CheetahhhhhhhBlog Mark III

So my wife spent the evening doing Facebook and reading American Elle. I on the other hand read the Financial Times, Wall Street Journal, Economist, and New York Times. So my evening wasn’t as amusing as Van’s, I imagine, but I feel up on things, and will now comment on the implications of the Dubai bru-ha-ha.

I think the biggest part of the shock was that Dubai was seen as a success story. The reality, that the Emirate is mortgaged to the gills, was a bit of a shocker. But the broader implication is the sovereign debt of bigger countries. Dubai is actually very small and its debt is actually small in comparison to, say, Ireland or Greece, the lightweights of the EU. It also calls into question the sovereign debt of other emerging economies. If Dubai is having trouble paying its bills, why should we be confident in, say, Mexico’s ability to pay its bills? Bears some thought. So that was the essence of the Dubai shocker, as I see it.

#1 I’d say there’s a bit of an emerging market bubble forming and this might pop it. For example, all this talk about India as an economic powerhouse. I thought it laughable since the vast majority of Indians are poorer than dirt. But there was a lot of talk and, hence, a lot of speculation in India.

#2 I wouldn’t be surprised if money returned to the US stock market, which is seen as safer. Which is why my money’s on Wall Street (where it gets taxed) instead of, say, on the Dubai Stock Exchange (where it wouldn’t be taxed and I wouldn’t have to pay currency exchange fees). This would imply a rise in US equities.

#3 A move to safer assets would imply a move to the dollar or yen. This would imply a decline in gold.

#4 Gold is a big damn bubble, I mention parenthetically, it has nothing to do with Dubai but it’s a big damn bubble so word to the wise.

#5 The banks with biggest exposure to Dubai debt are HSBC and Standard Chartered. I suppose I might short them for December and then go long. This would be on the assumption that Abu Dhabi will not let Dubai default. Abu Dhabi has no legal obligation to help Dubai, but it is also Dubai’s biggest creditor, so is more than likely going to step in. Thus, HSBC stock should suffer for a while until Abu Dhabi says it’ll pay the bills.

This is all speculation on my part, I’ve been wrong before and I could be wrong again.

So we’re in Muscat, at grandma’s house. Grandma is in Wisconsin so we’re on our own. We went to the port today and poked around the sook a bit, and climbed up a cliff to an old tower-castle sort of thing with old 19th century cannons. This was all cool. However I must say, sightseeing with a toddler and a newborn and a wife in high heels is, well, a bit to deal with. For example I’m the one who had to lug the baby up the cliff and it was a bit to deal with, when you consider that the Cheetahhhhhhh is actually afraid of heights and would have been a bit freaked out even without an infant in his hands. Yeah. However a fun day and we got good pics, the castle on the cliff had one hell of a view.

Tonight we have to place an Amazon order for grandma to bring back… our semi-annual shipment of US supplies… I’m getting a book not available on Kindle, Matheson’s “Far Tortuga” which has been described as one of the greatest books of the 20th century, which is a bold statement, and it’s also been described as the ultimate beach novel, which is really what perked my interest. Anything about tropical beaches is inherently interesting for the Cheetahhhhhhh.

I would generally buy myself a birthday present but I’m a bit unsure what to get. The things I actually want are outrageously expensive, such as a Panerai diver’s watch for example. I’d like a satellite phone. I’d like a Harris tweed sports coat. Etc. All very expensive and I’m just not going to shell out the money for what would amount to a proper birthday present for myself so I think I will content myself with nothing.

So we had a nice Thanksgiving, with the best turkey ever, I might note. This was also the first time I let Vanessa do some of the cooking. Not much, as foreigners don’t know about turkey, but I did let her make the gravy and watch the bird for when to pull it out of the oven. I stressed to her the importance of her mission. “You’re an honorary American now,” I said. She did just fine. Good gravy, juicy bird.

So I’m sitting around trying to enjoy my Thanksgiving when the news breaks out that Dubai can’t pay its bills. This sent the stock market reeling. Got me quite pissed as I’m heavily invested in financials. Upon checking more closely, it’s the British banks that have real exposure to Dubai debt. The American banks haven’t actually lent too much to the Dubai. Specifically for me, what I can gather is Citibank’s exposure to Dubai debt is $1.8 billion, which is actually small when you consider the $1000 billion real estate crisis. These figures seem surreal but yeah. So anyway C shares suffered very little yesterday. ETFC which I also own suffered little also. ETFC got a boost a few days ago from talk that TD Ameritrade might buy it. The market as a whole has not had an incredibly stellar November, which was contrary to my prediction. Personally I find the situation to be rather unclear and if somebody were to ask my advice, I would say lessen exposure to the equity markets until the situation clarifies.

Regarding Dubai. Well, you know it’s illegal to say anything about the financial crisis out here. However I have, if you scroll back through my postings, made many references to Dubai as a house of cards. Now the various Emirates are actually 8 different countries in very loose federation. So this is why RAK, 40 minutes away by car and 3 mirco-states (emirates) away from Dubai, can be in a very different situation. RAK is not suffering as far as I can see. However the fact that Dubai can’t pay its bills doesn’t surprise me in the least. They’ve been like a 20 year old with his first credit card. He went and blew the whole limit on nonsense within a few days, and now has a bill of a couple thousand bucks and has to go begging to dad for money. That’s a good analogy for Dubai. Abu Dhabi being dad. I don’t, however, think Dubai will actually default. That would be very stupid. But the fact that they’re having trouble paying bills is no surprise. The thing is, the thing that people don’t seem to realize, is there isn’t actually anything there, in Dubai. There’s no oil. There’s no industry. There aren’t even many citizens of Dubai, everybody is a foreigner (ie imported labor). Dubai has Emirates Airlines, and their container shipping business, so they’ll survive, but how in God’s name they think they’re going to pay for this new light rail system, which is very fancy and obviously quite expensive, or how they’re going to pay for this new world’s-tallest-building, which is also quite nice and contains the Dubai Mall, of which we’re big fans… how they think they’re actually going to pay for all this nonsense is a good question. I think they’re going to have to go to Abu Dhabi with hat-in-hand again. Abu Dhabi already bailed out the Dubai banking system.

Regarding gold, don’t go running off to buy gold coins at $1150 an ounce for God’s sake. Gold has been acting as a proxy currency while the US dollar and the pound sterling have been so soft. I would say gold is peaking. Indeed I’m watching it for opportunities to short gold.

I’m on a Smiths revival. If you didn’t know, The Smiths were the shit about 1989-1990. If you knew anything about music, you were listening to The Smiths.

First of all, it is commonly thought that Morrissey was the talent behind The Smiths. Actually it was Johnny Marr. Listen to the guitar tracks of The Smiths… that’s Johnny… and then compare it with Morrissey’s solo work. Guitar tracks like “How Soon is Now”… that was totally cutting edge back in the day. Morrissey’s solo work is pretty bland actually, just kind of whiny rock. Kind of like Sting after the Police broke up, its like, why bother.

Anyway a nomination for one of the Great Rock Lines of the 1980s comes from “Half a Person” on the album Louder than Bombs. Here’s the line. Get ready. Here it comes: “In the days when you were hopelessly poor, I just liked you more.” Yeah doesn’t sound as great in isolation but in the song, damn, it’s a great line. And a nomination for one of the Great Rock Songs of the 1980s in general would be “I Won’t Share You” from the album Strangeways, Here we Come.

There are a couple things that are a Godsend for an expat. I have been in the expat racket for almost a decade now and I think I might have honed it down to a fine art. Here’s what you need:

1. Amazon account. Ship supplies to yourself in the bush. Ship xmas and birthday gifts to family at home.
2. www.SnailMailr.com. This is really brilliant. You can write and send paper mail online. Make a GIF of your signature and paste it onto the letter. Brilliant. Frakkin brilliant. Allows you to conduct business without the unreliability/slowness of foreign mail or the ridiculous expense of sending a letter FedEx.
3. High speed internet. Download all your shows. I watch my shows a day after you see them in the States.
4. Skype… except Skype is blocked in the Emirates. Well, I can receive Skype calls. I just can’t make them. But aside from the Emerati blockage issue, Skype is brilliant. Skype is also my American voicemail. Also if I felt like paying the internation call fees, I could have Skype calls forwarded to my Emerati phone.
5. A Kindle and subscriptions to The Wall Street Journal, the Economist, and the New York Times. Not to mention get any book you want. Solves one of the primary difficulties of being out here in the bush. Namely, getting something to read in English. Actually there are plenty of books available for me now, in Dubai, but I’ll tell you, back when I was in Saudi, my Kindle was more than just a Godsend. It was a frakkin miracle. And even now, it’s the only way I can read today’s Wall Street Journal and New York Times.
6. Earth Class Mail. It’s rather expensive. I spend about $75 a month on this service. However you get an American street address for mail delivery. They will forward anything to you by whatever method you want. But more importantly, they scan your mail and you can read it online. I wish I would have discovered this service a long time ago. It’s expensive but totally worth it. Thanks to Earth Class Mail, my street address is Park Avenue in New York City incidentally. So I’m very fancy and rich.
7. A UPS and FedEx account. For obvious reasons.
8. A credit card that accumulates frequent flier miles.
9. OK, it sucks because it’s so ridiculously expensive, but yeah, international roaming on your cell. God it sucks. You get a call and you know it’s costing $10 a second. But yeah, international roaming.
10. A Showtime subscription. Watch CNBC.

I’m watching a Bloomberg panel of financial journalists discussing the financial crisis in retrospect. To toss a few observations into the mix, I’d like to add:

First, everybody knew the housing boom was going to come to an end at some point. If you page back a few years in this blog, I myself, who have had no formal education in economics, was pointing out that there was a housing bubble. When it happened, I actually said to my mom, “I warned you.” And I’m no brain-bank. The Economist was saying there’s a housing bubble for about 3 years before it burst. So in this respect the collapse of Lehman and the crisis were no surprise.

Now you scroll back to the initial phases of the crisis, this would have been Aug 08 I believe, I was bitchin-n-moanin about the Bush administration intervening in financial markets. This was primarily because it caused me to lose money on the stock market. I simply reversed my trades; you look back to March 09, my commentary here was, “If the government is going to prop up finance and industry, then we should buy finance and industry.” At the time it seemed like a huge risk but I bought AIG and Citibank and made a nice sum of cash. Now, I started my bitchin-n-moanin on the logic, admittedly libertarian logic, that the government should stay out of financial markets, and, well, everything. But we should note that the whole bailout started with Bush. Now, yesterday I watched the Republicans dressing down the treasury secretary about the bailout. I couldn’t believe it. My ears were on fire. The Republican party initiated the bailout. Obama simply followed through because at that point, he had little choice. And anyway do I still hold the libertarian notion that the government should stay out of financial markets? Well, yeah. On the other hand, the bailout probably averted another Great Depression. The scope of the crisis is rather amazing if you look into it. So, since I’m no brain bank and I’m certainly no prophet, I now withhold my opinion. At this point, I’m not entirely sure there was anything else the government could have done.

We seem to spend most weekends at the Rotana resort, which is not coincidentally the mopst expensive place in town. For some reason Bug knows the expensive stuff and prefers it. I would actually prefer to go elsewhere. While the view is fabulous, the food is really mediocre and outrageously expensive. But Bug LOOOOOOOOOOOOVES the infinity pool. To the point where, today, he refused to leave the Rotana, and we had to drag him home kicking and screaming. I still have a stress headache.

Bug’s new thing is asserting that he’s “grom up”. I’ll tell him not to do something and he’ll assert, “No, I grom up.” Well God bless him, it’s cute, and as we all know, you always want the thing you don’t have. Young people just want to get old and old people just want to get young. One of God’s little ironies with us.

Tristan is still working on rolling. He’s not very mobile but he can roll a foot or so after about 45 minutes of effort.

Next week should be a light work week. Emerati National Day is on Monday. For some idiotic reason we’re having a half day of school. Fine, I will show up and sit in my empty classroom for half a day. After this on Thursday the Hajj vacation starts, and then Dec 6 or 7 is the Prophet’s Birthday, so there should be very light or no attendance (that’s just how things work around here) which means I will bring my Kindle to class. We’re going to go to Muscat for the holiday.

OK to be perfectly blunt, my stock portfolio is losing money, so perhaps you shouldn’t listen to my opinion. As I’ve mentioned several times before, I write financial comments primarily for my mother, so that I don’t have to call her up and say “buy” and “sell”. But even my mother perhaps shouldn’t be listening to me because I’m losing money.

This caveat aside, I will nevertheless forge ahead and give you my opinion. There is a lot of negative feeling in the market and if you watch CNBC there is talk of a “double dip,” which is a scary as hell notion. I think this is all overplayed and that there is nothing to be overly concerned about. And I’ll tell you why.

The broader market is bumping its head against fairly strong levels of resistance, or to put it mathematically, it’s bumping its head against the barrier of a standard deviation. It will be very difficult for the market to pass over this level, so there will be a bit of volatility or, in layman’s terms, a lot of flip-flopping. But my perspective has not changed, I see the market rising through December and through 2010. I have given my reasons for this before and I’ll give a few more. Companies have laid off a lot of staff and are running lean and mean. Gold, I would say, is an asset bubble, and this would be bullish for stocks. There’s one more reason why I think you shouldn’t be all spooked. It’s this. A good general rule of Wall Street is that when everybody is talking about something, it usually pays to do the opposite. And everybody’s talking about trouble and a downturn. Why does it usually pay to do the opposite? Because a few sharks (Goldman Sachs, Citibank, Warren Buffet, etc) feed off the massive school of fish. So if you’re smart you’re watching what, say, Warren is doing, not what numerous random commentators on CNBC are saying. And actually as Marketwatch reports, “Paulson & Co., one of the world’s largest hedge fund firms, held 300 million shares of Citigroup Inc. (C)” and, if I remember correctly, Warren Buffet has large holdings of Wells Fargo at the moment (don’t quote me on that).

The dollar has been much in the news lately, or much in the financial news anyway. To the point where Fed chairman Bernake actually made a comment about the dollar, which breaks protocol, where traditionally only the treasury secretary comments on the currency. The interest stemps partly from the fact that the dollar is currently a very good inverse proxy of the stock market. At certain points in time, one thing or another becomes the primary mover of the markets. Previously it was the financials, and before that it was oil. Right now, if you look at the dollar index and compare it with the SPX or the VTI (total market) you’ll notice a high inverse correlation.

My interest in the dollar goes back about 5 years, to when I started bitchin-n-moanin about how my salary was being destroyed by the decline of the dollar. Same old story. I won’t bore you with it. But for example, the Hajj vacation starts next week, and we’d probably go to Europe if the Euro wasn’t so frakkin high.

Anyway throughout the Bush administration they played lip service to the idea of a strong dollar, but never did a single thing about it. All talk no action. It’s my hope that the Obama administration is different and perhaps we could see a strong dollar again. At the moment that might be difficult. I am no economist but the weakness of the dollar seems to me to be indicative of the government’s willingness to pump liquidity into the market. However the American economic situation isn’t any different than elsewhere, indeed some of our news is actually rosier.

And anyway the Emerati dirham is pegged to the dollar, so I’m paid in petro-dollars. So let’s see a strong dollar, eh, Obama. And Bernake, you said something about a strong dollar. Let’s see some action.

Citibank shares have suffered since I bought them, though because, as I noted, it was a long-term trade, I haven’t been overly concerned. There was a bit of a spike yesterday when, as Marketwatch reports, “Paulson & Co., one of the world’s largest hedge fund firms, held 300 million shares of Citigroup Inc. (C) at the end of September, according to a regulatory filing late Friday. Three months earlier, the firm had no stake in the financial-services giant. Paulson’s Citi stake was valued at $1.45 billion on Sept. 30, according to the filing.” I would imagine Paulson & Co.’s rationale behind the investment is the same as mine.

Next week is options expiration week. The statistical tendency about 80% of the time is for the market to rise during op-x. Further I think we’ll be safely past the Halloween effect when the market almost always tanks (as it did this year, right on schedule). There is some speculation that the charts of the major indexes are forming a head-and-shoulders pattern, which would be very bearish. Standard and Poors writes, “The S&P 500 is bouncing back toward the major trendline that acted as support since March, and this resistance sits up at 1,070. This corresponds to the top of the left shoulder in a potential head-and-shoulders (H&S) top. To complete this bearish pattern, the S&P 500 would have to break the neckline down near 1,030. We would also like to see the “500″ take out the October low in the 1,020 to 1,025 zone to confirm an intermediate-term top. A break of the October closing low at 1,025 would represent the first lower high and lower low for the “500″ since the pullback in July, confirm that the intermediate-term trend has turned bearish, and we believe, open the door for another corrective leg down.” Now I have great respect for whoever writes the S&P analysis and I read it fairly religiously, and indeed, there is a head-and-shoulders pattern appearing on several of the major indexes. HOWEVER, there are some technical factors that discount the anticipation of the head-and-shoulders pattern. First, the NDX has already closed above the head for 3 days now, and has crossed above the downward trendline that started Sept 07. The NDX typically leads the broader market. Second, almost all the major indexes are butting their heads against a 50% Fibonacci retracement (drawn from the Sept 07 apex) and so we can anticipate a lot of consolidation at current levels.

I expressed previously why I’m bullish so I’m not going to reiterate it.