LILA RAJIVA: The Mind-Body Politic
Individuals Not Ideologies
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Dan Denning On Dubai, Copenhagen, And The Stock Market
Dan Denning, author of “Bull Hunter” (Wiley, 2005), in the Daily Reckoning (Australia):
“The S&P 500 hit a 14-month high overnight. The conventional wisdom is that two news events are responsible. This is probably wrong. But let’s look at both events anyway and see what happened.
The first is that Abu Dhabi extended a $10 billion in financing to debt-distressed Dubai. Hossanah! Remember, Dubai is not Lehman. It’s Bear Stearns. It’s merely the reminder that there are lot of leveraged investors in the world who’ve used borrowed money to buy assets that aren’t very productive. They’ll get theirs soon enough.
The second bullish item is that ExxonMobil (NYSE:XOM) made a US$41 billion all stock bid for Houston-based natural gas company XTO. This sent Exxon shares down 4.4%. Thus the Dow’s rally was a bit tepid (XOM is a Dow component)……
Exxon is either getting a bigger foot in the U.S. natural gas market or hedging against cap-and-trade legislation, or both. We vote for both. No one is in a better position to know about the constraints on global oil production and discovery of new reserves than a major company like Exxon. And Exxon has seen firsthand that unconventional natural gas can be a lucrative little market.
But are those two bits of news really enough to send the market higher? Probably not. Who knows why the market goes higher? It does what it does. There’s an alternative explanation.
The alternative explanation is that the Copenhagen climate talks look like they’re collapsing into confusion and President Obama’s legislative agenda is in tatters. The private sector absolutely loves this…..
Good policy? Bad policy? Who knows? All we know is that the more uncertainty you introduce into the markets, the more conservative and defensive investors are going to get……
That’s not to say that a deal won’t come out of Copenhagen. Maybe the planet will be saved. Or maybe Copenhagen is the sell signal for global warming as a big idea/moral issue with which to bash the public. But either way, we reckon the stock market actually likes the idea that no climate deal is imminent and that healthcare legislation in the U.S. Senate can’t seem to get 60 votes.“
My Comment
Full disclosure: I worked for Agora two years ago. I receive no financial or other compensation ( trips, free food, passes to movies, restaurants, invites to exclusive seminars, commissions on real estate, insider deals etc. etc.) for mentioning them. But, if you´re writing about financial contrarians, they´re the original ones ….
My own difficulties with and criticism of them do not - and should not - prevent me from correctly attributing and acknowledging their work in populariazing nearly all the main issues that are now being debated in the media. Certainly, it was through them, and through Lew Rockwell, and Mises, not through establishment media or their blogs that I received an education in Austrian economics (I should add that I was always instinctively oriented to it, from childhood on).
Having deleted my facebook account after the social media wrestling-match between the Wall Street media mob (and backers) and Deep Capture´s investigative team (and backers), I am now content with actually writing emails or making phone calls to people I want to contact. Thankfully, there aren´t many I do.
Gold Sinks Further, Dollar Surges..
We will need to see a few more days of supporting action, but as of now, it looks like gold might be beginning the long-awaited correction.
How deep that will go is anyone´s guess, though the recent central bank buying is supposed to lay a floor for it above $1000. Now, normally I wouldn´t bet the house on that, but I´ve come to see that pronouncements from insider analysts (at GS) are no longer just market analysis to be weighed. They are announcements about the course of action the banking cartel is going to be supporting.
The trigger for this? I think it´s that upbeat jobs number, which is probably taking some speculative money out of gold …especially as gold is technically very overbought and institutional buyers want to lock in profits before the year end.
Dubai is more important than most commentators think, even Marc Faber. They say the numbers involved are too small.
But, as I blogged earlier, they´re not seeing the contagion possible.
Here´s what they´re discounting:
1 We don´t know what the numbers from Dubai really are. We can´t be absolutely sure. They keep changing them. $125 billion (the highest figure I´v heard) may not be enormous in a global context, but we don´t know how its tied up with investments and where. A firesale of Dubai Worlds real estate could have unsettling effects all over the world.
2. Dubai has an impact on the property market, not just in Dubai, but in London and New York where Dubai Worlds has holdings, and also in India, where real estate and employment could take a hit.
3. Banks have leveraged exposure through derivatives, beyond what they are admitting in public.
4. These are banks that are already broke, for all purposes.
5. When the banks involved are not themselves broke, they are backed by governments that are broke, or near-broke.
6. The government with likely the most exposure is Britain. Britain is on the verge of sovereign default.
7. This happens just as the second down-leg in real estate is unfolding, and along with it the just-as- leveraged commercial real estate market (see the recent zero hedge post on an ongoing CRE failure in Chicago), where there´s little pressure for the Feds to step in.
8. This happens after a 10-month run up in the stock market in what is essentially a bear rally, according to many experts.
9. This happens when the government has escalated an unpopular war in Afghanistan, calling for more troop commitments and more money
10. This happens after massive further government commitments in health care and other social spending.
Would the dollar move up just on the back of an employment number that was widely acknowledged to be misleading? I don´t know.
Do I know if gold will sink below $1000? No.
But CB (central banks of India etc.) buying is said to have set the floor. Me, I think that was a bit of help given by the RBI (CB of India, Sri Lanka, etc.) to the IMF, seat of power of the globalists. Even the IMF admitted it got lucky.
Will that bit of market manipulation to the upside be enough to stave off the deflationary effect of develeraging asset derivatives?
I don´t know, but I suspect it won´t.
I’m anticipating a rush into the dollar like we had in 2008…maybe not as strongly…
maybe gold will sop up some of the rush this time. I think that´s what the CB´s are hoping will happen.But again, one can´t be sure, for the simple reason no one knows how much more bad debt there is and where it is.
More Fall Out From Dubai On Indian Market
“Segments of the economy such as consumer durable and core industrial growth that are driving the current recovery in the Indian economy are purely a function of domestic stimulus initiatives and remain to that extent relatively insulated,” HDFC Bank said in a report today.
However, areas such as exports, remittance, banking and construction as well as real estate are likely to see further damage, the report added.
Exports are going to be the most affected by Dubai woes, as the UAE region is now India’s largest export destination toppling the United States.
Besides, bullion trading in Dubai is likely to be impacted, which may have ripple effect for India as around $29 billion of gold from the country is being traded in Dubai.”
Madoff -Related Accounting Firm Does Dubai´s Accounts..
From the Independent:
“Dubai World will start a formal process next week that will see it invite leading banks, including HSBC, Royal Bank of Scotland (RBS), Lloyd’s Banking Group and Standard Chartered, to create a steering committee to represent the many lenders. KPMG has been lined up by the lead banks to represent them in negotiations, with a formal appointment expected once the compilation of the five-to-six bank steering committee is finalised.
My Comment:
Now, KPMG is the big four accounting firm that gave Madoff´s representations to Tremont Group Holdings (a US fund that Madoff purportedly hoodwinked) a thumbs up. The Tomchin Family Charitable Trust, one of numbers of investors who were allegedly scammed by Madoff, has launched a lawsuit against KPMG and Tremont for negligence in monitoring one of Tremont´s funds that invested with Madoff.
The lawsuit included a list of other Madoff clients that included Victoria de Rothschild of the banking family of the Rothschilds and a Tory party contributor:
“Also on the list of Mr Madoff’s British clients is Lady Victoria de Rothschild, who is related to Nathaniel Rothschild, the co- chairman of Atticus Capital, the hedge fund.
Lady Victoria is a well-known figure on the society circuit and became known more recently as a lender to the Tory party, having set up a special company that gave the party a £1,014,000 loan that is due to be repaid in 2010.”
KPMG has also been hit with a $1b lawsuit for “reckless and negligent” auditing of failed subprime broker, New Century Financial, reportedly the first major case against an auditor arising from the financial crisis.
My Comment
So we have a Madoff-tainted accounting firm KPMG, with multiple legal problems, representing the banks that loaned to Dubai on one side, and (as I noted before) French banking legend Rothschild on the other side, heading up the restructuring efforts for Dubai….
Wiki has a list of KPMG´s legal infractions that includes this:
“In February 2007 KPMG Germany was investigated for ignoring questionable payments in the Siemens bribery case.[29] (Siemens agreed to pay a record $1.34 billion in fines to settle the case in December, 2008.) In November 2008 the Siemens Supervisory Board recommended changing auditors from KPMG to Ernst & Young.[30]
In 2006, Fannie Mae sued KPMG for malpractice for approving years of erroneous financial statements.[31]
In March 2008 KPMG was accused of enabling “improper and imprudent practices” at New Century Financial, a failed mortgage company[32] and KPMG agreed to pay $80 million to settle suits from Xerox shareholders over manipulated earnings reports.”
Some confidence-builder… a bank that´s been closely connected to the Madoff scam and to the Fannie and Freddie case (and hence, to Goldman Sachs)…
KPMG and Deloitte were brought in to investigate India´s ¨Madoff¨” - the fraud- riddled IT outsourcing giant Satyam (now Mahindra Satyam, its post-merger avatar - over the objections of the Institute of Chartered Accountants, India´s regulator, which said KPMG was not registered with it and would thus not be subject to its code of conduct or disciplinary proceedings.
Dubai Government Thumbs Its Nose at Creditors
After tentatively implying that there would be a back-stop to Dubai World´s debt problems, the Dubai Government on Monday disowned any legal obligation to Dubai World and told creditors that they needed to take responsibility for their loans.
“Creditors need to take part of the responsibility for their decision to lend to the companies,” said Abdulrahman al-Saleh, director general of Dubai’s department of finance. “They think Dubai World is part of the goverment, which is not correct.”
My Comment:
What´s going on here? The back and forth isn´t recent, but has been going on the whole year, with Dubai implying at one time that its debt load was taken care of, and at another, that it still had more problems; and in this instance, first seeming to back up Dubai World and then, backing-off from its backup….
The timing and vacillation seem to suggest that the government is testing the market and the reaction of investors before making its move. Not good.
And it leaves open the possibility, already raised by UBS in a recent Bloomberg piece, that the problems exceed the $80 billions of government liabilities and might extend to off-book structures that are not presently known.
Update:
After weekend assurances from Dubai that its much richer fellow-emirate Abu Dhabi, seat of the UAE federal government, would help, and that liquidity would be assured for local and international banks that needed it (through a “special additional liquidity facility”), Asian markets recovered this morning from their sell-off last week. But this morning, the local stock exchanges have been hit hard and this new announcement could provoke a second sell-off in world markets, especially in the UK FTSE, since British banks, especially Royal Bank of Scotland, have loan exposure to Dubai World.
Then, there´s also the exposure that UK banks have to other investments where Dubai World holds a stake.
And there´s the indirect exposure US banks have to Dubai through ties with UK banks.
India Fears Effects of Dubai Meltdown
After earlier assurances that the Dubai meltdown wouldn´t impact the Indian market much, top officials now admit in published reports that the Indian labor market could be affected.
“Annual remittances to India from UAE is about 2 billion US dollars, out of the $52 billion sent by Indian expats from across the world.Two-thirds of the six million people living in Dubai are Indians, more than 60 per cent of them Malayalis, much to the worry of Kerala’s Finance Minister T M Thomas Isaac.“One main fear,” he notes, “is that the credit to realty sector in Dubai would be frozen for some time. It could seriously affect the construction sector, thereby our workers.” There is also concern about the fate of Kochi’s Smart City project as the Dubai-based real estate giant TECOM is already alleged to be in a bad shape.Most of the Indians employed in the UAE, according to recruitment agencies, are in the real estate sector, financial services and retail.“The Middle East meltdown,” says E Balaji of Chennai-based headhunting firm Ma Foi Management Consultants, “will lead to at least 25 per cent contraction in the job market. It can have a ripple effect.”
My Comment:
I´m assuming that the job market refered to is the job market for Indians in the Middle East….
Meanwhile, the rupee has come under pressure as the Indian stock market sold off on the events in Dubai.
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