Monday, November 30, 2009

Dubai: looking backwards and forward

There seems to be a mixed reaction to Dubai news across global markets today.

Japanese shares closed higher on hopes that Dubai problems would not spread, while European shares closed lower Monday (likely due to fears over European banks' lending exposure to Dubai), and Dubai's benchmark index closed down 7.3 %.

Here in America, the major averages are still negative on the day, though the Dow and S&P 500 are climbing back towards neutral territory at 2:10 EST. As the NY Times points out, Wall Street is still trying to gauge the likely fallout from Dubai, along with the underlying meaning (if any) of post-Thanksgiving retail shopping figures.

"Wall Street shares fluctuated on Monday as investors gauged the fallout from Dubai’s debt crisis and weighed results from the first weekend of holiday shopping...


...But traders on Monday seemed more focused on the situation in Dubai, where Dubai World, the emirate’s investment arm, said last week that it would not be able to make on-time payments for some of its $59 billion in debt.

That rattled the markets Thursday and Friday, but on Sunday, the central bank in the United Arab Emirates tried to reassure investors by pledging to make extra financing available to all banks in the country, including foreign institutions with local branches.

Uri Landesman, head of global growth at ING, said investors saw danger in the potential ripple effects to other developing economies, even if American banks are not affected."

Judging (correctly) that the Dubai story would continue to be a big concern heading into this week, Gregor Macdonald and friends spent a fair amount of time on this topic in last Sunday's MacroTwits hour on Stocktwits TV. Here are a couple of interesting articles on Dubai that were shared in that macro discussion.

The first is a December 2008 Bloomberg article that I dug up from an old blog post. If you read through this year-old piece on Dubai's bursting real estate bubble, you'll notice many of the key names (Nakheel, Emaar Properties) and themes (a debt fueled building boom) which have figured so prominently in last week's Dubai World debt story.

The second is an article from The Independent shared by Gregor Macdonald called, "The Dark Side of Dubai". As those who kept up with the Dubai story this decade will probably guess, the piece focuses on the reportedly near slave-labor conditions that supported the rise of Dubai and the environmental and social problems which have accompanied it. It's a long piece, but definitely worth a look.

Friday, November 27, 2009

How Dubai is affecting global markets

Catching up with some news today. The main theme in my Twitter stream yesterday and into this morning has been Dubai.

Specifically, markets around the world have been moving on news of Dubai World's debt restructuring (possible delay of debt repayments) and what that could mean for Middle Eastern and emerging markets in a larger sense.

More from Financial Times, "Dubai sends markets into turmoil":

"
Stock markets around the world were convulsed yesterday as investors scrambled to understand the implications of Dubai World's restructuring and unexpected debt standstill.

The lack of information about Dubai's flagship government-owned holding company, made worse by a religious holiday in the Middle East, prompted indiscriminate selling of stocks linked to the region. The cost of insuring against default in emerging markets around the world also leapt...

With trading volumes low because of the Eid holiday and US Thanksgiving, investors moved into safer assets, pushing up prices of traditional havens such as government bonds...

Investors said that the lack of information about the debt standstill, announced on Wednesday, was the key factor sparking the wider turmoil. "

Adding to our earlier theme of sovereign debt default, Bloomberg notes that Dubai's debt problems may trigger a major sovereign default if the problems are not contained within the emirate's corporate sector.

"Dubai’s debt woes may worsen to become a “major sovereign default” that roils developing nations and cuts off capital flows to emerging markets, Bank of America Corp. said.

“One cannot rule out -- as a tail risk -- a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s,” Bank of America strategists Benoit Anne and Daniel Tenengauzer wrote in a report.

A default would lead to a “sudden stop of capital flows into emerging markets” and be a “major step back” in the recovery from the global financial crisis, they wrote..."

Of course, this seems to be analysts' worst-case scenario for debt markets and emerging markets, but it seems all eyes are currently on Abu Dhabi to determine if there will be some sort of bailout for its neighboring emirate, Dubai.

Related articles and posts:

1. Dubai Debacle (linkfest) - MarketNut.

2. Investors to leave Dubai for Abu Dhabi, Egypt - Reuters.

3. Mobius says Dubai may trigger mkt correction - Bloomberg.

Monday, November 23, 2009

Is sovereign debt the new subprime?

Will sovereign debt be the new subprime? This the question posed by Gillian Tett in today's FT:

"A few weeks ago, Claudio Borio, head of research at the Bank for International Settlements, warned in a solemn note to Group of 20 leaders that modern financial policymakers are "driving while just looking in the rear-view mirror": western finance officials have focused so much on past risks that they fail to spot new dangers.

Worse still, as policymakers rush to implement reforms in response to one financial calamity, they are apt to create distortions that pave the way for the next disaster. Just such an unintended consequence could now be festering in the banking sector, as its balance sheets are increasingly stuffed with government bonds.

These days, there is a near-unanimous belief among western regulators that one way to prevent a repeat of the 2007-08 crisis is to stop banks taking crazy risks with subprime mortgage bonds or complex instruments such as collateralised debt obligations (CDOs). Instead, banks are being urged to hold a higher proportion of their assets in the form of "safe" instruments, most notably sovereign or quasi-sovereign debt..."

Read on at the link above for Tett's explanation of why government bonds may prove to be more of a risky trap (a la subprime MBS) than a "risk-free" investment.

Speaking of subprime and the problems it hath wrought: if you want to take a quick jog down memory lane to the (relatively) innocent days of summer 2007, check out our post, "Asset backs, subprime: shades of 1990?".

You may also find some additional worthwhile reading on the subject of looming sovereign risk in our related articles section below.

Related articles and posts:

1. Sovereign risk and UK credit ratings - Finance Trends.

2. Sovereign bankruptcies will rise - Puru Saxena at FSO.

3. Marc Faber on sovereign risk (Bloomberg) - Finance Trends.

4. Jim Rogers agrees with Marc Faber (CNBC) - Fund My Mutual Fund.

Friday, November 20, 2009

John Paulson's new gold fund + lessons

It's been a big week for the cottage industry of John Paulson-watching.

The Paulson & Co. fund manager is set to launch a dedicated gold and gold mining equity-focused fund at the start of next year, in which he'll invest $250 million of his own money.

You may recall that Paulson's earlier forays into gold ignited a new rush into gold by hedge funds and investors piggybacking on the trades of sophisticated hedge fund managers. JP's new fund signals his continued positive outlook for the precious metals sector over the intermediate to long-term.

That's not all that's happening in the world of John Paulson. Investors have pored over his firm's recent 13-F filing and letter to investors, while his comments on Bank of America (Paulson & Co.'s largest position in the financials sector) have fueled publicity over a divergence of opinion with bank analyst Meredith Whitney on the stock's outlook.

Plus, there are gathering opinions on Gregory Zuckerman's new book, "The Greatest Trade Ever", which details the fund's (now legendary) short subprime CDS bet, and its role in pushing Paulson & Co. into the investment world limelight.

If that's not enough, you can also catch Zuckerman's recent Wall St. Journal piece adapted from that book, or check out Eric Jackson's fine article, "What John Paulson could teach us". This is one I'm currently reading, and it contains some great insights on the team (including Paolo Pellegrini) that put together Paulson & Co.'s housing trade strategy. Do take a look.

Related articles and posts:

1. John Paulson: The man who made too much - Portfolio.com.

2. John Paulson in Bloomberg Markets - Finance Trends.

Wednesday, November 18, 2009

Bruce Berkowitz 'Wealthtrack' interview

Value investor and Fairholme Fund founder, Bruce Berkowitz sits down for an interview with Consuelo Mack on 'Wealthtrack'.

Thanks to Prieur at Investment Postcards for highlighting this interview, which offers a nice glimpse into Berkowitz' value investing style.

Check out the clip to hear Bruce's rules on investing, his thoughts on Berkshire Hathaway, and why Warren Buffett may be making a "brilliant" investment with his Burlington Northern acquisition.

When you're done with that, you can peruse our related posts for much more with Bruce and the aforementioned Berkshire Hathaway value investing greats. Enjoy!

Related articles and posts:

1. Bruce Berkowitz talks with Steve Forbes - Forbes.

2. Lessons from Warren Buffett - Finance Trends.

3. Lessons from Charlie Munger - Finance Trends.

Tuesday, November 17, 2009

Hugh Hendry Eclectica fund letter (November '09)

John Mauldin highlights investor Hugh Hendry's November commentary in his latest "Outside the Box" column.

Hugh covers a lot of ground in this missive (I'm still trying to finish the letter as I write this), with comments on the great inflation-fueled rallies in commodities and stocks, the state of the global economy, the state of the Japanese, Chinese, and US economies, and more.

Here's the leadoff from Hendry's recent letter:

"This month I will attempt to answer the entrance examination for the Chinese civil service. That is to say, I will attempt to tell you everything that I know. In doing so, I will argue that this year's rally in inflationary assets, from emerging stock markets to industrial commodities to the fall in the US dollar, could be a FAKE. Let me explain why..."

Check
the link above to read on for more. You can also view the November Ecletica Fund letter here on Scribd. See our related posts section for more interviews with Hugh Hendry.

Related articles and posts:

1. Hugh Hendry interview with FT.com - Investment Postcards.

2. Stocks, gold, & a legacy of debt: Hendry - CNBC.

3. Hugh Hendry on banks & govt. intervention - Finance Trends.

Friday, November 13, 2009

Marc Faber BNN interview


Market strategist and investor, Marc Faber joins Canada's BNN from Vancouver to talk about the economy and his outlook for investment markets.

Marc begins by talking about the growing disconnect between the real economy and the stimulus-driven speculative activity in various asset classes (commodities, share markets) worldwide.

You'll also hear Marc's thoughts on employment trends, US manufacturing, inflation, Ben Bernanke's role in destroying the US dollar, gold and commodities, and much more. Enjoy the clip.

Wednesday, November 11, 2009

Market Shrinkology: poker & trading


If you missed last night's episode of Market Shrinkology (on Stocktwits TV) with Dr. Phil Pearlman, you missed a good one. That's why I'm posting it here for your archived enjoyment.

I've been recommending Phil's show lately to a few of my friends as I'm consistently impressed with the show's (and the channel's) no-frills, lo-fi, DIY approach. There are no fancy lights or makeup, no contrived set designs or teleprompters, just live web TV with a ton of interesting ideas and live feedback from the Stocktwits user stream.

As you'll see in this episode, poker and trading were actually secondary themes in a discussion on Prospect Theory, "rational aggression", and the relationship between fear and greed.

Still, there is some very interesting info here on position sizing and money management in poker and trading, with particular reference (from host and viewers) on the philosophies of poker player Doyle Brunson and trader Jesse Livermore. Plus, a few thoughts on the importance of keeping accurate and organzied trading records.

Enjoy the program, and check out Stocktwits TV for more shows done by traders, for traders.

Related articles and posts:

1. Poker investing: Jeff Yass of Susquehanna - Finance Trends.

2. Dasan on poker and investing - Finance Trends.

Monday, November 09, 2009

Trade war brewing for China & US?

You might have noticed some headlines over the weekend about protectionist back-and-forth between China and the US.

Specifically, the issue at hand centered on US tariffs imposed on Chinese steel goods and a resulting Chinese probe into US car imports. Of course, this is just the latest chapter in a growing list of Sino-US trade disputes.

However, Monday's news that a US trade panel has rejected an investigation into imports of Chinese steel fasteners may go some way to smoothing over latest tensions.

The timing of this trade debate is especially noteworthy as US President Barack Obama is scheduled to make his first trip to Asia next week, with stops in Beijing and Shanghai.

In the meantime, let's take a look at this post, "Is There a Trade War Between China and the US?", from Jim Gobetz (aka Aiki14) which examines trade practices between China and the US from both sides.

Sunday, November 08, 2009

Interview: John Perkins (Economic Hit Man)



Matt Davio at MissTrade interviews John Perkins, author of Hoodwinked and Confessions of an Economic Hit Man.

Some interesting ideas shared here on US foreign policy and the alleged role that economic consultants/"hit men" (as Perkins tags his former career) play in shaping the fates of many across the globe.

If you'd like to hear more about Perkins' life as an "Economic Hit Man", check out this Financial Sense Newshour interview from 2005 (soon after his famously titled book was released).

You may also want to check out some additional interviews from Davio's Trader Talk series. Discussions with traders Brian Shannon, Fari Hamzei, and Phil Pearlman are just a few that I have enjoyed.

Wednesday, November 04, 2009

Another Fed day, another dollar

Market chatter and action today has been (predictably) dominated by the spectacle of yet another Fed announcement day.

Today's shocker: rates are left unchanged near zero, with talk (from the high priests in media and central banking) of some kind of unfolding economic recovery (one supported by "stimulus" and accompanied by high unemployment rates for the next couple of years).

Actually, I spent very little time focusing on this subject today, aside from catching up with some amusing and informative tweets on the market impact from the likes of Howard Lindzon, Tradefast, and others in my Twitter stream.

Good to know there are people keeping up with some of this stuff (Fed's impact on yield curves, equities) when you need a quick refresher and a bit of insight from those in the know. This is one of the areas in which my Twitter community and favorite blog lists really stand out.

I'm also checking in with BMB's market wrap (hot off the Wordpress) for an overview of the day's action and a look at what may lie ahead for the stock market in the coming days.

What I'd really like to do is revisit this January 2009 piece from Bronte Capital, "Zero in Japan versus zero in America", and find some more recent material on the differences between ZIRP Japan and ZIRP US in the late 2000's. This is an area I could stand to learn more about, so look for updated notes in the comments section (or please add thoughts/links of your own).

To hell with the TV news, I will be searching the blogosphere and online print and journals for more on this.

Monday, November 02, 2009

Jim Rogers interview with FT.com

Over the weekend, FT reported that investor Jim Rogers expects a currency crisis in the next 1-2 years.

Rogers did not say which currency would be the focus of the crisis, but felt rather certain that such an event would occur due to global imbalances and the problems of the financial crisis being "papered over" rather than solved.

Jim also sat down with FT.com for a video interview on their "View From the Markets" series.

You can click the image or text link to hear Rogers discuss the US dollar, the next currency crisis, Chinese shares and the renminbi, and more with the FT. Enjoy the interview.