Thursday, November 26, 2009

Dubai Default

On our holiday the financial world took its first step back to reality as Dubai asked its lenders for forbearance on billions of dollars of debt. Dubai's recent building have been nothing short of incredible, if you aren't sure (oh shucks, even if you are sure) look at this . Well in the happy-happy land reflected in recent stock market movement, this has caused an enormous impact while we gorged ourselves on great homemade food (at least I did). The dollar rose as did the Yen as the Euro and Pound were, well pounded. This is the flight to safety that market bears warned about.

The Greek stock market was down 7 percent (another potential default risk), while most of the other European markets were down roughly 2 percent. But the full impact hasn't all been accounted for yet. The closure of the US market certainly cushioned the fall in equities and the shortened day in the US markets tomorrow (and low volume driven by the lack of market participants) may tamp down the impact tomorrow, but the long-term implications remain intact. The short dollar trade has been oversold (at least in the near-term). This fact, not sustainable increases in corporate earnings have driven the market to regain more than 60 percent of the market losses sustained. A return to the dollar as the safety currency may be exacerbated by a short squeeze of an overplayed trade.

The foregoing may (I believe likely) will cause an enormous impact on the value of US equities. I don't buy the case sold by current market bulls. Consumers account for approximately 2/3 of the US economy. Between job losses, credit cards and underwater mortgages, it absolutely amazes me that analysts claim that we're going to have a good holiday season. Be real, folks are strapped. Whether this event or subsequent events cause a return to rationality I don't know. But one thing for sure things are different than they have ever been in my lifetime and certainly the clowns in Washington (all of them), simply don't get it. Disappointing.

1 comment:

Anonymous said...

It is error.