November 30, 2009 in Uncategorized
Jozi, Jozi. It was that old bubonic plague nursery rhyme, that all fall down one. US futures had been awful at the start of our session and Asian markets had been absolutely carried out. We were not so bad, in fact tat the end of the session we were down 216 points, 26808 was the level on the Jozi all share.
This morning there has been a lot more clarity, but the wounds are open already. The fact that the announcement was made before a long weekend as the important Muslim holiday of Eid al-Adha was taking place and a big American holiday in thanksgiving suggests ill timing on the part of the Dubai World execs. I read in the FT that Thursday a conference call had been called by Dubai World as their debt holders were anxious.
As far as I understand the article from the FT, the telephone systems taking the conference call fell over as there was a deluge of calls. You will probably find that this was setup quickly and that alone tells me that the panic was warranted. The debt associated with the standstill was trading at 109 cents in the Dollar Wednesday, Friday it was 40 cents, which tells me that the debt holders were blind sided here.
In fact a WSJ article from yesterday suggests that even at the higher echelons of Dubai World, there had not been sufficient warning on the fact that the company would have to resolve their cash position. Hmm.. governance issues here for me.
The Dubai bourse first opened around 6 percent lower at the get go, down 7 percent at the moment, Abu Dhabi next door down nearly 8 percent, yech. Remember that those markets have missed all the sessions since Wednesday, so there is catch up here. Asian markets have bounced sharply with the central bank of UAE saying that they will make funding available for local banks, if needs be. But little clarity on Dubai specifically.
Just to recap here, Dubai world, assets around 100 billion Dollars, total debt of 59 billion Dollars, so the value of the assets is greater than the levels of debt. Unlike, yes, unlike many subprime mortgages and now prime mortgages in the US. That is worth noting, although if there were to be a fire sale in the coming months, then you would have to expect a lower price for those assets.
OK, so who is impacted here? Well, another great chapter (but not really) in the British banking sector history. Which has been jaded and the British authorities are looking to place a the most strict bankers bonus rules. Good luck, the world is global, I have no doubt that the best talent will gravitate to other parts of the world.
Back to those who are exposed though, the WSJ reports over the weekend that entire exposure to Dubai debt by European banks is 83.7 billion Dollars. UK banks have just shy of 50 billion Dollars worth of that, French and German banks have 11.3 and 10.2 billion respectively, so again a little more circumspect. Or perhaps that is not fair, the UK has a much bigger banking system as a whole, and is in a sense a lot more global.
That is the entire debt associated with Dubai, for Dubai world, which is just shy of 60 billion Rands, around half of that debt is with European banks, including the UK. Because they are part of Europe when they want to be. But around 75 percent of the real estate in Dubai is owned by foreigners. Apparently RBS is most involved in Dubai, HSBC the biggest exposure to the region. Local institutions too, like the Abu Dhabi Commercial Bank is owed 1.9 billion Dollars by Dubai World. Yech.
The only good thing to come out of all of this is people globally can understand in more detail the situation in Dubai, plus some other countries where there are concerns. Turkey, Greece and Hungary. Credit Default Swaps (the insurance for bond holders against default) have soared, so in short, if someone is looking to take on debt of an emerging market in the region, or governments are looking to raise money, quite crudely, it is going to be more expensive.
An interesting Bloomberg graph put matters into perspective the level of the Dubai sovereign debt credit default swap is trading 50 percent lower than the worst levels of the year, which was back in January. So, notwithstanding this disaster, to put it into perspective, insurance against default from the country is cheaper after this disaster than at the beginning of the year. What does that mean? Is this whole incident overplayed?
What do you make of the appointment of two fellows as advisors to Gill Marcus, the South African Reserve Bank governor, Dr Monde Mnyande and Mr Brian Kahn. As far as I can understand it, nothing too sinister. Dr. Mnyande seems to have been at the Reserve Bank since 1995, and currently is the Senior Deputy Chief Economist & Head: Research Department of the SA Reserve Bank. Internal. Brian Kahn is an old time Economics professor at UCT that has played a bigger role at the SARB, and has been a member of the MPC since 1999.
This looks like it might have been a Gill Marcus move rather than outside interference. My first impression was to worry, on closer reflection it seems that there is more of a participatory role from long time internal sources. Both fellows look well heeled and an elevation as advisors overdue. Gill Marcus’ new touch.
New York, New York. A half day trading day on the NYSE, trade closed at 1 pm New York time, the session shortened because of the Thanksgiving holiday. Whilst you would have expected much of the focus to be on Black Friday, the start of the traditional shopping season, everyone was wringing their hands around the Dubai debt situation. Session end the Dow closed 154 points lower to 10309, the S&P 500 down 19 to 1091, whilst the nerds of NASDAQ lost 37 to 2138.
The oil price has bounced back to 76.75 Dollars per barrel, the copper price last at 313 US cents per pound. The gold price has railed back to 1175 Dollars per fine ounce. The platinum price has also bounced back to 1450 Dollars per fine ounce. The currency is firmer as the Dollar loses ground again, 7.38 to the US Dollar, 11.11 to the Euro and lastly 12.23 to the Pound Sterling.
OK, so a big bounce back in Asia, US futures higher, our market delayed in opening, JSE having technical problems. Last thing, when do you remember there being so late a push in Christmas advertising? Tells in the credit numbers this morning. The consumer is still repairing the leaks in the ship.