Friday, November 27, 2009

Fault lines, cracks and rumblings...

Greetings good citizen,

Here’s to wishing that each and every one of you had a pleasant holiday…which naturally infers that yesterday was a holiday wherever it is you hang your hat.

Pleasantries aside, today presented us with an abbreviated market session and a crisis that has been percolating in one of the tiny ‘emirates’ of the Middle East.

Perhaps that is the ‘disturbing’ part of this whole deal, that one tiny Arab nation could be causing such serious turmoil on the world’s financial markets. But the ‘trouble’ that has investors worried is ‘contagion’, that the collapse of commercial real estate in Dubai will ‘spread’ to other ‘troubled’ nations…leaving banks on the hook for billions more in losses.

And we all know how, um, ‘vitally important’ it is to global finance (and those who own it) that the global banking system remain ‘robustly solvent’ (because you never know when those who own the global banking system will have the need to make ‘a quick get away’.)

While tonight’s offering tells us otherwise, it’s interesting to see how problems in nation smaller than our smallest state have created havoc on, ironically, the US stockmarkets.

Dubai Debt Troubles Push Down Stocks in U.S. and Asia
Published: November 27, 2009

Wall Street turned sharply lower at the open on Friday, as traders scrambled to play catch-up after downturns in Asian and European markets over the Thanksgiving holiday.
Investors were spooked by reports that Dubai World, the emirate’s investment vehicle, was seeking to suspend repayments on all or part of its $59 billion in debt. That pushed shares down more than 3 percent on European markets on Thursday; Asia markets posted similar declines on Friday.

At mid-morning, the Dow Jones industrial average was down 0.9 percent or 94 points. The broader Standard & Poor’s 500-stock index fell 1.1 percent or 12 points, and the technology-dominated Nasdaq slipped 1 percent or 22 points. The stock markets will close at 1 p.m. Friday after being closed Thursday for Thanksgiving. The bond markets close at 2 p.m. [The US markets closed down 150 points, and only the Asian and US markets were affected. The European markets managed to ‘shrug off’ the negative news…]

The dollar was just below $1.50 to the euro, and crude oil prices fell $3.08 to $74.88 in New York trading. Treasury prices rose.

Analysts said they thought Thursday’s declines might be overdone, and that a true picture of the market’s reaction would emerge next week as buyers return from the holiday and as more details on the Dubai situation come out.

“I don’t think it’s devastating at all,” said Jeffrey Saut, chief investment strategist at Raymond James. “Nobody knows the collateral damage, but it is clear that our banks have exposure to European banks.” [Who’s that and why the hell should I care? Notice how Chumley is ‘re-enforcing’ the tie between the US and the European markets, which vanished by the end of trading today. ]

A research note Friday from Credit Suisse estimated that European banks may be the hardest hit if Dubai World cannot meet its obligations, with total exposure estimated at 13 billion euros ($19.6 billion). European banks on Friday played down their exposure. [And all three major European stock exchanges closed in positive territory, so maybe the ‘problem’ lies elsewhere…]

“Dubai is really a symptom, a legacy, from the previous boom, rather than symptomatic of a start of a whole new set of issues that are going to create a systemic crisis in emerging markets,” Kevin Grice, senior international economist at Capital Economics in London, said. “Markets assume the worst-case scenario.”

The uncertainty in Dubai did not suggest a coming collapse of the global real estate market, Mr. Grice said. [Combine the statement above with the statement below and it looks like Mr. Grise is shooting in the dark and has no idea what’s at stake here.]

Late in the day, European markets were slightly higher. The FTSE 100 in London was up 71 points, or 1.4 percent, while the DAX in Frankfurt rose 87 points or 1.6 percent. In Paris, the CAC-40 increased 61 points or 1.7 percent. [Makes you wonder why US markets didn’t enjoy a similar ‘bump’?]

In Europe, investors were concerned about the state of public finances and possible credit rating downgrades in Greece and Ireland.

Asian markets fell. The Hang Seng index in Hong Kong declined 4.8 percent and South Korea’s key market gauge, the Kospi, dropped 4.7 percent. The Nikkei 225 index in Japan and the Taiex in Taiwan both sagged 3.2 percent. [I dislike using percentages because it tends to downplay the harsher actual figures…which is why the media uses them.]

The market turmoil was touched off by Wednesday’s announcement from Dubai, one of the seven members of the United Arab Emirates, that it was asking banks to allow Dubai World to suspend its debt repayments for six months.

Dubai’s move — the global high-finance equivalent of a homeowner asking the bank to allow six months of skipped mortgage payments because of a shortage of cash — sowed fear of a contagion of instability that could roil markets that are only now allegedly recovering from the near cataclysm of the last year.

“This has sent shockwaves through the markets, even though the problems in Dubai have been known about for two years,” Emil Wolter, a Hong Kong-based strategist the Royal Bank of Scotland, said by phone from Paris.

“But it is not the trigger for a brand-new crisis. Yes, the magnitude of the situation is dramatic for Dubai. But Dubai is not America — and they hope a property crisis in Dubai will not cause the same global crisis as a property crisis in the States.”

Some market experts noted, for instance, that while banks that have lent money to Dubai World could suffer significant losses if the company were to default on all or part of its debt, worries about the sovereign debt of oil-rich Middle Eastern countries were unfounded.

Paul Schulte, head of multi-strategy research at Nomura in Hong Kong, commented in a note on Friday: “Dubai was a carbon copy of Thailand’s disastrous foray as an ‘international financial center’ in the 1990s. Happily, the U.A.E. has oil. Thailand did not.”

Like many Western consumers during the good times, Dubai gorged on debt and borrowed too much to finance a building boom that has gone bust in the downturn.

“Dubai was fairly much the worst example of over extension. It had the worst debt per capita in the world by far,” Christopher Davidson, an expert in Gulf politics at Durham University in Britain, said Thursday. “I would like to put it down as a really enormous white elephant that doesn’t have much in common with the regular economy of a regular state.”

Um, odd to see a Brit make such a point when the English are carrying more personal debt per capita than any other ‘advanced’ nation, so naturally we’re talking ‘apples and oranges’ here. Personal debt and national debt are two entirely different animals.

Which brings us to another disturbing topic I stumbled across in my reading today, the subject of ‘financial literacy’.

Most of you have no idea what money is or where it (allegedly) comes from and that fact alone is frankly very damn disturbing because it leads to the issue of why so many people are absolutely ignorant about such a fundamental fact of life…

Apparently there is some sort of ‘financial literacy’ project out there intended to raise the awareness of the average individual BUT the program has so far been a miserable failure with graduates remaining just as if not more clueless than when the program first started!

Which brings us to the issue that certain people have a vested interest in your remaining ignorant. Worse, these same people have stepped up to design (or at the very least ‘approve’) a curriculum that teaches you nothing.

Why, so you’ll continue to believe the lies they spread to cover their theft from the rest of us.

What’s the first lie good citizen? You should know this one, I talk about it often enough! The first lie has to do with how you get your hands on some of that delightful stuff we call money and it’s directly related to the ‘employer/employee’ contract.

Don’t get the wrong impression good citizen, there are a ton of other lies wedged in behind the fantasy that justifies someone stealing what is naturally yours and charging you to buy it back.

It’s descriptions like this that the self-described ‘lucky’ (or worse, self-made) among us don’t want to have to defend. They want you to believe it is a ‘done deal’ it happened a long time ago and perhaps the biggest lie, that it’s too late to alter it now.

Sadly good citizen, even if we have been ‘doing it this way for time out of mind’ that alone doesn’t make it ‘right’.

In fact, you have a ‘right’ to far better treatment than you have, er, ‘enjoyed’ to date. The ‘stick’ of being able to decide who works and who doesn’t must be removed from the hands of the unappreciative and worse, ignorant.

So good citizen, do you ‘know’ what money is or are you a member of the ‘ignorant majority and only think you know?

Thanks for letting me inside your head


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