For the record, I actually do NOT like it when markets fall apart, even when I anticipate it and am correctly positioned for it (2007 and 2008). It’s very upsetting to watch.
Every savvy investor I know has been expecting a mild to meaningful correction. So independent of its seriousness, the Dubai World frisson could take a bit of the air out of a market that was starting to look pretty bubbly.
Futures are now saying that the US will open nearly 3% down and even everyone’s new favorite store of value, gold, has taken a 2.5% hit. Treasuries have rallied. So many assumed that dollar is a one-way trade, to the degree that even a modest reversal could lead to a short-covering rally. This may not be the reversal of the dollar carry trade that Roubini has predicted, but if when we get real news out of Dubai (probably not till next week) it gives little relief, we might get a mini preview of the Big One. The timing of this is either world class inept or says something not pretty is indeed up. Why did they announce prior to a four-day religious holiday AND a major US holiday? Why would they think a move like this prior to a news black hole would be a plus?
I seem to have some very weird personal karma at work. I got my book deal March 1. The big rally kicks in almost immediately thereafter. While we had a lot of interesting (and frankly depressing) political shenanigans, and I felt bad about not being as on top of the markets and news as I normally am, it wasn’t as if there were world shaking market events to chronicle.
My page proofs have to go in on Saturday. After that, my only additional contact with the manuscript prior to publication is that I get two days to look at them right before Christmas to make sure the changes I indicated went in. So basically I am about to be free of the book.
And the markets obligingly stayed bullish virtually the entire time I was working on it. Go figure.
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this is not pretty. About $60B default. Asian market is down about 3-5%. Banks are running to dollar and dumping oil, gold (they need cash to pa bad loan)
basically, same thing as last year.
UK banks with dubai exposure probably will be under water.
(Israel, Iran, oil war. watch out.)
News flash: A rare albino elephant lay down and died in the desert sands today. Cause of death was put down to human folly and lack of water.
Local authorities remain adamant that it is just taking a nap and will shortly resume being white and large and useful (but for what it was never clear). The vultures seem to disagree.
Quick! Start another book!
Or inflate the page count.
Yves writes: “And the markets obligingly stayed bullish virtually the entire time I was working on it. Go figure. ”
Ahhhh…so does this work in reverse too?
I’m not an expert but from what i’ve read Abu Dhabi is there waiting, check in hand, for Dubai World to come asking. Abu Dhabi will ask for some big political concessions in trade but the $$’s are taken care of. Is this one of those storm-in-a-teacup type things?
I just read the other blog post about Dubai World here on NC. I didn’t realize the pain was over CDS and not the debt itself.
It would be interesting to see the counterparty CDS exposure vs Dubai.
CDS volumes are back in action. The financial crisis is not over and debt either private or public does matter.
http://mgiannini.blogspot.com/2009/11/rich-countries-bond-defaults-or-debt.html
I don’t think you are being straightforward with us. If you “anticipated” and are “correctly positioned”, you are elated because it’s in your best interests. This too will pass. FYI, the markets are not “falling apart”. The Bears are excited and some stayed up almost all night, but this isn’t the Big One they have been dreaming about. The Bears were due a few days fo short trading, they’ve had their butts handed to them since March.
TBTF,
I was correctly positioned in 2007 and 2008 and trust me, I was almost nauseous on the days that were best for the portfolio I run (family money). Bottom line is we are all long the real economy, even if one has managed to offset that with one’s financial holdings.
I have no idea if I am even remotely well positioned now, since some traditional relationships have broken down and I’m also not certain (per comments re possible rescue) how serious this will prove to be.
“We are all long the real economy.” I love that line, and it is something many forget. I know not what tomorrow might bring, but my real businesses are most definitely long the real economy; so I try to keep some hedges in my financial holdings against the downside risks. I wish I had the brainpower to synthesize all the various factors that drive the financial markets. I do not. At the same time, the latest rally seems to be driving even greater dislocations in the real and financial economy than the previous rallies. I don’t know if the helicopter drops (through tubes directly into the vaults of the big “banks”) will propel financial assets ever higher or if there will be a slow descent or even a “Big One.” I suspect very few know (and I suspect those who are the most confident of “knowing” are probably the least likely to have analyzed the situation correctly, though certainly one of the sides will have the better result and claim they “knew” all along), but I remain pessimistic about our leadership and the direction of the wealth transfers in our society and their ultimate impact on the community I cherish. I hope I am wrong about this, because again as Yves said it best, we are all long the real economy.
It’s a nice quote, but not accurate. Our policymakers are not long the real economy, they are long the top of the food chain, which is sucking the life blood out of the real economy.
Yves,
Off the top of my head, historically, stock market rescue operations in the US over the last 100 years traditionally last about two years. This one should be good for about 18 months off the March 09 lows(imho). The Dubai World issue will probably get an extension out to May 2010 according to a GS missive.
I think that in the short run, two things need to happen for the stock market rally to extend. A resolution to the Dubai debt payments and a Yen and Swiss currency intervention. I think Dubai World is handling the PR well enough so far, which leads me to believe that “this too shall pass” in the days ahead.
From Firesign Theatre:
PORGY: Now, kids! Don’t get excited!
VOICE FROM CROWD: Who’s excited?
All this for chump change like $60 billion?
Islands of real estate built on sand in the ocean; artificial ski slopes in the world’s hottest, driest Saharan desert; the world’s tallest building, empty 5-star hotels shaped like great sailing ships proclaimed to be a world wonder—all built by virtual slave labor, stand as grand monuments to fools’ egos and hubris. Any postcard of Dubai is testament to perhaps the most gargantuan misallocation of resources in recent history (second only to the exurban interstate sprawldivisions of the US), courtesy of the vaunted brilliance of the “free” market.
It’s really nothing more than an extreme microcosm of America itself, ain’t it?
Just a pleasure palace which produces nothing, built upon cheap oil, slave labor (3rd world factories), and drawing down the prior accumulation.
But all of those are almost exhausted, and the party’s nearly over. It’ll be time to face the blizzard dawn with a terrible hangover.
Right off the bat, I can name two things in recent history that are even more “gargantuan misallocations of resources” than Dubai: the bailout of big finance (trillions compared to 0.06 trillion for Dubai) and also the military industrial complex (how many trillions since, lets say, the fall of the Berlin Wall; does anybody remember what Defense was supposedly about in the late 80s?) It’s all a sham. Also, in the case of Dubai, at least there will be something tangible left over when all is said and done.
Everything is under control. For what I understand the Bank of England (and may be the FED) placed an order for some extra paper and ink to office depot over night so any new euros/USD needed to support HSBC and others will be available.
Federal Reserve Ben Bernanke will soon be launching his helicopter fleets, full of freshly printed US Dollars over Wall Street to once again taxpayer bailout the investment banks from their failed Dubai loans and derivatives. Eventually every fiat currency in the world will be worth its intrinsic value which is the toilet paper the bills are printed on. Fiat currencies devalue at varying rates depending upon the printing press speeds established at the various Central Banks.
>> I don’t think you are being straightforward with us. If you “anticipated” and are “correctly positioned”, you are elated because it’s in your best interests.
You think Noah didn’t feel sorry the people left out in the storm and just high-fived the giraffes?
I might be making too much out of your one individual comment. But, it seems to me that some not-unpopular value/belief-systems drive compassion out of their adherents, so that talk of feeling/caring for one another is met with disbelief.
doug, i am pretty much with you on the exurban disgust, and dubai’s excess seems pretty damn stupid this morning, but the free market does not preclude fools or maintain that fools cannot spend their money any way they wish, only that they do not get to keep it.
vino, true, hence “free” is in quotes, because as we know, someone else always pays for the excesses of the royal sheikhs and plutocrats. The free market is a myth and always has been to some degree, though the kleptocracy we have now is probably closer to corporatism or fascism.
In the Independent/UK Johann Hari exposes the slavery beneath the glitter in “Dubai: A Morally Bankrupt Dictatorship Built by Slave Labor”
http://www.commondreams.org/view/2009/11/27-4
Yesterday someone posted a link to a much longer article by Hari. What a stinking neoliberal cesspool the place is!
http://www.independent.co.uk/opinion/commentators/johann-hari/the-dark-side-of-dubai-1664368.html
Marla Singer over at ZeroHedge had a fine takedown of this article. Johann Hari got it spectacularly wrong, in his usual style.
http://www.zerohedge.com/article/what-dubai-says-about-capitalism-not-much
“Neo-liberal” global finance capitalism is not without culpability. It’s that whole “non-tuisim” (re Buchanan the economist, not Buchanan the hack ideologue) quality of rational trade/exchange/commerce/debt which connects slavery in Dubai to capitalism. Marla does not dispute a single fact Hari cites; she objects to the editorial connection he makes ‘tween the facts and the economic system.
Why there should be any question of not just letting the moral cesspool default, have it fall into “Western” control, and thereby liberate the abused is beyond me. Cannot be any more expensive than a stupid war in Iraq, or Afghanistan… but I’ve never had a sense of practicality. There’s no money to be made with my foreign policy.
And one other beef: In view of the fact that ZeroHedge generates revenue, I hope the people behind Fight Club, and Brad and Helena etc. are getting a share for their being commercially exploited…
“Neo-liberal” global finance capitalism is not without culpability. It’s that whole “non-tuisim” (re Buchanan the economist, not Buchanan the hack ideologue) quality of rational trade/exchange/commerce/debt which connects slavery in Dubai to capitalism.
Of course, given that Dubai also attracted plenty of investment from the non-capitalist parts of the world (at least, those parts more non-capitalist than the U.S.), we could by the same logic tie its slavery to, say, European-style welfare socialism, or Asian state capitalism.
Why there should be any question of not just letting the moral cesspool default, have it fall into “Western” control, and thereby liberate the abused is beyond me. Cannot be any more expensive than a stupid war in Iraq, or Afghanistan… but I’ve never had a sense of practicality.
As a fierce laissez-faire zealot, I could not agree more. But I suspect this idea is beyond the pale for the arbiters of “serious policy proposals” who will brook no liquidation. If we let the fire rage in Dubai it could spread to our own house, and all that.
No worries Matey! Our tax dollars via the Plunge Protection Team will set everything right.
US markets are roaring back.
Clearly there is the expectation that the governments of Dubai, Abu Dhabi, and the various European countries will simply make the banks and investors whole at the expense of their respective taxpayers. Collectively, we’ve already socialized a couple of trillion in losses, what’s another $60 billion.
Rue, you are correct, a 4% correction virtually overnight came roaring back almost 3% by mid-morning. This is usually an indication that despite this latest crime scene, all is well with the world. Nothing to see here folks, just move along seems to be the message.
Is Dubai too big to fail? If so, does that mean we should bail THEM out too?
Lots of Irish people purchased apartments on the island of Ireland in Dubai.
Three weeks ago one such Irish investor went public stating he had lost over 400,000 euros in this scheme .He had tapped his pension plan and other savings and is now penniless.
Royal bank of Scotland which was nationalised by the UK government has lent over 2 billion dollars into Dubai since 2007.Lucky UK taxpayers …their marginal tax rates will rise like the Dubai Towers of Babel.
So if these $60 billion at risk did not melt down the world’s financial markets, how could the billions formerly at risk in uncollateralized AIG CDS have melted down the world’s financial markets?
Geopolitics …
Its a whole new game,
Margin calls replace guns,
It will never be the same,
Counterfeit money,
Swirls round the globe,
Its all such a challenge,
To the temporal lobe,
Cheney Dubai,
CIA,
Derivative candy,
A new flavor every day,
Bad for your teeth,
Your sovereign nation too,
It will turn your country,
Into a fucking zoo,
Clean the cages,
Once a day,
Hit those prayer mats,
Its time to pray …
Deception is the strongest political force on the planet.
Our elites are so incompetent. I can see the headline now…
In classic mixup, Fed helicopters drop billions on Iranian nuclear sites as US Airforce accidentally takes out world’s tallest building.
“Every savvy investor I know has been expecting a mild to meaningful correction.”
They’ve been wrong for months, too. And nobody agrees upon what will happen when the tape finally turns. Consensus seems to be that no further crash is forthcoming, but I have to imagine that, given the desperate shape of consumers, businesses and regimes around the world, the odds of a polite decline are not good. Assets must keep rising because a downward trend, even for a short period, would result in a vicious cycle of failures in currencies and (particularly overseas) financials. I believe it is a very bad sign that, with the markets rising (or being risen) as much as they have, this situation has still blossomed in Dubai. What of Greece, Hungary, etc.? I’ve been looking for an up-dollar, down-equities, commodities AND gold situation, and today is playing out that way. A preview of the paradigm to come, perhaps. The prospects for yellow stuff, and really any store of wealth, do not look good to me in an environment in which capital is being consumed from one end, and lost to default on the other. I believe the situation is more desperate than people largely realize, and that certain trends – vis a vis the dollar, commodities, China – are setting themselves up for a harsh reversal.
Best not to underestimate either 1) the very dry conditions of a world filled with matches or 2) the global nature of the coalition of those with a vested interest in putting out fires. With pressures this intense, extreme volatility is a very real possibility, and one to be prepared for, whichever direction the future takes.
And there’s nothing at all wrong with betting on, hoping for and being happy when markets fail — if you believe that their failure will lay the groundwork for a better future. Similarly, there is no virtue in acting to preserve a corrupt and undesirable status quo. We simply need to remember that humans will suffer no matter what happens, that people, like theories, are never “right” (they only await disproval), and that the chief difference between good and bad ideas, and good and bad people, is humility.
Brilliant. My hat is tipped to you.
Air China, China Eastern COSCO defaulted on large derivative contracts. These are China state owned enterprises and the defaulted amounts are said to have been in the billions. Oddly enough, the world’s financial markets did not come crumbling down. Nor are they crumbling down after the Dubai soft default. Nor would they have crumbled if US taxpayers did not back up the AIG derivative contracts.
‘Been looking for ‘events’ to emanate from Japan, Eastern Europe or even China, etc., then along comes Dubai. I’m still skeptical that this is the beginning of the end, humans are very creative at patching the boat, skillfully (sic) rowing the high seas for another league; yet Rome was not destroyed in a day.
That thought comes the mind (as coincidentally I’ve just been reading about Rome in early Britain), the breakup of Empire can be in large part attributed to the army’s inability to continually address pressure points on its borders, the shifting of armies to repel ‘barbarians’ motivated by ridding their selves of Latin domination or redistribution of wealth into their own pockets or pure desire to return ‘favors’. All too much, and the cumulative effect of continuing flash points slowly eroded the pillars of state, etc., etc. I’m not making this analogy to show how similar current world finance is to an military empire a millennium and a half removed, but while resources can be marshaled to prop sagging fortunes in 21st Century finance, this can not be done indefinitely. The barbarians, or debt in this case, will break through, again and again. We may see many instances of failure coupled with apparent success, before the whole corrupted edifice whithers from excess into history.
I might add to comments above, that I’d rather stop reading financial posts and get on with my own life (sorry Yves, et.al., finance doesn’t put the bread on the table), but with the current state of affairs, this topic is just too pervasive to ignore or at least have some idea what’s going on.
Gold down $13 today while cowrie shell market held steady.
It’s still not too late to get into that.
Contact yours truly on how best to position yourself in that market.
SHANGHAI, Nov 27 (Reuters) – China has signalled it may clamp down on asset prices to do its part in a battle several emerging countries are waging against capital inflows, potentially putting a lid on its booming stock and property markets early next year.
other news, maybe less conspicuous than dubai forced rollover but …
with the link -)
http://www.reuters.com/articlePrint?articleId=USSHA35298520091127
Yves, if I recall the napalm movie line you are quoting, the character then says, “It smells like victory.” If you are saying that you are victorious for “calling” this Dubai fiasco, then you really must check your intellectual integrity. Unlike the sycophants that normally post, I cannot sit by and watch you do a “victory” lap after calling market tops in various asset classes (equities, corp credit, sovereign cds, gold, etc) multiple standard deviations ago. Look at the themes in almost all posts… the anger at risk-on trades is a great indicator in itself. When you root for markets to go UP, I will short.
I love your site but must question your reflexive honesty.
jm,
You are reading way too much into that headline. You might also recall that the character delighted in combat, something I don’t identify with. The headline was an effort at parody as in “you probably assume I an an uber bear and am happy that the markets are having a really bad day” which they were as of when the post went up. I addressed that in the first para.
I in fact go to considerable lengths to avoid making market calls. I did say all the way through the oil bubble of last year that the rise looked to have a speculative component. The only market call I have ever made on the blog was considerably before any one was reading me, here: http://www.nakedcapitalism.com/2007/07/has-credit-contraction-finally-begun.html
Fair answer. Perhaps it is easy to mistake your posters’ views for yours.
Sincerely,
JM- someone who does not always agree but respects and reads your website regularly.
I was correct about the downturn coming as was Yves. I did not and do not post such matters online as personal vanity. So where will it go from here? I look at the macro, this is one big W event. The US banks are sitting on $800 B in reserves. Those will be released in January and will reinflate the entire economy by a bit, including the lost son called Main St.
The timing of the release of the reserves is almost all political. In the US, our mid-term elections (think key Senate financial oversight committees) is in the fall of 2010. The economy will look like it has started to recover. By 2011 however, the quadruple whammy of the Bush tax cuts expiring, additional federal, local and state tax increases, serious energy inflation will occur all simultaneously. While the US government will keep a smaller portion of these big reserves for the 2012 elections, but this money will not be near enough for Main Street to keep the incumbant party in power. Here is some trends from 1850 that correlate to Depressions and wild political swings. Here in the USA, the Republican party was born around (note I didn’t say EXACT date) the time these charts trend back to, 1850. Voter revolution is the key operating words:
http://ragingdebate.com/uploads/image/Party_Retention.gif
http://ragingdebate.com/uploads/image/Party_Retention_Rates.gif
http://ragingdebate.com/uploads/image/Seats.gif
That the entire political system in the USA will be near collapse and the citizenship will be in chaos by the fall of 2012 will probably be OK to the Kingmakers. They will be long gone from the USA before 2013 with steaming trunks of wealth, already invested in fungible investments spread out around the world.
That is when we all should be VERY concerned about a Middle East conflict. The attack will be initiated by Islamic nations and coordinated loosely by Russia, whom is consolidating world oil resources while we speak.
Here is my Fall of 2008 “W” article. Rhoubini wasn’t sure if our economy/recovery would be U or W shaped, I insisted it would be W shaped. This article will help you trade if you choose to some degree, but I am no daytrader.
I exited the stock market in March of this year. Now, my only real store of value is in intellectual I.T. property. Much harder for governments to steal in the time of raw resource scarcity:
Article: http://theburningplatform.com/groups/deflation-hyperinflation-debate/discussions/the-depression-will-be-a-w-shaped-formation—suggested-strategy
“That is when we all should be VERY concerned about a Middle East conflict. The attack will be initiated by Islamic nations and coordinated loosely by Russia, whom is consolidating world oil resources while we speak. ”
This geopolitical insight undermines the whole post…
Jason,
I may be reading you incorrectly, but your “self congratulatory” comment suggests you think I made (on behalf of others) a bundle. That is not the case. In general, based on an admittedly skewed sample of retail investors, is that there is not enough concern with preservation of capital. Most assume WAAY too much risk, WAAY too much stock market exposure, and that in turn is encouraged by orthodox theory, which grossly understates the risk of market. Being diversified by asset class is hugely important (it is an imperfect risk hedge, but better than the alternatives) and there seems to be perilous little of that.
Personally, I do love the smell of napalm in the morning. As I went to bed last night, precious metals started tanking, so this Black Friday afternoon I visited my favorite precious metals dealer, bought a few silver “bricks” at $17.80 an ounce, and went to have lunch with a friend at a fancy place on Michigan Ave. By the time I finished eating, silver bounced back to $18.25, thus making my meal completely free. Not bad, huh?!
Oh, one more thing. After that I went straight home, completely bypassing the Black Friday retail frenzy going on around me, with the intention to do my meager shopping on January 3rd, at 90% “going out of business” discounts. Now, that’s what Sigmund Freud called “delayed gratification,” and I call waiting for the napalm to burn out…
Vinny
Unlike Mr ‘Naked Capitalism’, I Do want the markets to crash- Badly. I’ve witnessed this Market continually go up over 8 months based on fiction and fantasy; every negative piece of information about the economy- trade, unemployment, debt- is brushed off or spun positive by the corporate media so the investors will continue to invest. And its all based on lies…. A Depression is actually a very good thing.. Take the Great Depression of 1929- for argument sake, let’s say Hoover was able to fix the financial problems of his day and by 1930, all was well again, we wouldn’t currently have social security, medicare, welfare, unemployment benefits, and many other social programs which millions upon millions of people depend upon to survive. Real reform only comes through economic turmoil- and as long as the government and financial sectors can keep propping this economy up, they will continue ignoring the needs and suffering of its citizenry… So the sooner the Markets crash hard, the better.
Ditto!
Vinny
Yves, really check the the nit-noid editorial work on your proofs. The last few years I have seen a real decline in the work of publishers in this area (is relying to much on spell check?) and some real howlers on facts and dates that can really hurt an author’s credibility (see Sir John Keegan’s disaster of a American Civil War History that he just published). Barry Ritholz’s otherwise exemplary book had a few of these (he called the 82d Airborne the 86th Airborne in the book.)
You said a mouthful there, rickstersherpa. It has been (and still is) quite a battle.
There is an interesting angle here that isn’t being widely reported in the media, at least not yet.
These “bonds” are actually Sukuks, which are a type of Islamic Finance intended to get around the Islamic law that forbids the charging of interest on debt. They’ve only existed for around 7 years. It’s actually not a bond at all. They create an SPV for the issuing entity that owns all of its assets, the sukuks represent what appears to be an equity interest in the SPV backed by the underlying assets, and the payments are not “interest” but rather “rent” for the use of the assets. No idea what the courts will make of this in the event of a default.
Given that Halliburton, one of our great warfare-welfare Queens, moved to Dubai in order to avoid paying its fair share in taxes, and given that our war profiteers are in thick with our banksters, look to see Bailout Ben fly his helicopter over to Dubai to drop a load of greenbacks onto this playground for the rich and famous built on the backs of slave labor.
http://gregmankiw.blogspot.com/2007/09/helicopter-ben.html
Yes, neoliberalism, regardless of how ugly it is, never gives a solo act, but always appears with its ugly twin sister, neoconservatism.