Friday, November 27, 2009

One Interesting Setup

Happy Thanksgiving all!! (A few minutes after Thanksgiving as I type this)

Tomorrow is going to be an interesting day!!

Steve pointed out in one of the comments that the credit markets foresaw the Dubai debt debacle. I would heartily agree with that. I have been watching the CDS on government debt slowly start inching up over the last month or so. It was not occurring in the corporate debt which was puzzling until you realize that most of the risk has been transferred to the government level. Which has me so angry because it means everything will be affected.

So, it is all over the market news but Asia has been slaughtered, Europe has really been slaughtered and right now the markets are indicating a 3% down open. Tomorrow is a short trading day, historically is bullish, and no volume. So it will be interesting how it plays out.

From an investing friend:

So we have a half day when people are panicking about Dubai where no one will probably want to be long going into the weekend when no one will be working tomorrow...could be quite the day

Yeah, any heavy desire to sell will be met with alot of people trying to get out of a very small hole. The London exchange was closed for several hours today and they don't even have a holiday.

Two interesting things. One, the Dubai thing, really isn't that big of a deal. It is an overall a small amount of debt but it may put some reality back into the market. Also, no one saw this coming. It may be why it has the market so nervous. Market hates things it doesn't know about. The market knew about Spain, about Greece, about Japan but no one was talking about Dubai. This is catching Europe especially off guard as several European banks have exposure to Dubai.

What may be most interesting of all is how this plays out over the longer term. Remember the markets had a severe down move in September of 2007. Rallied to November before finally rolling over. This was because of risk in the banking sector. Could we see something similar? Where the new risk is at the sovereign level. We get a huge sell off. Get a rally to make a double top over the next month or so and the risk that never went away starts the next big downturn? Or is the system so much weaker than once we start going down we won't look back? Because I would think Dubai is not that big of deal, I sort of doubt the market will just crumble without some sort of stabilization / rebound attempt. Who knows.

Will be very interesting. If this is the start, I fear what the world will look like twenty four months from now. Sigh, it could have been avoided.

Dollar is of course surging and British Pound and Euro are selling off hard. Commodities have been getting slaughtered except gold which has been holding up very well until the last hour. Now down $15.


gk said...

Interesting view. But i feel that you should include one more point..

That's "technical".

i strongly feel that we will see financial avalanche in dec (just like oct last yr).

Market Seer said...

lol - I don't know what view I actually gave. I think I was more saying I have no idea how this will play out.

Your not the first one I have heard hypthothesizing about a large December sell off. I am not sure I totally buy that. It seems Wall St would desperpately try to keep the hinges on through bonus season. Maybe though.

gk said...

ur fundamental views abt dubai.. it really isn't that big of a deal.

but funny media is always out of reasons.

i may be wrong in my hypothesis. But i feel that profit booking is more important too.