Who’s ready for some Christmas cheer?

• kevinmhughes
• November 27th, 2009

By now everyone has probably heard that Dubai World (basically the city of Dubai) has asked it’s creditors to help restructure debt/hold off repayments for 6 months, what ever the you’ve heard, it is not good…   Dubai World is in a nut shell is an investment company that focuses on real estate for the Dubai Government.  We know them as the brain child behind Dubai, the city that was built out of nothing (like most were) but it was built essentially overnight.  It’s the home of the only ’7-Star’ Hotel, state of the art EVERYTHING and building that no one ever thought could be built (not to mention man made islands).  The company is carrying a debt load of $59,000,000,000.  Here is an article about Dubai with pictures going back to 1990. The city was clearly developed for commerce, trading & everyday life; just like every other city in the world but this was more technologically advanced, looked ‘prettier’ and is new.  I’ve heard of some friends going there for business as well as seeing pictures and it truly looks & sounds amazing.  As a trader in the financial markets and someone (like yourselves) who has just lived (and currently living) in a horrific economic downturn where banks,  Wall St. & some would even say traders like myself are blamed for everything that happen, I think the real concern should be: Who holds all the debt that this investment company has?  What sort of impact will this have on the financial stability of those banks, their countries & the gazillion dollars of stimulus that was just shoveled out?

The banks with the most exposure to this debt are:

RBS = $2,300,000,000 (17%)

HSBC = $17,000,000,000 (28.8%)

The exposure of this is nothing to look over.  What does this do for the government assistance that was poured out to help the global recovery?  It’s a slap in the face.  This is just for the Europe as a whole, it’s a slap in the face to every country across the world (except maybe China, who knows what they’re doing over there – I’m still waiting for Hu Jintao to accept my friend request on Facebook), the U.S. is not excluded.  My question is, why wasn’t this audited when the global economy took a nose dive almost one year to the day?  Why wasn’t Dubai World capital called like everyone else?  It’s all real estate, nothing different than an entrepreneur that is good at identifying the right house to invest in… If these banks aren’t able to restructure this debt, Europe went through the ‘infamous’ stimulus route for nothing.  I’m not sure is they are like Bank of America & hording all the government money, but if they aren’t, they sure won’t be lending anything soon.

What affects is it going to have on the currency market (or exchange rates)?  Well, yesterday, Thanksgiving, when the news was released the Euro ($EUR) & Pound/Cable/Sterling ($GBP) plummeted like a cinder block in water.

My thoughts for the new month is that the $EURUSD & $GBPUSD will regain some composure & strengthen until everything is sorted out.  I’m saying that because of the bullish wedges formed on the 30 min charts.  If something is said or happens over the weekend, just forget I mentioned the last sentence.

As for the $USDJPY cross.  That pair is in trouble.  It is currently sitting below a 14 year support (86.55) on the monthly chart.  If, on Monday, this pair stays & closes below 87.55, we need to be on alert in my opinion.  If on  December 31, 2009 the pair closes below 87.55, technically speaking (from a monthly chart) the next support is 83.65.  If the December scenario happens, I’m shorting the pair until it reaches that level (the levels are marked with the yellow lines).

Anther currency cross I am keeping my eye out for is the $USDCHF.  It is currently sitting at the 1.0054 level.  Which means we are still stronger than the Swiss Franc ($CHF).  Back in March of 2008 the $USDCHF hit a low of .9609 which mean we (the U.S.) were the weak currency.  We tested the .9911 level on November 25th. The 30 min chart is currently forming a bear flag (which is bearish).  I do believe by the completion of the 1st week of December 2009 we are going to test that .9911 level again & if it is broken we’ll see .9609 again.  (The top image is the Monthly chart while the bottom image is the 30 min chart forming a bear flag inside the yellow rectangle).

Overall, I am still bearish on the $USD.  There still isn’t any confidence in our economy, leadership or situation.  This Dubai situation will creep back up and hit the EuroZone very hard!  This is a situation that could have been avoided.  In the interim, I believe the stock market will rally while the USD looses some more ground.  And maybe as a Christmas present the $USD can pop out of it’s downward channel.

*DISCLAIMER* The debt numbers for the banks above came from a Bloomberg.com article.  Also, if this Dubai situation worsens over the weekend, I will be changing my sentiment and shorting anything European, especially bidet‘s.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: $EURUSD, $USDCHF, debt, Dubai, GBPUSD, USDJPY

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