Dow hits 14-month high on data, dollar & Dubai

[GoFlyKiteNow]

Dow hits 14-month high on data, dollar & Dubai
2 Dec 2009, 0331 hrs , REUTERS


NEW YORK: The Dow Jones industrial average climbed to its highest close in 14 months on Tuesday as a weak dollar boosted natural resource
NYSE companies' shares and economic data reinforced hopes for a sustainable recovery.

Sentiment also got a lift as concerns receded about the impact of Dubai's debt trouble after news that Dubai World planned to restructure about $26 billion in debt.

The dollar's decline bolstered shares of commodity-oriented companies like U.S. Steel Corp, up 1.2 percent at $45.18; Alcoa Inc, up 2.2 percent at $12.80, and Newmont Mining Corp, up 3.8 percent at $55.66.

Data showed pending sales of previously owned U.S. homes rose more than expected to their highest level in 3-1/2 years in October. The Dow Jones home construction index gained 1.3 percent.

"People are starting to realize that things are coming back. There are some pockets of weakness, but overall, we're healing globally, and the overall trend is very positive," said Thomas Belesis, chief executive officer at John Thomas Financial in New York.

Concerns over a possible debt default by Dubai World triggered a sell-off in stocks globally on Friday.

"Friday's fears about Dubai were overblown ... Investors know the situation is out there, but they're putting that aside," Belesis said.

 

[longbow]

Dubious Dubai and its scumbag emir is trying to weasel out of its obligations.

They are now trying to get out of the Dubai World debt.

 

[longbow]

Dubai cast adrift as credibility crumbles
By Andrew England in Abu Dhabi and Simeon Kerr in Dubai, FT.com
STORY HIGHLIGHTS
Dubai, a city state built with long-term plans financed by short-term debt, cuts off crucial lifeline
Analysts say that in the current climate it will be all but impossible for Dubai to tap fresh loans
That leaves Dubai with minimal options as it seeks to generate cash
(FT) -- Whether knowingly or not, Dubai, a city state built with grandiose long-term plans financed by piles of short-term debt, has cut off a crucial lifeline that may have helped it navigate the storm that threatens to engulf it.

One of the immediate consequences of the emirate's decision to seek a standstill agreement with Dubai World's creditors, after weeks of officials talking up the prospects of their meeting their obligations, is to curtail its ability to raise financing through capital markets.

Analysts say that in the current climate it will be all but impossible for Dubai to issue bonds and tap fresh loans because of the damage to its credibility. That means its ability to refinance debts -- estimated to be at least $80bn -- will be severely hampered.

Many investors are looking to Abu Dhabi as the lender of last resort, whether bilaterally or under the cover of the United Arab Emirates' federal government. But there has been no word from the UAE capital, while the only federal statement has been that the central bank, which is backed by Abu Dhabi, will support local banks and set up a liquidity facility for those in need.

That leaves Dubai with minimal options as it seeks to generate cash.

The emirate has a number of respected businesses, such as DP World, the ports company, Dewa, the utility company, and Emirates, the airline, as well as an unrivalled regional position as a tourist, trade and finance hub. But unlike its wealthy neighbors it has meager oil resources.

Dubai's nominal GDP grew to Dh301.6bn ($82bn, &euro55bn, £50bn) in 2008, with mining, oil and gas contributing just Dh6.37bn, while wholesale, retail trade and repairing accounted for Dh116.3bn and real estate and business services Dh44.4bn, according to the prospectus for a bond that successfully raised $1.93bn in October.

Dubai's revenue has been largely dependent on government-related entities such as Dubai World, many of which are now struggling, plus tourism and some customs and administration fees and road tolls. If the economic environment had improved, the companies' revenues would have increased and they would have been able to roll over their debt, Farouk Soussa, an analyst at Standard & Poor's, said.

"But now the one thing that has fallen from the equation is the improving capital market situation because of the credibility blow Dubai has received," he said. "It's likely to be very difficult for any company based in Dubai to approach markets for some time to come."

Part of the emirate's success has been its tax-free status, but that leaves it unable to raise taxes to meet revenue shortfalls.

One option would be to sell some of its assets, which stretch beyond the UAE's shores to encompass stakes in retail brands such as Barneys, a golf complex in South Africa, a holding in a ski resort near Aspen in the United States and the QE2 cruise liner.

However, obtaining decent valuations on the assets would be "a challenge ... as it is likely to be a buyers' market", said Sean Gardiner, an analyst at Morgan Stanley.

Dubai World says it has assets worth around $75bn, but bankers say a chunk of that is locked into hard-to-sell land, bringing the value down to about $50bn.

There has been speculation that Abu Dhabi entities have previously looked at acquiring stakes in some Dubai assets. However, relinquishing the jewels in their crown is thought to be too politically sensitive and difficult for Dubai's leaders to stomach.

Even if Dubai did manage to roll over its debts, that would still not generate the working capital needed to meet day-to-day obligations, whether paying contractors or completing developments.

"Dubai needs to find a source of new cash for the [government-related entities] so they can start operating as they were intended to," Mr Gardiner says. "One option must be to consider formally canceling some ... projects, not just saying they are on hold."

Other bankers suggested specialized funding to finance trade creditors and keep projects moving, or giving investors equity stakes in return for cash.

Most agree that much depends on Abu Dhabi. "The only [government-related entities] likely to find funding going forward are those that can show they have a viable business supporting them," says Philipp Lotter at Moody's. "There are not a lot of companies that can do that, because it is so speculative, it's so emerging, a lot of these companies are relying on materialization of future cash flows."

© The Financial Times Limited 2009

 

[GoFlyKiteNow]

Dubious Dubai and its scumbag emir is trying to weasel out of its obligations.

They are now trying to get out of the Dubai World debt.

Distress Over Dubai Is Overblown
Wall Street Journal
27 Nov 2009

People are clearly overreacting, and that’s creating a good opportunity to
buy. Here’s why:

1. Dubai World’s debt of $60 billion compares to Lehman’s exposure of more than $1 trillion when it collapsed.
When Fannie Mae (FNM) and Freddie Mac (FRE) were rescued, they were guaranteeing over $5 trillion in mortgages.
When American International Group Inc. (AIG) was rescued, it had over $200 billion in credit default swap exposure. Similarly, Citigroup Inc. (C) and Bank of America Corp. (BAC) had hundreds of billions in potential exposure.

Now, the U.S. stock market is higher than when all of those entities were
rescued. A $60 billion debt turning sour doesn’t (or shouldn’t) shock us
anymore, and the exposure of U.S. banks to this mess is minimal at best.

2. What in fact is the banking world’s exposure to Dubai? From a Goldman Sachs report on Dubai issued Thursday: “We estimate the potential credit losses to HSBC and STAN at US$611 million and US$177 million – or 4.6% and 3.9% of 2010E NPAT, 0.5% and 0.6% of 2010E equity.”
In other words, nothing.

3. Plenty can happen between now and Monday. Dubai could come to agreements with its creditors on the $10 billion, give or take, that is due in the next month. Abu Dhabi, which has already agreed to lend Dubai $5 billion, has over $650 billion in assets. Abu Dhabi will certainly negotiate agreements with the creditors and buy debt for 60 to 70 cents on the dollar, avoiding the default of its strategically placed neighbor. In return, Abu Dhabi will get massive political concessions from Dubai.

This morning many stocks are falling. But this is not a repeat of last year’s
financial crisis. Many opportunities for snapbacks will appear. I’m going to be keeping an eye, for the long side, on volatile stocks such as Citigroup; Apple Inc. (AAPL); Dendreon Corp. (DNDN); Google Inc. (GOOG); STEC Inc. (STEC), which I own; and heavily shorted stocks like Nutrisystem Inc. (NTRI), which should benefit from post-Thanksgiving dieters, and priceline.com Inc. (PCLN).

(James Altucher is a managing partner of Formula Capital, an alternative asset management firm, and an author on investment strategies.

http://blogs.wsj.com/financial-adviser/2009/11/27/distress-over-dubai-is-overblown/

 

[longbow]

The point is not that Abu Dhabi can bail Dubai out. The point is that the Dubai Emir is just a bunch of hot air running on borrowed money. The point is that this emir ran his state own company such that it cannot even afford to pay its own debt. You know how Dubai treats its workers when they are in debt - they are thrown in prison.

They call it sovereign wealth and emir is the sovereign so his words should mean something - apparently not. Abu Dhabi is helping because of potential spill over effect to their economy if Dubai sinks. Question is is abu dhabi helping bailing out their state own Dubai holdings? Or are they bailing out the banking system which ultimately affects their own banking system.

 

[kensington]

Why the conspiracy in not bailing Dubai out ? Another Jewish Conspiracy ?

Big Brother Abu Dhabi is willing to pick the choiciest cake from the buffet table and will tell the Al Makktomb that they are TOMBED and should put their pet horses through the grinder as pet foods.

This miniscule default is engineered by certain quarters there will be new entity called Abu Dubai. Hahahaa....

We are hearing but we are not listening...



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Feel for the underclass that lost their livelihood, though.
But as for the fatcats....There are so many ways to skin a cat and let them be more innovative...

 

[Whats4]

80% Chance Of A Stock Market Crash Within The Next Year
By Daily Reckoning on December 2, 2009 | More Posts By Daily Reckoning | Author's Website

Fund manager John Hussman has gone public with his prediction that there’s nearly an 80% chance of a second economic downturn over the next year.

In his Weekly Market Comment, he describes how…

“I should have assumed that Wall Street’s tendency toward reckless myopia - ingrained over the past decade - would return at the first sign of even temporary stability. The eagerness of investors to chase prevailing trends, and their unwillingness to concern themselves with predictable longer-term risks, drove a successive series of speculative advances and crashes during the past decade - the dot-com bubble, the tech bubble, the mortgage bubble, the private-equity bubble, and the commodities bubble. And here we are again.”

Hussman refers to the shortsightedness investors have shown in failing to learn from the build up and destruction of now several major asset bubbles. Despite his concerns, the majority of mainstream market prognosticators remain bullish, especially through the month of December.

Here’s more context on how he distinguishes his perspective:

“In my estimation, there is still close to an 80% probability (Bayes’ Rule) that a second market plunge and economic downturn will unfold during the coming year. This is not certainty, but the evidence that we’ve observed in the equity market, labor market, and credit markets to-date is simply much more consistent with the recent advance being a component of a more drawn-out and painful deleveraging cycle. Meanwhile, valuations are clearly unfavorable here, and even under the “typical post-war recovery” scenario, we are observing an increasing number of internal divergences and non-confirmations in market action.”

Hussman’s view recognizes that there’s going to be a period of creative destruction before we see the other side of this downturn, and that the transformation of the economy is likely to be difficult. You can read more details on the policy implications and market climate he perceives in his post on reckless myopia.

 

[Whats4]

Despite Its Relative Size, Dubai World Is Too Big To Fail. Here’s Why
By Andrew Mickey on December 2, 2009 | More Posts By Andrew Mickey | Author's Website

“U.S financial institutions could take direct hits,” warned a CNN headline after last week’s market rattling announcement from Dubai.

Like an eerie reminder of last November, when the only reasonable expectation you could have as the markets closed was that you would wake up to something unexpected, the markets opened up with a renewed sense of fear.

For investors who are willing to look past the day-to-day drama and look at the bigger picture, the Dubai debt issue is just another step on the current path. Because once you take a step back and look at what’s really going on, and the implications of a Dubai World meltdown, and how it’s all likely play out, you can see where this scare ends up. And from there you can see the big opportunity resulting from it all.

Ever-growing List of Too Big to Fail

Dubai World has real estate investments all over the world. As the investment arm of the Dubai government, it owns and operates shipping ports, dry docks, hotels, and built the man-made palm shaped island which epitomizes the debt-fueled opulence.

To fund the lavish and aggressive growth, Dubai World was a big borrower. Over the years it has accumulated $59 billion in debt (that used to be a lot, in an era before Fannie, Freddie, GM and most of the major banks were handed trillions of dollars).

Despite its relative size, Dubai World is too big to fail. Here’s why.

Dubai World owns a lot of commercial properties in the United States. One of its crown jewel properties, the Las Vegas CityCenter, an $8.5 billion joint venture with MGM Mirage (MGM: 11.15 +0.58 +5.49%), just opened today.

The CityCenter is the biggest venture yet in a city whose skyline is filled with big ideas and big risks. And, quite frankly, it couldn’t come on line at a worse time. Las Vegas resorts are still struggling from low occupancy and even lower gaming revenues.

Basically, there are no buyers who would even be able to scrounge up $4 billion - less than half the construction cost - to buy out the CityCenter. And given the state of the economy, few would even try.

That’s exactly problem.

Sticking with What “Works”

The CityCenter is a massive commercial real estate property and a forced liquidation of it could send the commercial property market plummeting to reality. That’s something no bank or government wants right now.

You see, the U.S. commercial property market is massive. The Fed estimates the total value of it at $6.5 trillion. About $3.3 trillion of that is backed by commercial loans and commercial property securities.

If you recall our coverage of the impact of a commercial real estate meltdown, commercial real estate debt has been a favorite of regional banks, pension funds, and insurers. They’re deep into commercial real estate debt and they will be the ones taking the hit if commercial real estate price collapsed. This would accelerate bank failures, unveil the pension Ponzi schemes, and would quickly short-circuit any recovery.

So a large commercial property foreclosure, debt writedown, and/or forced sale of a property like the CityCenter would have a snowball effect. The writedown would lead to more and more writedowns of other commercial property and cascade into another market crushing scare.

We’ve already witnessed what a few hundred billion dollars worth of writedowns do to banks’ balance sheets. Any decline in the commercial property market will just kick off a few hundred billion dollars more in writedowns.

Basically, the collapse of Dubai World would lead to something the Fed is going to do anything it can to prevent. And since it already believes the “unprecedented liquidity” it pumped into the market last fall worked, it’s surely going to keep on doing what it does best - print money over any problem.

The Inevitable Fallout and Opportunity

That’s where we come back to the most dominant theme in the markets for the next few years - inflation.

Yes, there are natural deflationary forces, but the Fed has proven it will stave off any deflation at all cost. And the Fed has already tipped its hand to its exit strategy from the current economic malaise.

The Fed, in conjunction with the U.S. government, is trying going to inflate its way out of the current mess at any cost.

The massive money printing will ensure prices stay high and go higher. Meanwhile, the debts stay the same size. They’re basically bailing out debtors at the price of savers.

Since they failed to rip the band aid off last fall, this is the only way they know how to do it. It’s no secret they want inflation. But the key thing is with announcements like Dubai World’s and the dozens of others which will come along every few months until the world’s debts are inflated away, the Fed and central banks around the world are going to keep the printing presses running on high.

That’s why it’s no surprise gold is at another new all-time high, real assets are headed higher before the “inflationary bailout” is over, and the coming inflation will be the dominant investing theme for years to come.

Protect yourself and your savings now.