Monday, November 30, 2009

Skip, hop, stumble, splat...

Greetings good citizen,

After spending the majority of the day in negative territory, the ‘stupidity index’ limped into positive territory shortly before the close to finish the day at plus 34 points. Um, besides the US, only Mexico and China posted gains today, all of the other (major) markets closed lower.

Naturally, the Dow reaching positive territory altered the headline accompanying tonight’s offering it now reads how markets climbed, even if only a tiny amount.

Wall St Wanders as It Tries to Gauge Dubai Fallout

Published: November 30, 2009

Wall Street shares fluctuated on Monday as investors gauged the fallout from Dubai’s debt crisis and weighed results from the first weekend of holiday shopping.

The sales on the weekend after Thanksgiving provided a first snapshot of consumer spending for the holidays. Some 195 million people visited stores and shopped online over the weekend, up from 172 million last year, the National Retail Federation reported on Sunday. But total spending was virtually unchanged at $41.2 billion, and the average shopper spending fell to $343.31 a person, from $372.57 a year ago. [How about that good citizen, twenty million more shoppers this year than there were last year and they still only managed to spend the same amount of money as last year…I’m having a hard time counting that one as a ‘win’…]

As investors try to get a sense of the strength of the economic recovery, a report on business activity in the Midwest stirred some hopes. The Institute for Supply Management in Chicago recorded an unexpected pick-up in new orders in November, bringing the group’s business barometer to its highest level since August 2008. [How many of you will be surprised when these ‘unexpected orders’ turn out to be one time orders for military items?]

But traders on Monday seemed more focused on the situation in Dubai, where Dubai World, the emirate’s investment arm, said last week that it would not be able to make on-time payments for some of its $59 billion in debt. [But the Emirates have oil, the universal global currency. It’s hard not to view this as a contrived crisis…]

That rattled the markets Thursday and Friday, but on Sunday, the central bank in the United Arab Emirates tried to reassure investors by pledging to make extra financing available to all banks in the country, including foreign institutions with local branches.

Uri Landesman, head of global growth at ING, said investors saw danger in the potential ripple effects to other developing economies, even if American banks are not affected.

“What people are more concerned about are the other emerging market situations like this that could impact global banks,” he said. “This is still a very news-sensitive market.”

He called the retail numbers a “mixed bag,” but said there were signs of strength in consumer electronics sales.

On Wall Street, markets alternated between gains and losses on Monday. At midday, the Dow Jones industrial average and the broader Standard & Poor’s 500-stock index were down 0.2 percent. The Nasdaq was 0.5 percent lower.

The losses came as investors abandoned shares of retailers like Macy’s and JC Penney, which fell 6 percent and 4.7 percent. Shares of financial companies led gainers; Citigroup shares were up 0.8 percent, JPMorgan Chase was up 0.9 percent and Bank of America 1.2 percent higher. [Now there’s a ‘logical’ move (on the verge of another banking crisis) sell retail and buy banks! WTF!!!]

Stephen Lewis, head of research at Monument Securities in London, said Dubai was not big enough to set off a chain of lasting repercussions outside the Middle East of the same magnitude as the crisis in September 2008, when the failure of Lehman Brothers heightened worries about all financial institutions.

Mr. Lewis said Dubai World’s overreaching was likely to have dampening effects on Middle Eastern economies for some time, while the Islamic bond market, construction companies and European banks that have existing bad debt problems could all expect longer-term fallout.

Indeed, stocks in Dubai dropped Monday, although not as much as feared, as the market there reopened after a four-day holiday and traders got their first chance to catch up with the Dubai World news. [Okay, this is literally a ‘tempest in a teapot’ but in the greater scheme of things, it’s hard to see this as much more than a distraction.]

Dubai’s key stock market index was down 7.3 percent on Monday, while stocks in Abu Dhabi — Dubai’s neighbor to the southwest and another member of the emirates — tumbled 8.3 percent. Other indexes in that region were stable.

Shares in Dubai World plunged 15 percent.

But the cost of insuring corporate and government debt fell slightly in the United Arab Emirates, after surging late last week. It now costs $594,000 to insure $10 million of Dubai sovereign debt against default for five years, down from $647,000 on Friday. In Abu Dhabi, the cost fell to $147,000 from $176,000.

Beyond Dubai, European investors are also worried about the possibility of default from countries with the largest fiscal imbalances, like Greece and Ireland and, to a lesser extent, Britain. Low-rated corporate and sovereign bonds are being shunned by some investors.

European shares were down at the end of trading. In London, the FTSE 100 fell 1.1 percent, the CAC-40 in Paris was 1.1 percent lower, and the DAX in Frankfurt was down about 1.1 percent.

In Japan, the benchmark Nikkei 225 index climbed 2.9 percent, recouping some of the losses it suffered Friday, when global market jitters over the news from Dubai spread to Asia. The country’s three main banks all jumped: Sumitomo Mitsui Financial Group by 8.9 percent, Mitsubishi UFJ by 8.6 percent and Mizuho Financial by 9.5 percent.

In Hong Kong, the Hang Seng index rose 3.25 percent. Only Singapore dropped. The Straits Times index sagged more than a percent as the market, which was closed for a public holiday Friday, played catch-up with the broad declines at the end of last week.

On the foreign exchange markets, the euro gained, touching $1.5040 and the pound weakened as some investors worried that the potential damage that problems in the United Arab Emirates could have on Britain’s financial sector.

The yen — which usually gains in times of uncertainty, as it is seen as a safe haven — eased back slightly against the United States dollar and the euro, yet another signal that confidence was returning. By mid-morning in Europe, it traded at around 86.4 yen to the dollar, and 130.0 per euro.

“On the global scale, this episode will likely be remembered as a local or regional one and a buying opportunity for risk assets elsewhere,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong.

Bettina Wassener reported from Hong Kong.

I’m beginning to think they can’t put one of these stories in the pipe without quoting some obscure source that you’ve never heard of…(and will likely never hear from again.)

I wonder if this is ‘compensation’ for the period early in the crisis, when only certain pundits were quoted and how that gave the appearance of the media being myopic; although I can’t see how this change of tactics helps…

Leaving the news article behind, I encountered several disturbing reports today that made some of my more dire predictions look downright optimistic!

I admit it is difficult getting the timing right, but I’m still convinced that we are beyond the point of no return…life as we have come to know it won’t last much longer.

Where I differ from my gloomy peers is in the belief that the ‘muddle along’ phase will be short-lived. We will go from relative abundance to widespread scarcity virtually overnight. I also believe (save isolated, small-scale operations) that security will cease just as abruptly.

Once the supply lines breakdown, all bets are off…not in a couple of weeks but in a couple of minutes. Worse, the weak link here is right where you’d expect it to be…oil.

First they turn the money into confetti then we can’t get our hands on enough oil. (Because our money is no good.) Worse, we have nothing to trade for the oil except crowded, dangerous and therefore largely worthless ‘real estate’.

We do have some of the largest coal deposits on the planet…but they (the same jokers responsible for turning our currency into confetti) are doing their damnedest to render that asset worthless/too expensive to use.

Yes good citizen, it seems as though the ‘optimists’ among us can’t get beyond the idea that the leash will remain intact, regardless of how society suffers…I’m just not that sanguine.

Thanks for letting me inside your head as another Monday makes its way into the history books.


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