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Freaky Friday Potpourri: Dubai or Do Sell?


Watch the dollar and the financials; they will tell the tale as we set our sail.


"When Black Friday comes, I'm gonna dig myself a hole. Gonna lay down in it 'til I satisfy my soul." -- Steely Dan

When I powered up my turret this past Wednesday, certain headlines jumped out and bit me. My first post on the Buzz & Banter featured the following vibes:

As the world turns indeed! Dubai World, the government-owned holding company, is seeking a "standstill" on almost $60 billion worth of debt (that can't be good), Russia is buying Canadian dollars (Loonie, eh?) and India is rumored to be eying even more yellow metal.

The biggest story in my crowded keppe, as discussed throughout the day, was the Dubai Debt disclosure. It wasn't a function of size-- let's face it, $60 billion ain't what it used to be -- but dominos laced with dynamite aligned in my mind despite the muted reaction by the stubbornly sticky tape.

The painful progression looks something like this:

  • Dubai defaults.

  • European banks (such as HSBC (HBC) and Royal Bank of Scotland Group (RBS)) are counter-party on much of that risk.

  • The virus spreads through the fragile region (debt insurance has now spiked in Bahrain, Qatar, Turkey, Russian, Ireland and in particular, Greece).

  • The strain migrates to stateside financial institutions, as you would expect with $500 trillion in derivatives tying the world together.

  • We see a "flight to quality" with a sustained rally in the US dollar.

  • Given the correlation of "carry trade" strategies -- not to mention the uniformity in both opinions and positioning for a year-end melt-up -- simultaneous unwinds of those bets create the proverbial "bottleneck" as asset class investors attempt to exit the off-ramp at the same exact time.

  • Santa has a grumpy Christmas

Last night, a well-known money manager interrupted his Thanksgiving feast and asked for my thoughts, saying "You were the only one to ring the alarm a decade ago on Russia; what do you think now?"

I told him the conditional elements of contagion are in place, particularly given that the prevailing view that there is systemic insurance backed by the full faith and credit of the United States of America. I've long offered that a crisis in confidence could be the next manifestation of our cumulative imbalances but it remains to be seen if Dubai will trigger the trip.

There are several scenarios that could unfold:

  1. It'll be a very thin post-holiday shortened session and it won't take much to push the tape around. Given how proactive the US government has been -- and don't kid yourself, they're in the market -- the powers that be know how important a firm close would be for the all-important weekend psychology.

  2. The "nobody is bigger than the market" scenario emerges, debunking conventional wisdom that the tape will be protected at any and all cost. Before the first phase of the crisis last year, we used the analogy that the government invented fingers to plug leaks as they sprung from the financial dike. We've now got water works all over the world; digits will be very much in demand.

IF (big IF) they can take 'em down and keep 'em down, we'll hear Black Monday chatter all over the place. Whether that's today's business does little to change the somber reality that the credit cancer is bigger than the global economic patient. How that manifests -- or how long it lay dormant and lurking -- remains the only true matter of debate.

One more point with regard to Dubai. Does anyone wanna venture to guess what leverage that region has with the west? I'll give you a hint; it has nothing to do with debt or derivatives and everything to do with black, slippery fluid and political influence over how much of it is shipped.

(See also Overhyped Products: Dubai)

We'll take this journey one step at a time but before I hop over to the Buzz, I'll again remind Minyans that through a technical lens, the multi-year downtrend we've been eyeing for months -- and the 50% retracement of the entire decline from the 2007 top -- remains firmly overhead.

Coincidence? I think not; but it's interesting to note that it hasn't been mentioned in the mainstream media for quite some time as fund managers looked past resistance and towards year-end bonuses. The buyers are higher and the sellers are lower, consistent with the reactive and persistent mindset of 2009.

Watch the dollar and the financials; they will tell the tale as we set our sail.

One Answer I Really Wanna know...

Remember how "contained" was the word of choice for oh-so-long?

Remember that?

Janet Yellen, Ben Bernanke, Dick Fisher, Hank Paulson, Freddie Mishkin...

The housing slump? Contained.

Sub-prime? Contained.

Problems for the broader market? CONTAINED!

We do a few things well in the 'Ville and questioning conventional wisdom -- asking "why?" rather than just "what?" -- is at the top of the list.

Minyan Pete pinged me with the following, "Do you remember in 2007 and early 2008 how many times we heard the word contained? In reading the Fed minutes their talk of the dollar's orderly decline has me thinking: Is orderly the new contained?" Worthy food for thought...

Anecdotal societal acrimony on Aisle Five!

Each and every year, I scribe a Giving Thanks column as we're firmly in the Gratitude is Latitude camp in these parts. I'm truly thankful for, among other things, lessons learned, the wisdom of Bennet and the teachings of Ruby.

This gentleman, however, had a slightly different reflection on the MarketWatch message boards:

"When did the author lose his balls and become so effeminate. Oh yeah wait when he finished fleecing the hard working main-street out of their last penny and enjoyed the riches and all of a sudden finding enlightenment by experiencing profound acts of Zeus. Give me a break, should we all hold hands and sing Kumbaya too ? Obviously he has nothing to add but the propagation of his warm fuzzy good feelings. This is what happens to the rich when they all of the sudden become the morale compasses of the world and "being found, after they were lost", riiiight. Take a hint, you suck!"

Hey now! How's your day going? Responses like this are water off a duck's back-they come with the territory-but I share his views as proof positive of the societal anger and resentment. As "socioeconomic manifestation" is front and center on our radar, I wanted to share his sweet views. So you know, I quietly scribed a response to him and some others when I found some down time. It looked a bit like this:

I'm not here to tell you what to invest in, nor am I here to compare my life to yours. Each of us has to look in the mirror and like the person we see. For me, operating through the lens of "honesty, trust and respect" allows me to do that. It's easy to whine and complain and be part of the problem but entirely more difficult to take a stand and attempt to be part of the solution. I won't judge and I don't preach; I'm just a man doing the best he can to use the skill-sets acquired over the course of a career to help effect positive change through financial understanding.

You don't "know" me; you don't know the sacrifices I've made, the tireless efforts to warn folks of what was coming long before it arrived, the monies raised for children's education, the hours upon hours, days upon days, weeks upon weeks, months upon months and years upon years of writing, hoping to proactively prepare people for the very things that you write about above.

You stand there in judgment, saying I'm one of "them" because I'm an easy target, a guy who used to work on the Street and now writes for a living. I left the machine in 2003 and put my life savings into my dream with hopes of making a difference, long before leaving Wall Street was fashionable. If you want the hard truth, I could have walked away with multiple millions and never looked back; but I didn't. Despite seeing what was looming on the horizon, I turned and ran directly into the perfect storm, laid it all on the line and took my shot at doing something unique; doing something, dare I say, benevolent.

I've seen the trenches, sir.
My father was homeless for a decade, mentally ill and misdiagnosed. I work with inner-city children, as does my mother; people who hide from gunshots at night and pray for food each day. There are no ivory towers in Minyanville; if you took the time to educate yourself about what we do and how we do it, I would venture to guess that you would choose to be part of our growing community. And you know what? We would welcome you, with open arms, as that's what we do.

That choice is yours; freewill is the one thing nobody can ever take from us. Have a great Thanksgiving.


Random Thoughts on this MOST Freaky Friday:

  • I know a few folks who are bearish but not many that are short. That's a subtle -- yet incredibly important -- distinction.

  • "This issue will continue to make headlines well into 2010 given the size of the budget holes in the current fiscal year that continue to grow 6-8 months before the FY is even over. The 2 biggest states are at the forefront of the issue. There will be growing calls for Federal bailout help as state employees are heavily unionized and the educational system is the biggest budget item for states and school districts are under enormous pressure." Minyan MMM

  • Has Fannie Mae (FNM) finally found religion? The timing would be humorous if it weren't so sad. Where is Franklin Raines, anywhere?

  • Social mood and risk appetites shape financial markets.

  • T-Minus Seven Days!!!! The order of bands for Festivus will be The Dead, Beatles, Petty and the Rolling Bones. Just in case you were on the fence...come on in, it's for the kids!

  • After a hearty and wonderful Thanksgiving feast, I awoke in the middle of the night and consumed four large "bars" of rainbow cookies. I'm not sure why I'm actually sharing this other than I was absolutely shocked to find the evidence in the kitchen this morning.

  • I've met Marc Faber a few times and think he's a pretty sharp dude. I'll highlight his recent musings on where he believes the needle is pointing, not because it's consistent with what I've written but because all Minyans should have a contingency plan even if we hope to never need it, sorta like hoping you lose money on your hedge.

  • Where do cranberries go the other 364 days of the year?

  • We've recently noted that Grandma Goldman (GS) traded differently the last few weeks. Perhaps we now know why.

  • If you shorted every ultra-ETF and came back in a few years, would you bank big coin?

  • Is there a Moore's Law for business cycles? In other words, has technology condensed peaks and troughs in terms of time?

  • Have you joined Minyanville's fan page on Facebook?

  • The WSJ front page story earlier this week was "1 in 4 Borrowers Under Water," which includes mind boggling stats of the percentage of mortgages where the borrower owes more than the home is worth. Nevada? 65%. Zona? 48%. F-L-A? 45%. Yikes.

  • Professor Smita has great eyes. She also has a great nose. Her eyes and nose saw and sniffed a potential "lower high" in China, which should now be on every Minyan radar.

  • Financial media has a competitive advantage over traditional media in that it can tier content and price it accordingly. People won't pay more for a better recipe but they'll pay up for higher quality (or more time sensitive) content.

  • I'm running out of time and space, Minyans; I'm gonna hop over to the Buzz & Banter (if you aren't on the Buzz, take a free trial). Have a GREAT holiday session and remember that the definition of an investment should never be a trade gone awry.

  • May peace be with you.


Middle East investors are pouring billions of dollars into American businesses. Is the USA slowly on its way to becoming the United States of Arabia? Hoofy and Boo find out.

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