Sunday, November 29, 2009

Dubai crisis

Honestly, I don't understand why the Dubai crisis should effect any market anywhere. This country doesn't produce anything but oil. In fact, maybe if Dubai fell, Citibank, an American company, could come in an get some of the oil land as collateral and that would be a good thing for America.

Speaking of Citibank, since they own part of Dubai's debt, will Dubai be hit with their 29.9% penalty interest rate along with a $29 late payment fee?

The timing of the Dubai news was classic. Believe me when I tell you it is no coincidence that the announcement came during Thanksgiving afternoon when mostly everyone was involved in Thanksgiving festivities, except for us Twitter obsessed folks, and yes we need therapy! You can also bet, our government along with other governments were well aware of this development long before it was announced publicly. However, I have to give our government credit, it was a great job in management of the news release. If this news had hit during regular market hours, we would have seen a meltdown. Investors would have sold first and asked questions later. The baby would have been thrown out with the bath water (a smart move to make if you don't want to be left holding the bag -- you can always buy your stocks back).

Dubai is not a major contributor to the global markets. They have no economy, no exports except oil. Their main target is to become a major tourist attraction so when they do run out of oil, they aren't turned into a third world country. Their oil reserves are expected to run out in ten years. This is the reason there is this rush to turn the country into a major tourist attraction. Once the oil dries up, Dubai will struggle to avoid third world status.

"Many of the emirates have found that the development of a tourism industry is their best chance for diversification. Dubai, again, continues to be the leader in this field, punctuated by multibillion dollar projects such as the Burj al-Arab hotel, and offshore reclaimed land projects, including the Palm series and The World islands. It has also been the trailblazer in retail tourism, attracting millions of people for shopping festivals held several times throughout the year." --
The recent news is just blip on the radar screen. Banks with major interest in Dabai may suffer in the short term, but I doubt the UAE will allow any one of their countries to go insolvent at this time. I would be great embarrassment to them. However, if Citibank and other banks do to them like they have done to the American people by raising interest rates and penalties, we may see oil prices spike up so that Dubai can pay for these. So once again, the American people will be penalized again and have to pay for the excessive risks the banks have taken on by higher oil costs which is in essence just another tax!

Wednesday, November 4, 2009

Big Reversal Day on good news

Today's market action started out rather well. When the Federal Reserve announced today that they planned on keeping interest rate low for a long time to come, the market really took off. At some point, however; the music stopped playing and the market had a huge reversal.

The NASDAQ at one point was up 26 points and finished down 2 on a pickup in volume. The S&P and the DOW also reversed. They sold into the move, pretty harshly. This typically leads to more downside testing. Cisco is up in the aftermarket and that may help us today.

The news today was the fed. The same folks who said the economy was fine before the crash is now telling us inflation is fine and everything is in check. There is only one way to accommodate for inflation, interest rates will rise to levels we haven't seen in a while. Just like before when nobody thought house prices could drop 40%, we may see interest rates rise to levels nobody thinks is possible. Go study 78, 79, 80 and what interest rates did and why they occured. Bernanke needs to be watched and reconsidered. We will all pay the price a couple of years down the road.