Friday, November 27, 2009

With Gold having hit a new all-time high on Wednesday, and the US Dollar at a 15 month low, I bagged the markets for a little holiday R&R. With the Thanksgiving Holiday "usually" quiet, I figured a 36 hour break from the markets would be refreshing. Imagine my shock when I tuned back in early this morning and discovered Gold down $50 an ounce, and Silver whacked for over a dollar. What could possibly take Gold down like that?

An Arab financial institutions default on $60 BILLION of debt? Why of course, happens every day. NOT! Debt problems at Dubai World, a government investment company, caught the global financial markets by surprise late Wednesday. The knee jerk reaction was to the Dollar, sell your risky Gold investments, and buy those "ultra-safe short-term US Treasuries.

Knee-jerk reaction...exactly. The bid in the Dollar, and the dump in Gold today lasted all of six hours. Though the global financial media would have you believe that "THE DOLLAR" was up, up, up all day today. Hardly. The Dollar caught a bid last night around 9PM est, and Gold sold off hard...until about 3AM est. And then the panic subsided. The Dollar finished the day +0.04. LOL! Gold closed at ANOTHER new weekly high in spite of today's "sell-off". Where's the safe-haven now?

We mustn't belittle today's events. This "default" by a major financial entity in the Middle East could be just the tip of the iceberg of the second wave of the "global financial meltdown". We'll know more when the markets open in Asia Sunday evening here. My concern is that this "event" could call into question the majority of "emerging market" investment globally. Much of that investment recently fueled by the now popular US Dollar carry trade. Should these investments begin to unwind, the Dollar is certain to gain a rather powerful bid that "could" pressure the present rise in Gold. However, it is more likely that this event might accelerate the rise in Gold as people come to fully realize the sham that global fiat currencies really are, not to mention how at risk the global financial system is to a complete systemic implosion.

Be prepared. Protect recent profits, and use price retreats to add to positions in Precious Metals. Today's events do NOT lessen the developing shortages of physical Gold and Silver. These shortages, in the face of mounting demand, may well overwhelm any strength the Dollar might have relative to the rise in Precious Metals prices.

$59bn Dubai Debt Default Risk To Pull Stock Markets Down
By: Peter Cooper, Arabian Money
The carry trade of borrowing in US dollars and investing in emerging markets for high returns is a liquidity bubble and an accident just waiting to happen. Perhaps the situation in Dubai should be regarded as a wake-up call.

Investor perception of stock market risk has just hit a five-year low in the United States. Any contrarian investor would have to conclude that such monstrous complacency could only come before a market crash, as indeed it did last autumn.

Shocks in emerging markets like Dubai are the flutter of butterfly wings that produce a hurricane elsewhere, and $59 billion is a bit more than a butterfly. Investors should exit all stock markets and buy bonds or precious metals or short emerging markets. Gold hit $1,195 as this article was written.

The Essence Of Dubai’s Request For Debt Payment Delay
By: Jim Sinclair
What is the essence of the Dubai request for debt payment delay (a technical default)?

1. Will an implied Dubai Federal Guarantee of the debt of state owned corporations be honored in Dubai and elsewhere?

2. How many more financial problems are there out there hidden in plain view in the West as well as the Middle East?

3. Will the Middle East see to the bailouts of its own problems or is there a stampede of camel trains into the desert, devoid of cell phones and Mercedes?

4. Will this event cause other developing market country debt to default in a domino effect?

In terms of gold this event is further proof that paper and promises are NOT the stuff money is made of anymore.

Those that will come out of the woodwork to call a top in the gold price have little experience in what a top looks like in gold. Let me assure you the action of today contained zero evidence of a top.

The USA has become a giant FDIC and will have to finance in strange ways (QE) to meet its obligation prior to June of 2011.

Other than transitory technical factors there is nothing whatsoever positive in a collapse anywhere for the US dollar. When the snow falls here on the east coast of the USA the dollar will come under more pressure and fall much further.

The major immediate financial problem, hidden in plain view, is that 2009 financial entity earnings are CASHLESS. They are more than 75% due to the permission of FASB (Financial Audit Standard Board) who sold their souls to the financial sector to again mark up toxic paper to values self determine by the financial institution. The profits of their trading is toxic paper mark up accounting.

The inviting conclusion is the over the top greed in plain view by financial institutions is their own knowledge of the cashless nature of their earning and the fact that the junk is marked up now as much as one can do without either starting a riot or doing time. Therefore the earning prosperity is behind them, nothing is fixed and that makes this year the last opportunity for a long time to cash in for themselves.

Dubai has reminded us that there has been NO cure to the systemic financial problems of the West and those like Dubai that not only tried to mimic the West, but overdo them in a garish manner.

You can be sure that the US Fed and the ECB are chasing the sheiks into the desert today like Lawrence of Arabia in an attempt to get them to pay up and support their own problem. That means more international QE, as the Fed is not in the mood to tank a $12 trillion dollar bailout operation over an $80 to $110 billion dollar failure of a stupid and garish real estate project in Dubai. This concept would contain the domino effect, putting it off until later in 2011.


The dollar will not reverse out of the bear market it is in, nor will gold top here and now. In fact the bear market in the US dollar and the bull market in gold is not only alive and well but in terms of price, young.

Dubai seeks to assure markets shaken by debt move
DUBAI, United Arab Emirates (AP) -- Debt-burdened Dubai insisted that it took into account market fallout from its appeal to delay paying creditors, but offered no specifics and did little to ease worries that dragged down global markets for a second day Friday.

Sheik Ahmed bin Saeed Al Maktoum, the chairman of Dubai's Supreme Fiscal Committee, stressed that the call to defer for at least six months at least some of $60 billion owed to creditors by Dubai World, the emirate's chief investment arm, was "carefully planned" and aimed at taking decisive action.

But the announcement appeared to reinforce worries that Dubai's rulers are fueling a crisis of confidence from world markets with their policies of keeping tight control over information on their fiscal standing and deal making. The timing of the announcement worsened the concerns, since it came ahead of a three-day Islamic holiday.

Ahmed's statement, issued late Thursday, came a day after the Dubai government announced a restructuring of Dubai World and said it would ask creditors to delay debt repayment until at least May. The announcement came Wednesday, on the eve of a three-day Islamic holiday, apparently aimed at blunting the impact of the move in the region.

The sharp reaction in equity markets worldwide apparently forced the taciturn rulers of Dubai to come forward with a bit more information.

"Our intervention in Dubai World was carefully planned," Ahmed said in the statement. "The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react."

"We understand the concerns of the market and the creditors in particular," Ahmed also said.

Ahmed called the Dubai World's debt freeze request a "sensible business decision" and said Dubai's leadership had to intervene when it did "because of the need to take decisive action to address its particular debt burden."

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