always been mostly about the banks. Sure, Enron and its ilk did some trading on ISDA agreements, but there has always been a natural skepticism of ISDA in the energy world. The energy companies view ISDA as a tool of the banks. And with a few exceptions, the banks were not very involved in energy trading back at that time -- it was only after Enron blew up and energy trading needed (ironically) more capital backing that the banks moved in .

Sun, 11/29/2009 - 17:27 | 145538 kurt_cagle
kurt_cagle's picture

I have a brother-in-law working for AT&T, reporting that they're trimming "non-essential" staff as fast as anyone. I doubt seriously that these "cash-rich" companies are anything even close.

Cell-phone growth still exists, but it has diminished considerably, and in many cases people are leaving expensive long distance plans for pay as you go cell phones even if they are at a premium minute-wise, primarily because they can't afford the regular payments anymore. This is especially true in Canada, where the cellular industry is held in a very tight monopoly and $300-$500 a month cell-phone bills are the norm rather than the exception.

Skype, Google Voice and other VOIP services are also eating considerably into that space; I've shifted off of cell-phones to Skype nearly completely (I keep a pay as you go for emergencies), simply because of the costs involved.

No, supposed cash position aside (and I'm not sure how much I actually trust any company's numbers any more anyway) I wouldn't be investing in an major telco these days.

Sat, 11/28/2009 - 12:53 | 144828 putbuyer
putbuyer's picture

The rise in delinquencies is sharp. Five times more hotel loans are behind on payments this year than in 2008, according to mortgage data firm Trepp LLC, which tracks those traded by investors. In October, 8.7 percent were distressed, compared with 1.5 percent last year.

http://finance.yahoo.com/news/Hotel-owners-like-home-owners-apf-13067339...

Sat, 11/28/2009 - 13:23 | 144843 Anonymous
Anonymous's picture

Next up is Argentina. It's defaulted debt has risen 400% this year after not going anywhere but down for the several years before. Simply a sovereign trading like a penny-stock.

Sat, 11/28/2009 - 16:48 | 144954 Anonymous
Anonymous's picture

Again ? WoW !

Hey let's just buy on credit and default and start all over again. Why not, the subprimers in this country are doing just that and their credit is back to sparkling.

Sat, 11/28/2009 - 22:50 | 145156 Assetman
Assetman's picture

I'm thinking that Greece, Ireland, or even Ukraine may be next... but you're right about Argentina... and that may break the one that really gets the risk trade totally unwound.

These are some pretty dangerous times...

Sat, 11/28/2009 - 14:17 | 144871 VFR
VFR's picture

Anything this "well planned and thought out" must include other known unknowns.

Lets say Sheik Mohammed has bought massively into gold recently. 10s of billion dollars worth and he (or connected parties) asks to take delivery of the physical. No-one can deliver. The price doubles. he re-pays the debt. He has the connections to do it.

" I told you all to shut-up"

Sat, 11/28/2009 - 14:18 | 144872 VFR
VFR's picture

Monday could be a massive day.

Sat, 11/28/2009 - 14:38 | 144882 Stupid Donkey
Stupid Donkey's picture

Or it could be quite benign. The futures didnt even dip below the 10k Dow or 1k S&P, hardly a correction. The action in Asia wasn't big enough to run for the exits. Unfortunatly we will probably have to wait for something more significant in Europe to kick off the return to reality.

Sat, 11/28/2009 - 15:12 | 144892 Fish Gone Bad
Fish Gone Bad's picture

I agree.  Do not underestimate the power of extend and pretend.  Eventually "Oh Shit!" will happen.  It could be Monday, and then again it could be a long way away.  In the meantime, make good use of your time.

Sun, 11/29/2009 - 04:23 | 145279 chinaguy
chinaguy's picture

DOW futures off 207 as of this writing.

Dubai an engineered Black Swan for an Engineered market correction? Hey, they "can blame it on the Arabs".

 

Sat, 11/28/2009 - 14:40 | 144883 WaterWings
WaterWings's picture

Whew! I'm thinking the same thing. I actually wonder each weekend. I should just make margaritas, watch Red Dawn again, and enjoy the time instead of anticipating incessantly - it's just like musical chairs. But I ain't stoopid: I'm taking physical delivery of 9mm and #10 cans every two weeks. I got tiiiiiiime like a hog.

Sun, 11/29/2009 - 00:12 | 145201 Brindle702
Brindle702's picture

+1

Sat, 11/28/2009 - 15:33 | 144904 phaesed
phaesed's picture

It's a good report, but half of it is a quote... isn't that taught to be disallowed in passing paper when you're in college?

Even better is brief recaps of items that most have spent the past 48 hours researching, perhaps the world is becoming completely crippled in its capacity to read anything longer than 140 characters.

I think I want this society to fail.

Sat, 11/28/2009 - 15:46 | 144918 JamesBrrando
JamesBrrando's picture


Can countries become bankrupt?

by Chris Bambery

“There’s a rumour going around that states cannot go bankrupt,” German Chancellor Angela Merkel said recently at a private bank event in Frankfurt. “This rumour is not true.”

She is right. States can and sometimes do go bankrupt – and the fear of such an event is clearly haunting many heads of state around the world.

The Italian welfare minister said last December, “There is something worse than recession, and that’s state bankruptcy: an improbable, but nevertheless possible, hypothesis.”

The real question is not whether countries can go bankrupt but who pays the cost associated with a rescue?

When corporations or banks go bust we know that the chief executives escape with their pensions and share options. Staff and workers lose their jobs and pensions and face extreme poverty and destitution.

When states go bankrupt this creates not only economic chaos but also ideological turmoil.

When Argentina defaulted on its debts in 2001, the economy collapsed and the government tried to freeze its citizens’ bank accounts to keep them from converting the local currency into US dollars.

The rich had already salted their money away in dollar accounts in the US and neighbouring countries.

Overnight the idea that as citizens of a country there was a common national interest flew out of the window. The capitalist class and their lackeys had saved their fortunes leaving everyone else, including the middle classes, to suffer the fall out.

Austerity

The freezing of bank accounts drove whole swathes of the population onto the streets. They forced a series of governments out until they got one which promised not to implement the austerity measures demanded by the International Monetary Fund (IMF).

In Iceland, a dramatic economic collapse led to a virtual insurrection at the start of this year that drove out the centre right government.

Iceland’s currency has collapsed. The banks’ debts are ten times larger than the country’s economy. Iceland’s population has lost most of their savings and face debts and mortgages that can’t be paid off. Unemployment is mushrooming.

But financial help from the IMF or the European Union (EU) is conditional upon further free market measures which will destroy services and impoverish the population.

In Britain, the right wing press has been howling over projections that public debt could reach £1.5 trillion.

The right oppose using state money under any circumstances – except for wars and law and order.

But we should be worried for different reasons. Chancellor Alistair Darling has made it clear the costs of bailing out the bankers will be recouped from us in the form of tax increases and public spending cuts.

Britain is not alone in Europe in facing a massive increase in its debts.

There are huge cracks beginning to appear in the EU, the world’s biggest economic bloc.

In eastern Europe the economies of Estonia, Latvia and Lithuania seem set to contract by over 10 percent. Hungary, Ukraine and Latvia have already needed IMF rescue programmes at the close of last year.

They come, as usual, with draconian austerity measures. Last month, the Austrian vice-chancellor warned that the IMF “rescue” of Ukraine was not enough, and economic or political trouble in Ukraine could create “a domino effect inside the EU”.

But it’s not just eastern Europe that is in trouble. The financial press is concerned about the PIGS – meaning Portugal, Italy, Greece and Spain (Ireland has now been added to the list), where public debt threatens to increase beyond the size of their economies.

Greece’s public debt currently stands at 95 percent of GDP, and is growing. The “solution” demanded by the European Central Bank is to effectively scrap the country’s pension and social security systems. Plans are being drawn up in case these countries are forced to quit the euro currency zone.

Cash

Greece’s government wants the EU to offer financial help to avert this happening, but cash is in short supply and a German government may in turn refuse to meet the costs of rescuing weaker economies.

That puts the very future of the euro at stake.

Italian governments have traditionally responded to economic crises by devaluing the currency to reduce costs of exports and increase the cost of imports.

It can no longer do that as a member of the euro.

Italian prime minister Silvio Berlusconi’s key coalition partner is the racist Northern League which wants to quit the EU. It wants a “national” solution to the crisis and devaluation could be part of that.

But any devaluation means quitting the euro. This will result in those who have lent money to Italy’s government either wanting their debts repaid immediately, or demanding massive interest repayments because Italy would be deemed a bad risk.

States, like individuals, are assessed for their credit-worthiness, and countries such as Latvia have effectively been declared “un-credit worthy”.

This is not limited to so called developing countries. Credit rating agency Moody’s recently said the top-grade ratings of Britain and the US were “being tested” by the global economic downturn.

If Britain’s rating slips, creditors could rush to recoup their money. That could tip the economy into a deeper recession.

Governments are increasingly worried that the recession will bring more social upheaval.

We have seen what that might look like with the rioting in Greece at the end of last year or the strikes and protests Ireland in recent weeks.

We have also seen in Hungary and Italy how the same anger can be directed against migrants and others, such as the Roma gypsies.

States can and do go bankrupt. Working people are made to pay the cost if they are prepared to put up with it.

How the left responds to the economic crisis can make a big difference in the oncoming months.

Sat, 11/28/2009 - 20:06 | 145026 lovejoy
lovejoy's picture

Chris is clueless.

Sovereigns that take on debt in their own currency cannot go bankrupt. The central banks have an electronic registry that is not revenue constrained. Simply a data entry.

Now if you are a South American country like Argentina that takes money from the IMF and thus have to pay the debt in USD, you have a problem as you cannot print USD. So you default. Likewise, Dubai World debt world is in USD, not the local currency.  Dubai World (private company owned by Dubai) also has no true guaranty of a sovereign, just an assumed guarantee like FANNIE. So not a true sovereign debt issue although the banks are going to try and recoup some money through CDS. But smart money will bet against them.

The issues for the EU countries like Greece, is that they are unable to implement domestic fiscal policies without EU central bank approval. This is where many think that the EU collapses. There will come a day when the Germans will want to see a stop to their money going to Spain, Italy and Greece.

As a sovereign cannot go bankrupt if debt is in its own currency, make money on the CDS spread.

The only downside for the sovereign would be collapse in the currency and some inflation. For a small country that has experienced in large inflow of hot money, this could be catastrophic when funds escape.

 

Sat, 11/28/2009 - 21:17 | 145097 Anonymous
Anonymous's picture

+ 1
I just don't understand why people don't understand this: if a country issues debt in its own currency then it can't go bankrupt (of course, it can still flush itself down the toilet through local hyperinflation..). Which, exactly as you point out, is why the Euro zone could burst open like a rotting carcass.

Sun, 11/29/2009 - 10:52 | 145327 alexdg
alexdg's picture

All it takes is the first country to really step the line, and Germany will make sure the ECB and UE commission take appropriate steps in safe guarding the Euro and respective country.

That's why they voted for the Lisbon Treaty. More than 80% of all laws passed in a UE country are mandated by the UE! If Greece screws up their deficit, the UE will step in and take measures, enforcing reforms and cutting on budget expenditures. It's either that or getting kicked out of the UE, and no political party wants that.

Just look at Ireland. First voted "No" for the Lisbon treaty, after the economic bust, a new referendum proved a "Yes" as people saw that more UE control meant a nationwide bailout.

I'm not to confortable with the french government deficit. But as long as Germany has things undercontrol, currently less that 65% of GDP in debt, I'm sure they will take action to protect the Euro and make sure countries reform to sound budget policy.

Sun, 11/29/2009 - 09:05 | 145303 Anonymous
Anonymous's picture

Agree +1 strongly wrt a sovereign cant default in own currency.

But in ECB system (where the countries are technically not issuers) there seems to be no enforcement mechanism and the countries are allowed to break the % debt limits all the time, I think this will continue indefinitely. The ECB seems powerless to stop them.

Sat, 11/28/2009 - 15:56 | 144925 max2205
max2205's picture

Can't post charts here but Japan's market is at a very important support level which if doesn't hold could be the straw. Japan looks much worse than most markets. Like any oversold market it could have a nice bounce or be a bottom but it's worth watching.

.02

Sat, 11/28/2009 - 17:58 | 144983 Anonymous
Anonymous's picture

whoa! looky how on losing the 200dma she gapped lower.. not good at all

Sat, 11/28/2009 - 18:06 | 144986 deadhead
deadhead's picture

nice chart on nikkei...thanks!

Sun, 11/29/2009 - 12:29 | 145359 JamesBrrando
JamesBrrando's picture

lol

see greece, its almost as bad

Sat, 11/28/2009 - 22:55 | 145160 Assetman
Assetman's picture

Oh man, now that isn't good at all... is it?

Sun, 11/29/2009 - 00:37 | 145215 Youri Carma
Youri Carma's picture

Japanese bankruptcies may rise in Feb if Yen holds 14-year high against dollar http://bit.ly/7wWaJ0

Sun, 11/29/2009 - 02:10 | 145247 Printfaster
Printfaster's picture

Bad news is like the bubonic plague. 

The Japanese stock market goes down:  Less money to invest in US risk assets.

The Yen goes down:  Less money to invenst in US risk assets.

Dubai stiffs the debt holders:  Less money for Dubai and the debt holders to invest in US risk assets.

Less money for US risk assets:  Stock prices go down.

Stock prices go down:  debt collapse world wide

Or something like that.

 

Sat, 11/28/2009 - 15:58 | 144927 time123
time123's picture

Dubai is a reminder that commercial real estate is a looming problem worldwide, not just in the U.S.

admin

http://invetrics.com

Sat, 11/28/2009 - 20:28 | 145051 Anonymous
Anonymous's picture

Wait until California defaults!

Sat, 11/28/2009 - 20:45 | 145073 Anonymous
Anonymous's picture

In Australia our real estate has barely dropped at all, and if we were to believe the media prices are still rising! We still have a median price for a 3 bedroom piece of shit $400 000! This is outrageous, when is our market going to bust? Likewise i think Canada is worse than us, albeit not by much.

Sun, 11/29/2009 - 17:42 | 145556 kurt_cagle
kurt_cagle's picture

Canada RE is down about 10% from peak, seems to have stabilized at that level for now. Biggest drops are in the East - Toronto and Montreal markets got hit bad, Edmonton took it on the chin with oil price drop but is recovering with the move back around $70 (the stage where oil sands become profitable again). Vancouver and Victoria have barely budged, though both have special situations - Vancouver 2010 Olympics, and aging demographics pushing Victoria as a good retirement city. However, after February is over and all of the Olympic fervor ends, expect for there to be a major RE drop.

Sat, 11/28/2009 - 22:23 | 145145 Oracle of Kypseli
Oracle of Kypseli's picture

One: Greece already has drachmas printed ready to roll since 2005.

Two: What if, Dubai debt problem is a charade for better terms with lenders and bond holders? <<repost>>

Sat, 11/28/2009 - 23:56 | 145187 carbonmutant
carbonmutant's picture

You have to wonder which central banks Ahmad Humaid Al Tayer called before they made the news of the delay public. Did Bernanke get the call before or after?

Sun, 11/29/2009 - 00:28 | 145208 Youri Carma
Youri Carma's picture

Dutch ING for $2 billion exposed in Dubai World (Google trans from Dutch) http://tinyurl.com/yfo3kdg

Sun, 11/29/2009 - 03:01 | 145265 Anonymous
Anonymous's picture

thats a fairly useless article, nothing of value and some misleading statements.

first of all, there is an interest payment its not just principle.

and second, the quote that it traded above par (111) is not because it was trading at a premium, it actually matures at 115.8

Sun, 11/29/2009 - 12:40 | 145363 cocoablini
cocoablini's picture

Anyone notice how the dollar "had" to crash through 74.5 the day before this annoucement. Somebody knew this ahead of time and firebombed the DX so the de-risk trade would not carry the DXY over 76-77 again. Total BS

Sun, 11/29/2009 - 23:33 | 145812 Anonymous
Anonymous's picture

Yeah, when I saw dxy take out the stops, I went and bought some more gold. Pavlov would sure be proud of me!

Do NOT follow this link or you will be banned from the site!