27-November-09 by AAP

Dubai's request for a debt moratorium for its Dubai World conglomerate worried markets yesterday, but the Gulf city state can count on Abu Dhabi, its deep-pocketed rich brother, to avoid default, analysts said.

"Dubai as a state... is not on the verge of bankruptcy, thanks to the support of Abu Dhabi," said Pascal Devaux, Middle East risk assessment economist at BNP Paribas.

Dubai is one of seven city states that make up the United Arab Emirates, along with Abu Dhabi. On Wednesday, it announced that it intends to request a "standstill" for at least six months on the maturing debt of Dubai World, its largest and most-indebted state-run holding.

That sent jitters through major world stock markets on fears of a potential default by Dubai, which has a total debt of around $80 billion, mostly owed by state companies.

Standard and Poor's estimated last month that Dubai state-related companies are due to repay some $50 billion in debt over the next three years, which represent 70 percent of the emirate's gross domestic product.

The ratings agency said this week that Dubai World's action amounts to a default and it downgraded companies in the group by several notches.

On the immediate horizon, Dubai World construction unit Nakheel was due to repay $3.5 billion on December 14 in the form of maturing Islamic bonds.

But although the picture appears bleak, Dubai's oil-rich leading partner in the UAE, Abu Dhabi, is seen as likely to shore up the emirate.

"Abu Dhabi would not allow the financial collapse of Dubai," said Dubai-based analyst Ibrahim Khayat.

But he said the UAE heavyweight, which sits on more than 90 percent of the federation's oil reserves and owns the world's largest sovereign wealth fund, might seek to bring Dubai under its control.

"Abu Dhabi could allow the weakening of Dubai within the framework of the competition between the two, but a collapse of Dubai would also affect Abu Dhabi," Khayat said.

Monica Malik, from EFG-Hermes investment bank, pointed out that it is not just Dubai that would be affected.

"This announcement highlights the substantial headwinds facing the UAE economy," she said.

Abu Dhabi has already come to Dubai's help twice since the once-booming emirate was hit by the global crisis last year. The first time was in February, when the UAE central bank pumped $10 billion into a support fund established by Dubai to deal with its mounting debt issue.

And on Wednesday this week, just a few hours before raising the spectre of default, Dubai announced that it had raised a further $5 billion from two Abu Dhabi-controlled banks which subscribed fully to a new bond issue.

Dubai had said it aimed to raise $20 billion through its support fund.

"The fact that Dubai World requested to reschedule its debt at the time when Dubai raised five billion dollars means that either Dubai is in a catastrophic state or that the loan was conditioned to restructuring the whole group," said Devaux.

"There is a competition between the two emirates. Maybe Abu Dhabi is taking the chance to put its hand on Dubai, taking advantage of the crisis," he said.

Confusion surrounds Abu Dhabi's latest cash injection and its allocation, mainly because Dubai said the fresh capital will not be used in the restructuring of Dubai World.

Although Abu Dhabi's oil revenues dropped drastically last autumn due to a sharp drop in crude prices, the emirate should be in a better position now that oil prices have recovered

"Why did Dubai not get the full 10 billion dollars needed for the support fund from Abu Dhabi," asked another economist, requesting not to be named and pointing out that Abu Dhabi could have supplied Dubai with the needed money.

"One would assume that Abu Dhabi knew of what was going to happen in Dubai World before it being announced," he added, saying the extent of Abu Dhabi's willingness to help Dubai remains unknown.

"This is the million-dollar question," he said.

Source : http://www.wabusinessnews.com.au

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Worries over Dubai's debt problems have driven Asian share prices down sharply.

The move by state-owned Dubai World to delay paying some of its debt shook the markets in Europe on Thursday and those nerves spilled over into Asia.

Tokyo's benchmark Nikkei fell 3.2% to 9,081.52, its lowest level since July. In Hong Kong, the Hang Seng was down 4.9% at 21,239.5.

Oil prices also fell. US crude dropped 4.5% to $74.51 a barrel and London Brent Crude was down $1.26 to $75.73.

The biggest underlying fear is that Dubai's problems could reignite the financial turmoil of the credit crisis. That would lower global demand for a whole range of commodities, including oil.

The Gulf state, which has less oil money than many of its neighbours, became a trading and tourism hub with global ambitions.

It said on Wednesday it would ask creditors of the state-owned Dubai World and Nakheel to agree to a standstill on billions of dollars of debt as a first step towards restructuring.

Dubai World, the conglomerate that led the emirate's expansion, had $59bn (£36bn) of liabilities as of August, a large proportion of Dubai's total debt of $80bn. Nakheel was the builder of three palm shaped islands off Dubai.

The news shook markets that are recovering from the collapse of the US housing market and contagion that threatened to rupture the global financial system last year.

"The panic button's been hit again," said Francis Lun, general manager of Fulbright Securities.

Banks and builders were hit hardest as they are the most likely to be exposed to firms with property at the sharp end of the slump.

Source : BBC News

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Monday 16th November 2009

Hot money in, but no way out for central banks priming the surge in Gold Prices...

WITH THE Gold Price now trading above $1100 an ounce, many investors are starting to wonder if the fundamentals really support the yellow metal's seemingly unstoppable upward rise, reports Lara Crigger at Hard Assets Investor.

But it's not just a weak Dollar and inflation fears driving gold upward, says Adrian Ash – editor of Gold News and the head of research at BullionVault, the world's fastest-growing online gold service for private investors.

Formerly head of editorial at Fleet Street Publications, the UK's leading publisher of financial advice for private investors (and regulated by the Financial Services Authority), Ash now regularly contributes to many top gold analysis sites. His views on precious metals have been sought by the Financial Times, the Economist, Bloomberg and others. Here Ash speaks to Hard Assets Investor on the real reasons behind gold's rise, why gold is actually a terrible inflation hedge, and whether or not we're nearing a gold bubble...

Lara Crigger, associate editor, HardAssetsInvestor.com (Crigger): Gold has been on a real tear lately, and analysts often point to the falling Dollar and inflation fears as the reasons behind its rise. But is that really all that's going on here?

Adrian Ash, head of research, BullionVault (Ash): I think there are several elements behind gold going so much higher. Firstly, the attitude toward the Dollar is a really big part of that, because gold is priced in Dollars.

But it's really quite mechanical to say Dollar down, gold up. You have to look further, and Gold has done nominally well against all major currencies too. It's up three times over against the Euro; it's performed very strongly against the Japanese Yen. Against a global basket of the major currencies of the world, in fact, it's made all-time highs. Currency depreciation is a major concern, driving a lot of money toward gold over the last decade. Then there was the government response to this financial crisis.

You can't deny studies that show gold was actually a terrible inflation hedge for the best part of the 20th century. But it was a great inflation hedge during the 1970s, and during a genuine currency collapse, like Mexico in the '80s and '90s, or Southeast Asia in the late ‘90s, or Weimar Germany in the '20s. Certainly it is a fantastic store of wealth when inflation reaches hyperinflation proportions. Gold has been a good defense against deflation, however. If you look at the last couple of years, we had deflation in asset prices. Again, gold has done very well in defending its value over those times, because people move to gold when businesses and banks are failing. They want that physical security that gold offers.

Crigger: So gold will do well regardless of whether we have runaway inflation or catastrophic deflation on the horizon.

Ash: It comes down to this: Gold tends to do well in times of financial stress. And inflation or deflation – they're two manifestations of the same thing, which is the destruction of wealth. High inflation destroys bond investors and cash savings. But then deflation does the same thing, killing banks and debtors indiscriminately, and meaning cash holders and bond holders are destroyed again. The net effect is the same: A loss of wealth. Gold's appeal steps forward there, as it's rare, physical, tangible property.

Crigger: Even though spot prices have shot up lately, investments in the gold ETFs have remained relatively flat lately. Why is that?

Ash: In the past three months, really since the end of summer, the move has been driven by leverage. If you look at the exchange-traded funds or businesses such as ours – yes, we're still doing very well, but we're not seeing the same kind of flood of new business that we saw six or nine months ago – it's very much about institutional traders instead. They're using the very cheap money they can now access. Hedge funds, prop desks at the banks...these guys are basically leveraged up on everything. That's why we see correlations getting very strong again between emerging markets, non-US currencies, precious metals, and equities across the board.

It's very much the reflation rally of 2003-2007 replayed. The broader markets have wanted to get back to that trend. So many financial players have been looking to get back to a world they understand – Dollar down, everything else up – that's why I think you've seen such huge gains across the board between September and October.

Obviously, a lot of hot money has come into gold, and it's coming in through the futures market, so the chances of a sharp correction are much greater than if you had a bulwark of cash buying the physical Bullion.

Crigger: Given this influx of leveraged players in the market, how long do you think gold's upward trend will continue to last?

Ash: It depends on a couple of things. Firstly, what triggered the sell-off in Gold Futures last time, after the March 2008 high of $1032 per ounce? The speculative position in gold futures was then very long, and wanted to get longer. But as the banking crisis kicked in, a lot of the prime brokers – the investment banks who'd enabled hedge funds and other large speculators to take huge positions – had to shut them down, because credit was drying up. The cost of finance was going through the roof. So if you look at the destruction in long positions in mid-2008, any repeat of those circumstances, I think, would probably see prices come off quite hard.

Then again, that environment encouraged physical buying again by retail investors. I'm not saying there would necessarily be a replay of that if that were to happen. But certainly, the kind of environment that would force hedge funds out of long gold positions would likely encourage people to go buy physical.

On the other hand, if the hedge funds were to decide they'd had enough, and were ready to move on, that's a different story. Again, look at the reflation rally of 2003-2007. There was recycling: People would move on from one hot trend to another. Sometimes it was the Euro, sometimes it was oil, or gold. But the three of them in general moved together. So if they were to decide to take a breather on gold for the moment, in the absence of any other kind of shock, you might well see a lack of the same kind of urgency we had in the middle of 2008, and gold would fall.

Crigger: Are we nearing bubble territory in gold?

Ash: Well, obviously any bubble requires cheap finance. So the accusation can certainly be made. But I think where that is amiss is that there simply isn't the overwhelming move into gold by the broader public that you really associate with a bubble.

If you look at gold in terms of how much money has actually gone into it, compared to how much money is still in other asset classes – consider that back in 1982 or in the depths of the Great Depression in the 1930s, gold accounted for huge amounts of investable wealth, probably about one-fifth at some estimates. But today, you're looking at – even at the most generous estimates – less than 5% of investable wealth worldwide.

So my point is that gold is still under-owned by individual investors, and it's certainly under-owned on an institutional basis.

Crigger: So clearly there's still room left for investors to jump in...?

Ash: Well, I think it's obvious what my view is! But what gold has done over the past few years has surprised everybody. Looking forward, yes, I think people are right to say that gold's only going to go higher if there's further trouble ahead. And I think it's pretty reasonable to say that there probably will be.

We've got zero interest rates across the Western world. We've got billions in government debt having to be issued at those historic low rates. How do you get out of that? How does the Federal Reserve, or the European central banks begin to move away from these extraordinary accommodations? I really just don't know.

Hard Assets Investor, 16 Nov '09

Source : Goldnews.Bullionvault.com

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Gains in consumer spending, inventories, housing drive growth

By Rex Nutting, MarketWatch
Oct. 29, 2009, 2:10 p.m. EDT

WASHINGTON (MarketWatch) - The U.S. economy expanded at a 3.5% annual pace in the third quarter, as massive government stimulus helped drag the economy out of the longest and deepest recession since the 1930s, the Commerce Department estimated Thursday.

Along with improvements in key monthly figures on output and sales, the rise in real gross domestic product means the Great Recession is likely over in a technical sense, even as further job losses occur. A formal call on the end of the recession isn't expected for months.

The news of growth was cheered at the White House. But President Barack Obama said it wasn't enough. "We have a long way to go to fully restore our economy," he said in remarks to small-business leaders.

"Obviously fiscal stimulus is playing a crucial role," said top White House economist Christina Romer. "That's what it's supposed to do," she said.

Republicans disagreed. "While some may promote the stimulus as the savior of the economy, it is a claim only the Balloon Boy's dad would make," said Rep. Kevin Brady, R-Texas. "The critics were right: the stimulus is too slow, too wasteful and too unfocused on jobs." Brady said it was the Federal Reserve's easy-money policies that mattered.

It was the first increase in real gross domestic product in a year and it was the strongest growth in two years, the government said. Before growing in the June-to-September quarter, the U.S. economy had shrunk for four straight quarters for the first time since the Great Depression.

The 3.5% increase matched estimates of economists surveyed by MarketWatch.In the past year, the economy has contracted 2.3%. The economy shrank 0.7% annualized in the second quarter and 6.4% in the first quarter. The figures are seasonally adjusted and adjusted for price changes.

Growth was broad-based in the third quarter, with final U.S. sales rising at a 3% annual pace, the fastest in more than three years.

Third-quarter growth was due to higher consumer spending, a slowdown in the reduction of inventories, an increase in residential investments, and robust government spending.

Home building contributed to growth for the first time in nearly four years.

Business investment declined as a small increase in capital spending on equipment and software was overwhelmed by another large drop in investments in structures.

Foreign trade subtracted from growth in the quarter. A big jump in exports was offset by an even larger rise in imports.

Most economists don't expect the economy to grow quite as much in coming quarters, but they aren't forecasting a double-dip recession, either. Most see growth in the 2% to 3.5% range. The adjustment in inventories could add to growth for several more quarters.

The big question confronting policymakers, investors, consumers and economists is whether the economy will be able stand on its own as the federal government's stimulus begins to wane.

Washington is talking about extending some of the stimulus, such as adding more weeks of unemployment benefits and expanding the home-buyer tax credit, but there is little talk of another major stimulus program. See full story.

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DJ comeback: Stock market's best-known barometer closes above 10,000 for 1st time in a year

* By Tim Paradis, AP Business Writer
* On 9:16 pm EDT, Wednesday October 14, 2009

NEW YORK (AP) -- When the Dow Jones industrial average first passed 10,000, traders tossed commemorative caps and uncorked champagne. This time around, the feeling was more like relief.

The best-known barometer of the stock market entered five-figure territory again Wednesday, the most visible sign yet that investors believe the economy is clawing its way back from the worst downturn since the Depression.

The milestone caps a stunning 53 percent comeback for the Dow since early March, when stocks were at their lowest levels in more than a decade.

"It's almost like an announcement that the bear market is over," said Arthur Hogan, chief market analyst at Jefferies & Co. in Boston. "That is an eye-opener -- 'Hey, you know what, things must be getting better because the Dow is over 10,000.'"

Cheers went up briefly when the Dow eclipsed the milestone in the early afternoon, during a daylong rally driven by encouraging earnings reports from Intel Corp. and JPMorgan Chase & Co. The average closed at 10,015.86, up 144.80 points.

It was the first time the Dow had touched 10,000 since October 2008, that time on the way down.

"I think there were times when we were in the deep part of the trough there back in the springtime when it felt like we'd never get back to this level," said Bernie McSherry, senior vice president of strategic initiatives at Cuttone & Co.

Ethan Harris, head of North America economics at Bank of America Merrill Lynch, described it as a "relief rally that the world is not coming to an end."

The mood was far from the euphoria of March 1999, when the Dow surpassed 10,000 for the first time. The Internet then was driving extraordinary gains in productivity, and serious people debated whether there was such a thing as a boom without end.

"If this is a bubble," The Wall Street Journal marveled on its front page, "it sure is hard to pop."

It did pop, of course. And then came the lost decade.

The Dow peaked at 14,164.53 in October 2007, then lost more than half its value after the financial meltdown last fall. At its low point, the average stood at 6,547.05. The breathtaking rally since then brings stocks to roughly break-even for the past 10 years.

On Wednesday, the Dow rose 144.80, or 1.5 percent, to 10,015.86, its biggest gain since Aug. 21 and highest close since Oct. 3 last year.

Broader indexes also climbed to 2009 highs. The Standard & Poor's 500 index rose 18.83, or 1.8 percent, to 1,092.02. The index, the basis of many mutual funds, is up 61.4 percent from a 12-year low in March.

The Nasdaq composite index rose 32.34, or 1.5 percent, to 2,172.23. It's up 71.2 percent since March.

So where does the market go from here?

Some market watchers see 10,000 as an illusion because there are still lingering threats to an economic recovery -- rising unemployment, weak consumer spending and a battered housing market.

The investors who have driven stocks higher since March are the pros: hedge funds and institutions whose furious selling hastened the collapse of the market in the first place.

And red flags are showing up in the technical charts that professional investors use as they make their trading decisions. The Dow sits about 18 percent above its average of the past 200 days.

"The market by all technical indicators is completely overbought, just like back in March it was completely oversold," said Rich Hughes, co-president of Portfolio Management Consultants in Los Angeles.

On the other hand, Wall Street analysts say 10,000 is more than just a number -- it can have legitimate psychological implications.

A recovering stock market soothes the psyche as people watch their portfolios and 401(k) retirement accounts being replenished. And if people start spending again, that may persuade more investors, including some reluctant pros, to go back into the market.

"Psychology plays a huge role in investing, so when you're trying to overcome the huge levels of panic and fear that we've seen over the last year, psychology shouldn't be discounted," said Carl Beck, a partner at Harris Financial Group.

Many investors, especially individuals, are afraid they'll put money into the market only to watch it disappear if stocks plunge again. It's happened before: In 1975, stocks rose 53 percent in less than four months after a recession. Then they lost 11 percent before climbing again in early 1976.

If stocks follow historical patterns, they could be nearing their peak. Assuming the recession technically ended this summer, as many economists believe, the Dow's surge since March puts it near where past rebounds have started to fade.

On top of that, there are still plenty of problems that could trip up the market. Companies posted better-than-expected earnings in the second quarter, but mostly because of cost-cutting, not the sales increases needed to keep growing.

Earnings reports from chip maker Intel Corp. and banker JPMorgan Chase & Co. gave the Dow its final push past 10,000.

JPMorgan, the first major bank to report third-quarter earnings, stoked the market's optimism as it easily beat Wall Street's expectations, reporting a profit of $3.59 billion for the July-September period. The stock, a Dow component, rose $1.50, or 3.3 percent, to $47.16.

Financial stocks have posted the biggest gains since the rally began, but they were also among the most decimated. JPMorgan is up 197 percent and Bank of America Corp. is up 492 percent.

Intel also beat analysts' estimates, reporting a smaller-than-expected drop in profits and sales after the market closed Tuesday. Intel rose 34 cents, or 1.7 percent, to $20.83.

Individual investors remain cautious. In August, well into the rally, they put $11 into bond funds for every dollar they put into stock funds, according to the Investment Company Institute, the mutual fund trade group.

But they appear to slowly be coming back to stocks. Retail brokerage TD Ameritrade reported an average of 431,000 trades a day in August, up from barely more than 300,000 when the market was sliding in January and February.

If the market can hold Wednesday's milestone, investors should grow even more confident.

"It wouldn't surprise me if it made Joe Main Street more comfortable," David Kelson, portfolio manager of Talon Asset Management in Chicago.

Bond prices fell as stocks soared. The yield on the 10-year Treasury note rose to 3.42 percent from 3.35 percent late Tuesday.

Oil jumped $1.03 to settle at $75.18 a barrel on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies rose 12.24, or 2 percent, to 623.94.

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