Neighbour bailout for Dubai around the corner? Either way, continued volatility is the conclusion.

* Dubai world bailout in the offing?

Markets should be in for some good volatility near term as the question of Dubai World will reach a conclusion. Since bailouts are all the rage these days, I have to hold that as the most likely outcome.

If not, well then we should see further pressure on Usd and Gbp funded assets.
Since the Usd has taken over the role as the worlds premier funding currency ahead of the Jpy, albeit with fierce competition from several other currencies in the low yielder category, I guess most assetclasses should be affected under such a scenario.

*Dubai and the Turkey connection - is there one?
Unless my recollection is incorrect, I believe a not irrelevant part of Turkey funding flows stems from this area. Please doublecheck me on it though. The Usd/Try spot reaction yesterday seemed to indicate something out of the ordinary anyway. With skepticism arising re the current governments intentions to initiate and follow an IMF led program, the TRY is increasingly vulnerable. Perhaps not in Dec, but in the New Year.







*Other fixed currency regimes favoured by the markets hot money should pay attention to the Dubai situation

China being a case in point. Fixed exchangerates, undervalued currencies, hot money flooding in as a consequense, hefty misallocation of capital, leading increasing degree of loony investments as a consequence. It happened in Dubai, it is happening in China - for sure.
The scale of the Chinese misallocation process is of course gigantic.
Hopefully it will not unravel nearterm,,,

* New positions and positionchanges

- Took profit on half of the equity index puts sold yesterday, sold equity index calls today.

- Took profit on my SKF ETF on the US open

- Took profit on my long Eur/Sek

As usual, good luck

The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Eur/Usd in Dec; repatriation flows to kick in - watch out in the new year.

* With the European credit plug firmly in place - the Euro economy does not look promising

PIIGS countries - say no more.
Portugal, Italy, Ireland, Greece and Spain,,,,,, Were they not Euro members, their CDS´s would remind you more of Ukraine and the Baltics than anything else.
These countries are all in deep trouble and the cavalry (credit) is not seen anywhere.
The German Landesbanken are all in dire straits as well.

Hence, I believe we are likely to see a repeat of last year with regards to Eur/Usd, a massive repatriation surge in December as net foreign assets are trimmed down in favour of balance sheet restoration and a "change of plans" for business strategies. Ie increasingly domestically focused.
Once the new years out the way however,,,, helmets on. High risk for sharply lower Eur and ditto equity markets.

Due to the fixed exchangerate, deflationary forces in fex Greece will push local creditspreads straight up, generating defaults and writedowns of banks loanbooks. Greece and other EMU countries in a similar situation have created their problems in a very similar way as Argentina and the Baltics did; too high domestic consumption, nonproductive investment, leverage and debt against too low investment into the supplyside of the economy.


* The ECB is signalling an end to the quantitative easing.
Apparently, they are concerned that "there may be too much liquidity in the system" hmmmm,,, really? Well, of course there is, but I thought that was part of "the plan". Or is there no plan? Well, with one year money supply growth falling from 14% to almost zilch in a year, it would seem too early to withdraw any quantitative easing.

However, I guess the ECB is looking at the misallocation effects beyond the assetmarkets. Greece is currently building up a fiscal deficit stretching imagination. Explaining why the Greek CDS is now at 195 ish points, = at par with Turkey´s CDS. Difference is, as mentioned earlier, were it not for the Euro, that Greek CDS would be 3 - 4 times higher,,,

European corporate balancesheets are still weakish, industrial production sluggish and the creditplug still firmly in place. Conclusion; ECB is walking a tight rope. If they follow through on this I will be looking to dump European assets; Equities; bankstocks, any other corporate with high debt and weak cashflow, weak balancesheet the Euro etc.

With Europe and the rest of the world heavily on steroids, why stop now? Better late than never, maybe. ECB is caught between a rock and a hard place, whatever they choose there will be difficulties.


* The Dubai world
On top of this we have the "Dubai world" problems. This will have repercussions on the UK and US realestate markets as capital is consolidated. As if the Gbp needed more trouble,,,, Noone should be surprised that the excessive project in Dubai is in dire straits, but this is obviously not good news. It will not help credit, cyclical currencies or corporates.


* Weaker Usd = higher assetmarkets still?
I doubt it. If we talk fiscal consolidation and add Dubai on top of it there is risk of choppy markets. Volatility should increase. This xmas might be a good one to be long vol in order to get nice presents from Santa. If we see fiscal consolidation from investors a weaker Usd will mean a weaker equity market as well.


* New positions and position changes

- Short Equity index Calls for Dec, closed them today for a quick profit. Sold puts. Looking to resell Calls, close puts on any rebound higher. Obviously looking for one.¨

- Long Eur/Usd

- Long Eur/Gbp

- Long SKF ETF

- Long XACT BEAR ETF

- Long Eur/Sek

As usual, good luck







The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.