Dubai: was it Smiley?

Cheers! Abu Dhabi has ridden to the rescue at the last minute (visualize elegant Arabian thoroughbreds galloping on the air-conditioned beaches of Dubai).
Enough billions have been made available to redeem at full value the Nakheel bond expiring as we speak.
Was it, after all, a clever Smiley-like operation, as we suspected it might be?
We will never know, as we will never know how much of those bonds changed hands at the distressed levels, nor who bought them.
All eyes now on Greece. No, it will not default. Nor leave the EUR. But all kind of poop might hit the ventilators before another cavalry charge resolve the day.

Clearly the Greece situation would warrant dedicated expectorations. But there again, so would High Frequency Trading, which is becoming the next bugbear. No time though.

Bash the bankers? OK, but don't forget splitting them!

Judging from the excited cackling pervading every media, from the blogs to the tabloids, it certainly appears that Mr. Darling, the UK Chancellor, has set some kind of aggressive feline loose among the pigeons.

Pointless as it might be, here are the haruspex summary of the situation, and humble views, having read the opinions of more illustrious commentators, discussed with learned friends.

UK Plc and its subsidiary RBS

ERRATA: it turns out that DJ got the below wrong. the revision was not to -1.5%, but to 1.5%.
Infuriating. So a minor slowdown, within noise, which is actually quite encouraging for the good old UK manufacturing sector. Still, the market was spooked. But maybe it was something else. RBS ended down nearly 8%.
Now need to check the German number... was that wrong too?

Fear and trembling

Terror and tremor. Yes, I am aware I am calling the name of Søren in vain.
But I am amazed at how the US stock market managed NOT to rally strongly on what were, at least by my humble measure, some bloody surprisingly good payrolls numbers, especially  given that previous 2 months were revised as well. 
In fact, they look good enough to make me seriously want to reconsider the view, now longly held, that the economy is rolling over (e.g. second derivative negative), leading to problems early next year.
It is just one number, among several others which point in the opposite direction, but an important one, so it has to be taken seriously.
I can't say that I have turned bullish (yet): but I do want to re assess and re evaluate... when the facts change... 


In the meantime, all thanks go to my historian friend who plugged my memory hole, and corrected my ignorance of philosophy. Ciao!

let's face it: it's quiet

It's good time to catch with all those books on the "to read" pile.
It's quiet. It's dead. In the markets at least. You hear it from the trading floors, from the brokerages, from the financial journos... everybody wants to shut up shop and call it a year.

So we use this time to tidy up, enter a few more trades (see views and positions), to think, to read, to do more worthy work.

It's quiet... it's dead. Till something happens, at least.

Enough with Dubai

The global concerns in the markets for the Dubai are now abating. A statement (in full here) has been released which clarifies that Dubai World
is trying to restructure just 26 GUSD of debt, and that "constructive" talks are starting.
This is probably the end of the story, as far as markets are concerned.

Probably, quite rightly too. The chances of unexpected bad news coming out before XMas (the Dad's army scenario) are now very slim. Was it Smiley's? We'll never know.

Apart from the localized hit in the Gulf, equity markets are back where they were, more or less. Bonds though are still near the highs, but they were on an uptrend anyway.
Recent pieces of economic news have been tinged of a rosy hue, cancelling the mood effect of the darker ones from previous weeks.
The views then revert to what they were. Use the time to prepare for next year.

Why the picture? Well, why not?

Dubai. Dad's army or Smiley's people?

The Financial Times mantains the line that there was amateurishness and incompetence in the way Dubai handled the recent events and it follows by recommending  Abu Dhabi to clean up the mess.
This reading of the events is plausible. Let's call it the Dad's army hypothesis.

Under this view, Dubai's autocratic rulers would not have access to professional, market savvy bankers and consultants, or if they do they would have overridden their advice. That is not impossible: the FT itself reminds us that Deutsche Bank has fled, leaving only Rothschild to advise Dubai World, one of the main entities of Dubai Inc.

This scenario though raises fears and doubts, if you are prepared to entertain the feelings of deja vu: normally when incompetence is on this scale, the worst follows soon after.
Remember Parmalat? You could tell the writing was definitely on the wall from the moment that the famous letter appeared, written in terrible English. Incompetence and amateurishness were a clear signal of the scale of the fraud to be soon revealed.
If this turns out to be the case, we should expect worse news to come out of Dubai over the next few days.
It is most  likely that a REAL panic would ensue, not the test run we saw on Thursday. All bets would be off, especially with liquidity so dire.

The other scenario, for which we have a sentimental preference (see our previous blog below or to the side) paints the Dubai operators as canny and uber-professional,  not unworthy of Smiley's best.
In this narrative, the announcement was indeed meant to feel botched, and intentionally released at the worst possible time, on the eve of Thanksgiving, during Eid, with the aim of provoking the foreign investors to rush and sell the Nakheel bond at very low levels (the excellent macroman writes they are trading below 50), in order to scoop them up on the cheap, saving a billion or so. Domestic investors would be less prone to panic, would accept the deferral till May, and be made good then.

a coffee, quick ...

This is rubbing-eyes time.
Given current illiquidity, the little prank from Dubai could just turn out to be the minor "ooops!" that sets in motion a nasty chain reaction across markets.
Especially combining it with news from Greece and from german banks.

Note though that none of the above have a direct bearing on the US: when NY stock market reopen seriously next week (today is still affected by thanksgiving absentees) it might just shrug it all off and power ahead, given that it is dominated by machines.
But the bond market is more serious, or at least is supposed to be. We should take are cues from there.
And at the moment, they suggest no shrugging off... they have moved up relentlessly, just as the short term interest rate futures.
Some comfort, and possibly a hint of smugness, might then be derived by those long OTM puts that the wise haruspices would have accumulated over the last few weeks, as discussed you know where.

One wish one could just section a chicken, and take a peep inside.

is Dubai playing chicken?

A doubt is raised by the current news (or lack of) from the Gulf.
What game is Dubai playing? might that be a game of chicken ?
Summary:
Dubai World is asking to delay payment on ALL of its debt, includinig the convertible sukuk (the Nakheel) expirinig in a few days, 3.5 G$USD (G= 10^9=billion) .
Dubai should have received 10G$  from Abu Dhabi, in support. It received only 5... that's bad isn't it? well... Actually Dubai has drawn down only 1.

Now consider that it is Eid, a 2 week long holiday for the locals. It is also Thanksgiving, which traditionally starts the low liquidity time in most markets.

Could it be that Dubai is trying to spook the market? push down the prices of its own bonds, so as to buy them back much cheaper, maybe drawing down on those remaing 4G$? maybe using some arms-length, "unconnected" agencies...

Boring Gold

Everybody is talking about gold. Can we avoid it? It's winter, days are shortening, gold gets its eternal allure for reminding us, in our dark and damp caves, that the sun god will rise again.
Enough crap: here is the chart of the dec9 future price.

Do we buy it, do we sell it, do we steer clear?
Quite a few people are buyng:
the central bank of India recently bought 200 tonnes from the IMF, bringing its percetange of reserves held in gold to ~4%. Note that europe is said to be above 60%. Note also that the IMF has sold double that quantity.
Paulson the hedge fund manager is buying it. He has started a new fund just for the hell of it, and he himself will put at least 250 M$ of his own money (that ~7 tonnes of gold).

There are rumours that his assorted other funds might already have accumulated ~10% of their NAV in gold assets, that is ~3 G$ (3 billions dollars) i.e. ~80 tonnes of gold.
No idea whether that is believable, but if it is, and was accumulated over the last few months, it could have helped driving up the price, given the size of the market.
 Here are some numbers, courtesy of the World Gold Council:

UK NS&I pulls the amazing rates

This post, back in October, discussed how a branch of the UK government was offering a fully guaranteed 1year rate of 3.95% to savers and  investors  (up to 1 M£ per head).
We wondered what it might mean: at the same time the UK treasury rates for 1y were way lower than 1%.


The amazing offer has now been pulled:
"the 1–year and 2–year Issues of our Guaranteed Growth Bonds and Guaranteed Income Bonds were withdrawn from sale at close of business on 18 November 2009"


as the size offered has been snapped up. Alas we have been unable to find what that size was, and why those amazing rates were offered at all. No point in repeating our speculations from the aforementioned post.

A thing of beauty

Another day, another move away from the mode  "risk ON-risk OFF".
All assets rallying irrespective.
A good trading day for humans, at least some humans. Plus ca change.
One wonders how the machines are doing.
One wonders about regimes changes too,
and about gamma-squared models (I know you're dying to know more...),
and about whether finally to bite the bullet and read La Recherche.
Indeed wondering is the new panicking.

US unemployment

Unemployment in the US of A at 10.2% (this is the number of people looking for jobs), overall underemployment at 17.5%: the 10.2% plus those that have stopped looking, plus part-timer that'd prefer full time.
The number of hours worked per week remains at the low, 33.
Granted, it means nothing for the equity market, and only a little for the bonds one.

Sort of confirm the fear that by end of march next year we might be deep in brown muck again.

Requiescat in pacem, monsieur Levi-Strauss

"Otherwise engaged" cardboard sign been hanging on our shack door for the last couple of days. Chicken been in celebratory mood, their intestines not forcibly removed for inspection.

Consequently, our scarce, if profound, readers should be alerted to the low divinatory quality of this current expectoration: AND it's gonna be about the booooring markets, so if you are here to read about Claude Levi-Strauss, skip straight to end, spare you the head-shaking.
Exhibit 1: yawn, baby, yawn


Be it as it may... here it goes.

Day of the Dead

The Day of Dead follows All Hallows' Day. It is a day of obligation,  a day to walk to the cemetery, with Chrysanthemums maybe, in a somber mood, savouring the last smells of autumn, smells of white grapes, fog in the northern plain, logs burning inside rusty oildrums in  the street markets.

Today, the rain is finally falling in the back garden, the wind shakes down the yellow leaves, and it reminds me that originally I got the date wrong... I thought it was today. Ooooops.

Anyway, not a good day to slaughter chicken, you might concur. Better to sit back and reflect, maybe aided by a proper glass of something. On a day like this, that might have to be a decent Beerenauslese.


Some of these reflections will indeed be on the markets' likely behaviour in the next few days, and I will post them in our site. Maybe also evaluations on the overall year: better men than me are doing it, see for example the excellent  article by Auther in this weekend's FT Longview (not there yet).


But mostly, there are loftier things to mull about on such an afternoon. So I will cut it short here, wish you a pensive Day of the Dead, and go back to the Beerenauslese, the dead leaves, and the violons d'automne.

As if on cue...

written this half an hour ago:
<<... the SPX down 1.7% as we speak... giving up yesterday gains... on numbers which in theory were expected (consumer spending down, consumer confidence steady at low level)

Silly market indeed. Good to be long gamma!
>>
now down an additional 1%

Yesterday and today's move "sort of" cancel out, though volume is higher on the down moves (as it has been for a while). But they are big moves. We are entering interesting territory: the views confirmed. We stay long gamma.

EDIT: I can't resist one more line: VIX is at 30 again. There is a whiff of panic around. One feels like head-shaking

Big bounce yesterday in equity markets, with everything else as expected (bonds down, short term rates up, oil up, gold up, etc).

Of course driven by the first estimate on US Q3 GDP, coming in at 3.5% annualized on previous quarter, which was marginally higher than the 3.2% the median expected. So what... what's statistical uncertainty on it? 0.5%~? Physicists get my drift.

This morning european numbers are not so good.

PPI and CPI numbers in Germany, France and Italy are lower than expected or negative, continuing the deflationary trend, EU official unemployment stays at 9.7%.

So what's new?

Nothing has changed.

Don't get too excited: Markets remain very nervous and volatile.

Outlook remain the same.

Stay the course.

Listen to Bob Dylan .

Whatever.

UK NS&I mystery rates

For those who have not yet noticed.
The UK National Savings and Investment 
"is an Executive Agency of the Chancellor of the Exchequer"
whose
"products offer 100% security, because NS&I is backed by HM Treasury".

They are offering 1 year bonds yielding 3.95% gross, for up to 1MGBP: http://www.nsandi.com/interest-rates/index.jsp

The gilts issued by Treasury with ~1year to maturity are trading at less than 0.7% yield.
It is difficult to arb for technical reasons, (see discussion on: http://www.nuclearphynance.com/Show%20Post.aspx?PostIDKey=135448 )
but it still begs the question of why is the Chancellor undercutting his own treasury.

The haruspex agrees with others thinking that it is a politically inspired move to placate the legions of grey haired British savers  whose hard earned cash is earning zilch.
We should probably expect soundbites soon.

But a nagging doubt remains.
Do the crafty accountants at NS&I know something that we don't?
Are they frontrunning the treasury?
Is it time to short gilts big time?

Who knows. Too late to slaughter a pigeon.

First post

Let's be short. This blog is supposed to be a series of short burst from the haruspex, mainly on the state of finance and the economy.
The background is in trading, wholesale trading of derivatives and toxic stuff, volatile slaughter and gaussian random walks.
The eternal faith is in the nudity of our sovereigns of the universe, and the void left by the death of  rational expectations, replaced by  just a few expectorations.
The main website www.haruspicy-finance.com will hold more stuff, including practical examples of how to apply the discipline of innards contemplation to the task of  trading  securities.
Good luck.