Unless you've been living under a rock you should be well aware of the Dubai led sell off today in the world markets. Government owned firm Dubai World with $59 Billion in liabilities wants to delay payment of some of it's upcomming obligations, so, it's not a default but it certaintly indicates financial strain. First of all $59Billion isn't large on the grand scheme of things and there is apparently $100 Billion in assets supporting this debt although truth be told, I have no idea if the true market value of those assets is $100 Billion. Second of all there's already mention of a bailout from current stakeholders Abu Dhabi in particular.
The more important issue here is cockaroach theory fears i.e. when you spot 1 cockaroach it means you'll likely spot more. Contagions tend to occur every so often in emerging markets and tremors have already been felt in neighboring Arab countires as credit default swaps rates have spiked there as well. Will there be a full blown contagion? I don't think so. Contangions usually occur when there's complacency after a roaring bull market has been in effect for some time. We already went through hell and right now the world is nowhere near complacent. The world is at best cautiously optimistic constantly looking over the shoulder for the "double dip".
Now, I'm sure you can probably find a lot of smart people out there who can make a good case that the problems in Dubai are the just the begining and are serious and I'll be the first to admit that I'm no expert in credit markets and in this situation here, but what I do know is that in youthful bull markets, problems like this tend to find a way to resolve themselves. I'll definately try to keep an open mind about this and investigate this issue further but my gut says that in a month or 2 this Dubai "crisis" will be long forgoten.
The bears that dominate the Yahoo message boards are in a frenzy over this Dubai news. Once again they continue to show euphoria on just any kind of small pullback. It's quite comical. If history repeates yet again for the hundreth time, it won't be long before the market makes new 52 week highs. The euphoric behavior of the bears on small pullbacks shows that the've taken a huge beating these past several months but haven't capitulated. It shows how much in denial they are, how desperate they are to make back some of their losses and how badly damaged their egos are.
It will be interesting to see how this plays out. I was expecting a pullback to 1070 on the SPX a couple weeks ago....mabey this Dubai news will get us there but then again, this market has never made it easy for the bears and it might be too easy for us to go straight to 1070 on this news.
My best guess for tommorow is that there will be a rally attempt after the initial gap down. Whether it holds is another issue. It should be an interesting day to say the least....
http://www.marketwatch.com/story/contrarians-give-thanks-to-widespread-skepticism-2009-11-27
ReplyDeleteInteresting article from MW on basically what you have been saying
I have applied Benford's Law to market Indices, it fails.Impliying thereby that data across the world is false.
ReplyDeleteThere are signals that we may see a bottom in 10 days time before we make a failing attempt upwards.
Ya I saw that Dennis. I think the best way to know how this will play out is to watch how others react. For a couple of weeks now I've been noting the bearish implying behavior of traders which made the market vulnerable ST. If we now see see same traders run make a mad dash to the bomb shelter i.e. a big spike in the VIX and put/call ratio (which is what I expect) then I believe this will just end up being yet another pullback and probably sets up for the one of the biggest bear traps of all time as Prechter and his drones go all in short.
ReplyDeleteBut if I notice too many people thinking like me, then I'll maintain my ST bearishness.
It looks like the open is going to be quite ugly...
Oh my, we haven't this sort of drop in about 8 months. If this is a real bull run the market should be able to absorb this sort of news I think. SPY has to break 103.50 for me to get real bearish.
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