Dubai goes bust

• Dubai World's restructuring and "debt standstill" on $22bn debt, including $4bn due Dec 14th. (definition: Mechanism by which a country agrees to cease payments on its debts until a restructuring agreement has been negotiated with its creditors) sends markets into turmoil: little information plus low volumes due to holidays compounded the situation.
• Dubai World: one of the emirate's biggest and best known companies
• Nakheel: most trouble subsidiary - asked to extend maturity from Dec to May 2010
• Investors feel misled about implicit state guarantee; typical of the way things work: top-down and in a vacuum
• Perspective: put 40bn in context of 1,000bn of toxic assets in the US and Europe
• 2nd order effect: preparing for a fire sale of prime property in London and NYC

I will sell anyone insurance on sovereign debt

• Cadbury signals it is open to a 17$bn bid by Hershey
• Signals of an impending asset bubble: inflation (cost of goods rising), caused by a rise of base commodities due to near-zero interest rate speculation: focus on consumer price indexes
• Abraaj Capital (Largest PE in ME): sellers are become more realistic about valuations, ready to start buying
• European government subsidies for 'green' manufacturing expected to give the area a significant boost
• Coca-Cola looking to triple bottling in China to serve rising middle class
• Marked increase in sovereign CDS volume for industrialized nations. US: 10bn, Japan 15bn, Russia $101bn

Central Banks seeking exits

• Bernake speaks on dollar: Fed expects to keep rates 'near zero for an extended period', as there is low resource utilization and low expectations for inflation; traders question if he will move beyond talk
• Japan GDP at 4.8%, stronger than expected, fueled by domestic demand
• UK: 6th largest economy by nominal GDP (2.6tn). 61 million people. London (7.5m).
• GM: $8.1bn outstanding, will pay back 1.2bn ahead of schedule. In fresh losses after emerging from bankruptcy
• Eurozone companies having trouble, as the high euro has decreased sales, compared to countries not on the euro (UK, Switzerland)
• Baltic Dry Index: cost of moving grain, steel, etc by sea. Can't be seen as a reliable indicator, as significant capacity was added in the boom, and new capacity remains underutilized now in the recovery, distorting costs
• Japan: weak JGB (Japan Government Bonds) auctions; looking to raise new debt, high yen makes economy uncompetitive, debt/GDP ~ 2, rapidly aging population decreases tax revenues and requires more pension payouts from the state: uh-oh.
• Foreign ownership of treasuries: 33%, JCB: 7%
• Since the LIBOR market is liquid again, central banks are looking to unwind 'monetary loosening' policies.
• Jean-Claude Trichet: European Central Bank president: December will be the last auction of 1-year notes (introduced for crisis); one-month, one-week still common. Free money for too long will promote asset bubbles.
• Federal reserve has stopped buying treasuries; Bank of England unlikely to extend 200bn pound quantitative easing
• spread between 3-mo libor and overnight: down to 20 bps, levels at before Lehman

Staggered maturities of high yield debt

• Congress proposing legislation which would end the Fed's supervisory role and limit it's ability to be an unlimited lender of last resort. Large bailouts would have to be deliberated, but critics say not letting the organization work fast enough would be a disaster
• Record levels of corporate financing activity are more than making up for sluggish M&A, syndicated lending. Gains made by flow business (contrasted to proprietary trading). Largest in Europe: DB, Credit Suisse, Barclays Capital. US: Goldman, JP Morgan
• OTC derivatives market on the upswing: rate and FX derivatives: investors positioning themselves for an uncertain economic outcome
• NYSE average daily volume: 3.5 billion shares
• 2,700bn commercial mortgages due in the next five years (peak 2011)
• 1,500bn leveraged finance debt (peak 2014)
• In contrast to previous credit cycles: speculative grade debt maturities are staggered: lenders have more time to work though exposures, but system will take a longer time to clear out

$7000bn debt due by 2012

• banks reluctant to lend: corporate bond market has new importance
• speculation for more M&A activity (cadbury and Axa Asia-Pacific) is bad for bond market. When Kraft issued it's takeover bid: stock down 6%, but CDS up 35% (!!)
• This week's G20 meeting: stimulus programs will remain until economic recovery is entrenched
• Dollar: 15-month low on trade-weighted basis
• Banks looking to refinance $7000bn of short-term debt expiring in the next 3 years. Will have to pay up as interest rates will most likely rise in the coming years
• average debt maturity in the US sank to 3.2 years in 2009, less than half the long-term average. CDS spreads lower for the next 3 years, jump 30% at 3-5 year range
• short term debt was exasperated by governments guaranteeing the new loans during the crisis

S&P 500: 80% companies report Q3 profit above forecast

• Expectations are that Kraft will go hostile with takeover of Cadbury
• S&P 500: 80% companies report Q3 profit above forecast; highest since started tracking in 1994. Usually beat by 1.9%, now 14.9%. Only 58% beat revenue forecast, which means that increased profit was a result of cost-cutting instead of sustained growth, leading to increased volatility.

Who would believe Ford is profitable

• US Institute of Supply Management: index of national factory activity 55.7 (oct) from 52.6 (sept); clear sign of improving economy. Caveat: too much improvement, Fed will raise rates
• Ford: posted net profit, primary as a result of 'cash for clunkers'
• Oil: previously 2 benchmarks: Brent (Europe) and West Texas Intermediate (US). Saudi Arabia to now price in terms of Argus Sour Crude Index (Gulf of Mexico).
• Most profitable commodities businesses: GS, MS, Barclays. RBS following UBS, Lehman, Bear Stearns in getting rid of commodities division.
• ChiNext: market debut, all 28 stocks gained 76-210%, fell 10% soon after as they reached daily down-limits
• Australia and Norway have already rasied rates; market sentiment shows that investors are bracing for a rate increase as well, although well into the future
• Middle East construction begins again - people willing to trade in double digit profit margins for longer term stability

Low dollar feeds risky global asset bubble

• European dark pool liquidity has increased 5x since the start of the year; Oct: only 1.2% of total trading
• Reinsurance companies: very few catastrophic events, bond markets have recovered strongly. Munish Re: world biggest reinsurer
• TSE now offering co-location, to match US HFT
• Bank of England debating to continue quantitative easing; action has boosted asset prices but secondary effects in the market are unclear
• New technology has released natural gas locked in shale rock, of which the US has a surplus. LNG producers have sent the excess to Russia, which has produced a surplus there amid the slow economy
• US banks: 'skin the game' legislation: retained unhedged 10% of the credit risk in a securitization. Lack of investor interesting in anything non-prime has made the banks keep 12-15% of a deal
• Risky asset bubble (equities, oil, commodities) driven by falling dollar. Borrowing in dollars (short dollar) alone gets your nearly 20%; total returns for investing those proceeds in risky strategy yields 50-70%. One big common trade: short the dollar to buy any global risky assets
• Central banks in Asia / LatAm are fighting currency appreciation
• Fed is artificially keeping vol low by massive asset purchases - expect to go away soon