Posted on 11/27/2009 11:01:59 AM PST by blam
Dubai Friday: The Black Swan Rears Its Ugly Head
by: TraderMark
November 27, 2009
So much for a sleepy Thanksgiving week Friday... a tiny Black Swan called Dubai reared its ugly head. There has been some hand wringing in the UK papers about the debt situation in Greece (all of which ignored by giddy US traders who only know one trade anymore: "US dollar down, buy anything"), so Dubai was a bit out of left field.
You might say Dubai what? Greece who? Small peanuts... but they key is contagion risk. In the late 90s a small economy (Thailand) caused a series of currency disasters which set the world on fire. Which ironically was the first real use of power by Alan Greenspan to flood the world with US dollars (outside Black Monday 1987)... a now knee jerk reaction to any crisis.
I know you laugh here saying "only $60 B!" - that's nothing! Heck that's 1/3rd of an AIG bailout, or 1/3rd of a Citigroup bailout. Heck we committed $13 Trillion of US treasure to backstop the global economy. [Mar 31, 2009: Financial Rescue Package Now Totals $12.8 Trillion] That's how numb we've become to the figures and how epic the use of government/central bank interventions have been in this era... when $60 billion makes many shrug their shoulders. How far we've "advanced" in a decade.
Anyhow, the solution is easy... just have Ben print $60B and hand it to Dubai for the "betterment of the world"... and if it affects any of our financial oligarchs just print more money to give to them as well. Problem solved.... after all US dollars are akin to toilet paper nowadays. In fact S&P futures should be up at least 10% because this insures an even more "extended period of" super low rates. What happened to the party everyone?
[snip]
and anybody who'd invest in that weird crap they were building was asking for a spectacular screwing.
Bush’s fault!/s
(Now, someone explain to me how this could have been his fault.)
Myopic pea brained idiots who don’t understand this is a GLOBAL economic crisis!
Sounds like Muzzie rulers want everybody else to adhere to sharia law and finance, but not themselves.
by: Ray
November 27, 2009
| The term “Black Swan” is used far too often in today’s discussions about the financial markets and it pertains to unforeseen events that cause havoc on the economy or the markets themselves. Last year was called a “Black Swan” event even though the warning signs were there for at least a year, some say since 2006. In today’s discussion the news coming out of Dubai is being hailed as another Black Swan event as they are talking about delaying payment on some of their debt on December 14.
The events in Dubai are the furthest thing from a Black Swan event as we have all known about this problem for the better part of 6 months or more. The country is in poor financial shape and is, basically, insolvent without a bailout from its neighbor Abu Dhabi. The rulers of the two nations are related. I would be willing to bet that the bailout will come in some fashion, but only after an example is made of the smaller nation, but is this a Black Swan event? What is a more relevant question is will a technical default on Dubai’s debt be a trigger for something bigger?
I do not believe that the Dubai situation is a Black Swan event as it was a known situation for some time and those who lent the country money knew they were way over leveraged and lent that money at their own risk. Whether or not this default, if it actually happens, will lead to other events, a domino effect if you will, remains to be seen. Since the sub-prime situation led to a domino effect in the mortgage market, it is safe to assume there will be some fallout from a sovereign default somewhere along the way. Considering Mexico was downgraded to BBB and Vietnam raised interest rates and devalued its Dong by 5%, there are definitely tremblings in the FX markets that cannot be ignored.
[snip]
That’s Racist! /sarc
Notice they’ve changed today’s shopping day from Black Friday to the “Day after Thanksgiving Sale”
It wasn’t a black swan, it was a swan of color.
The Telegraph (UK)
By Jeremy Warner Economics
Last updated: November 27th, 2009
Watch out. This may be just the beginning. In the scale of things, the debt problems of Dubai are little more than a flea bite. Dubai’s sovereign debts total “just” $80bn, which counts for nothing against the trillions being raised by advanced economies to plug fiscal deficits.
Dubai has been a one-way ticket of economic expansion until recently
Small wonder, though, that this minor tremor has sent such shock waves around the wider capital markets. The fear is that threatened default in this tiny desert kingdom is just a harginger of things to come for government debt markets as a whole. According to new estimates by Moody’s, the credit rating agency, the total stock of sovereign debt worldwide will have risen by nearly 50 per cent between 2007 and 2010 to $15.3 trillion. The great bulk of this increase comes not from irrelevant little states like Dubai, but from the big advanced economies – America, Europe, and Japan.
Perversely, they are for the time being beneficiaries of the “flight to safety” that trouble in Dubai has sparked. Government bond yields in the major advanced economies have fallen in response to the crisis in the Gulf. If experience of the banking crisis, when investors removed their money from one bank only to find that the one they had put it into looked just as dodgy, is anything to go by, this effect will not last.
[snip]
Thailand?
I heard an analyst say this AM that this was NOT just a delay. He suggested that in 6 months they would in fact default.
Given the inflation rate we may see, that target oil price may not be too far off.
it’s not a “black swan” when anybody paying attention could see it coming.
Thank you for the post and link to the theory page.
here are the individual loans made to Dubai World and US exposure (detailed)
H/T Zero hedge
http://www.zerohedge.com/article/quantifying-external-uae-and-dubai-loss-exposure
That can't be good. Ever.
Prepare to see one of the biggest one-day drops in the market next week.
Plus, being a Muslim country (albeit less radical) that restricts the high rollers ability to party and spend, not to mention potential ME unrest, war, and take-over. Gee, wish I could have seen this coming. Oh, right, I did.
Forget isolated insolvency. Ignore the talking heads on CNBC. Forget everything you've ever known about the stock market paradigm...it no longer makes since. Stocks go up, gold goes up - never used to work that way. Just concentrate on where the growth and wealth is taking place.
It's taking place in what is called, "emerging markets" (Dubai was never included because it catered to the ultra-rich). Yes, the term is now overused, but remember why it was first coined. Because countries like Brazil, Russian, India, and China (BRIC) is growing a middle to upper consumer class on a daily basis.
I personally won't invest in Russia due to their limited exports and domestic production (oil&weaponry), politics, and old world mentality. The BRIC index should be changed to BICC (Brazil, India, China, Chile)...or other.
What do consumers do?...they buy stuff. And what are those BRIC countries doing?...producing stuff to sell to their own consumers, much like the US used to do. Yes, they sell internationally also as we once did, but they are looking internally for new consumers so as to protect their OWN economic prosperity.
Call me a protectionist if you like, but the lack of nationalism is why Europe is stagnant and dying and the US is heading in the same direction (think unions and socialist welfare policies). Economics 101. Never took the class...but did stay at a Motel 6. What say you about my thesis?
Dubai’s GDP being in the order of $40 billion, and oil and natural gas only contributing less than 6% to that (so says Wikipedia), oil prices would need to be much, much higher than $150/barrel to even make a dent in that debt...
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