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ON THE MARKET - DIGESTING THE DUBAI MARKET HIT
Dr. John L. Faessel
ON THE MARKET
Commentary and Insights
Dr.Faessel@onthemar.com
Monday - November 30, 2009
Category: Investment, Middle East Market
Quotes of the dayQuotes of the day: "Taxing the rich to fund poorly managed government programs is simply a self-destructive decision: It does nothing more than move money and investment decisions away from proven moneymakers (read: job producers) to Washington amateurs. In both cases, Americans lose." -- TJ Rodgers
DIGESTING THE DUBAI MARKET HIT
Last week the market got slugged by news that the Persian Gulf emirate Dubai was seeking a six-month reprieve on the near $60 billion debt of its corporate affiliate Dubai World. Certainly, $60 billion is a chunk but, let's put this in some kind of perspective; Dubai is not Abu Dhabi-often confused. Abu Dhabi’s sovereign wealth fund is the world's largest sovereign fund at about $650 billion. New UBS estimates of Dubai’s debt run higher than the $60 billion, but it's still a manageable amount in those parts of the Mideast where petrodollars pave the streets. Dubai of course, is the La-la-land of the planet's excesses with indoor beaches and skiing for the frolicking of the filthy rich. The good news is that The United Arab Emirates central bank said on Sunday that it would offer additional liquidity to banks, signaling a push by the federal government to reassure investors worried about the country’s banking sector and its exposure to Dubai’s huge debt. Dubai's GDP, which achieved an annual growth rate of 17.9% from 2000 to 2006, is expected to slow to 6% in 2009. Dubai has a GDP that is thought to be around $80 billion.
My handle on the situation is that it's a doable problem with most of the debt being shouldered by Emirates Bank's. I recall that Tiger Woods hit a golf ball off the top of the world's tallest building there. Interesting that Dubai and Tiger registered high "woe" levels last week. Such despair to fall from so high a perch. Oh my, oh my.
The Dow Jones industrial average was off 1.4% on Friday on very light volume in a short post holiday session. Notably the NASDAQ and the NYSE composite both slid below their 50-day moving averages early, but recovered to close above the key support.
Shorter term Sentiment measures perked higher late last week on the Dubai banking crisis, but overbought/oversold indicators are neutral.
Friday's McClellan Oscillator registered a minus in neutral 82 after Wednesday's plus and neutral 43. The CBOE Put / Call Exchange Volume Ratio has reversed off the low fear levels to be much more pensive 1.05. The CBOE Volatility Index (VIX) that had a low tick on Wednesday of 20.05 popped perceptibly higher to reach 25.75 on Friday and closed at 24.74. Technical indicators like Bollinger bands and stochastics are now both midway and basically neutral in their projected confines.
The S&P 500 (SPX) is still in a basic consolidation with the upper limits at resistance of 1110. Price support looks good at 1084. The 50-day moving average is at 1073. I like the upside possibilities today as Mondays have been usually an up day and the Dubai crisis seems to be waning
A few interesting tidbits to register:
- Yields on some money market funds are at an infinitesimal 0.01%.
- There's been an outflow of about $6 billion a week from money market funds since January 2009.
- Junk bonds on average are up 52.8% year to date.
- India's economic growth surged in Q3 at a much faster pace than expected, increasing the odds that the central bank will hike interest rates in January to head off a burst of inflation. GDP grew 7.9% from a year earlier in the July-September period, accelerating from a 6.1% expansion in the previous quarter and marking the fastest growth since the January-March quarter of 2008, the Central Statistical Organization said Monday.
- And - malls in the United States are now 20% vacant.
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