Monday, November 30, 2009
Dubai World, A World Away?
It is 6:02 AM and the break room frig is filled with turkey sandwiches. I hope you and the family had a good'un.
The ole Colonel decides daily what news out there might interest Eurekans and what is just a lot of noise in the global fun house. I figure if an event moves gold through a $44 price swing in a single day, it is probably newsworthy. On Wednesday when most Americans were packing it off to grandma's, Dubai World announced that it sought a delay in a $59 billion dollar debt repayment. It was on the eve of the four-day Eid Al Adha holiday in the Arab world and apparently caught everyone by surprise. Asian stock markets swooned, the U.S. dollar nose-dived and investors flocked for safe haven in the Japanese yen. On Friday, after the Japanese government threatened to intervene to strengthen the U.S. dollar, the tide reversed with a dollar rally. Gold did a dipsy-doodle down to $1140 and oil plunged to the low $70 range. Later in the day gold and oil stabilized, the dollar rally fizzled and the entire world was glad it was the weekend.
Who are these global party poopers? Dubai is a city-state in the Gulf region and one of seven emirates that make up the United Arab Emirates or U.A.E. Abu Dhabi is another member and the only oil-wealthy emirate of the federation, they'll be important to our story in a minute. Dubai has illusions of grandeur on the world stage building the world's tallest building in a massive metropolitan complex of man-made islands which even includes an indoor mountain for snow skiing. The Burj rises 2,684 feet to be more than twice as high as our Empire State building. When oil was topping $140/barrel, I remember Dubai boasting that they would soon replace New York as the financial capital of the world. I guess Americans were to fall in the shadow of the mighty Burj. Of course that was then and this is now.
Dubai World is a state sponsored holding company that is skilled at borrowing money if not finding oil. All was hunky-dory until the credit crisis hit and this Arab never neverland now faces paying the piper. The chilling fact is that much of this debt is held by European banks and to a lesser extent some in the United States. Whether Dubai will default or be rescued by their wealthy cousins is the worry at hand. This weekend, Abu Dhabi's central bank stood behind financial institutions in the region to avoid a run on U.A.E. banks. They have yet to say they will bailout Dubai World. Stay tuned.
What is the moral of this story? The credit crisis has been described as a slow train wreck...real slow. Don't be surprised to hear from some big banks in the next weeks or months that they have a little Dubai never nevermoney on their balance sheets. The $59 billion is not the issue in our new debt world of trillions as much as a loss of investor confidence in the global financial system recovery. We're not out of the woods yet bucakroos but I bet that the U.S. is in a whole lot better shape than Europe. Don't give up on the greenback yet!
Enough skiing in the desert, let's walk the walk:
4-WD is ON - After Dubai the VIX or "fear index" is wobbling around 25, rougher road market conditions expected (what's this?)
Yellow light is ON for possible adverse regulation/legislation (mercury emissions)
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
Oil is down $0.07 in early trading to $75.98 (January contract, most active); Gold is down $3.6 to $1171.9 (February contract, most active); Silver is down $0.095 to $18.240(March contract); Copper is up $0.0075 to $3.1330(March contract); Molybdenum is steady at $12.00
The DOW is up 47.99 points to 10357.91; the S&P 500 is up 4.71 points to 1096.20. The miners are mixed:
Barrick (ABX) $43.13 up 1.39%
Newmont (NEM) $53.83 up 0.90%
General Moly (Eureka Moly, LLC) (GMO) $2.25 up 2.64%
Freeport McMoran (FCX) $83.98 down 0.19% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are up, (a "tell" for General Moly):
Nucor (NUE) $42.46 up 1.55% - domestic steel manufacturing
ArcelorMittal (MT) $39.70 up 2.85% - global steel producer
POSCO (PKX) $119.92 up 0.08% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 0.97% to $1,283,522.56 (what is this?).