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Daily State of the Markets |
Good morning. While it is tempting to work this morning’s missive around the title of one of the greatest rock albums of my generation – especially since the NFL announced Thursday that Pete Townshend and Roger Daltrey’s little band will be the halftime entertainment at this year’s Super Bowl in Miami on February 7th – we’re actually referring to the big question in the market right now. As in: Who’s next in terms of debt defaults?
If there is such a thing, the Vegas line likely favors the Ukraine at the present time as prior to the Dubai mess, we had been hearing a great deal of talk about a sovereign debt default there. But then again, although the game of “who’s next?” can be fun, we should probably avoid borrowing trouble in this department and stick to the matter at hand: Dubai’s $59 billion debt.
To review briefly, two quasi state-owned companies (Dubai World and Nakheel) from Dubai created somewhat of a global panic last week after they announced Wednesday that they were seeking a six-month time-out on their debt payments.
Based on the concept of “build it and they will come,” Dubai’s rapid growth revolved around the ruler Sheikh Mohammed bin Rashid al-Maktoum, who outlined his big ideas in his book, “My Vision.” The book suggested that other Arab countries could replicate Dubai’s big success by quickly building big shining cities in the desert through the import of foreign residents, finance and labor. But instead of a big idea whose time had come to the middle east, now the big bet on a big city based on big debt seems to be a big problem .
Stocks around the globe initially dove hard in response to the news. However, after European bourses staged a turnaround on Friday, the losses in the U.S. were a fraction of those seen in Asia, and the WSJ suggested that the panic was overdone, the situation appears to have calmed down a bit.
The bulls will argue that this is not Lehman Brothers revisited and that the problem is localized to Dubai. However, on the other side of the aisle, our friends in fur contend that this is a contagion waiting to happen and there is no telling who’s next in this game.
The good news is Asian markets advanced on Monday after the U.A.E. central bank said Sunday that it had provided additional liquidity facility to banks in the region and announced that it “stands behind” the banks in Dubai. The bad news is there are reports this morning that the Dubai government will not guarantee Dubai World’s debt and a top Dubai official stated creditors will be affected in the short term by the firm’s restructuring.
So, will the markets here at home play “who’s next?” today or brush the problem aside and focus more on the state of the shopping season and the economy. Don’t forget, we’ve got the November Jobs report on Friday and there seem to be minute-to-minute updates on what shoppers are doing. On the shopping front, the bottom line is retailers appear to be seeing mixed results so far as more shoppers hit the stores over the Black Friday weekend but apparently spent a little less.
Turning to this morning, we do not have any economic data due to be released before the bell but we will get reports on the Chicago and Milwaukee PMI at 9:45 and 10:00 am respectively.
Running through the rest of the pre-game indicators, the foreign markets are mixed by region with Asia up nicely while the major European Bourses are not as enthusiastic with France off -0.54%, Germany down -0.85%, and London’s FTSE up +0.28%. Crude futures are basically unchanged with the latest quote showing oil trading up by $0.03 to $76.08. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.24%, while the yield on the 3-month T-Bill is currently at 0.04%. In addition, gold is down $1.50 and the dollar is weaker against the Yen and Pound. Finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently head by about 15 points; the S&P’s are up about 2 points, while the NASDAQ looks to be about a single point below fair value at the moment.
Wall Street Research Summary
Upgrades:
HSBC Holdings (HBC) – BofA/Merrill Procter & Gamble (PG) – Mentioned positively at Bernstein Genzyme (GENZ) – Citi AFLAC (AFL) – Credit Suisse Abercrombie & Fitch (ANF) – FBR Capital Sonic (SONC) – Removed from Conviction Sell list at Goldman Banco Bradesco (BBD) – Goldman U.S. Steel (X) – Added to Conviction Buy list at Goldman Deere & Company (DE) – JP Morgan Safeway (SWY) – Morgan Stanley Stryker (SYK) – RBC Capital US Bancorp (USB) – RW Baird DuPont (DD) – Added to Global Top 40 at UBS Barrick Gold (ABX) – Added to Global Top 40 at UBS Wal-Mart (WMT) – Added to Global Top 40 at UBS Microsoft (MSFT) – Added to Global Top 40 at UBS Teva Pharmaceuticals (TEVA) – Added to Global Top 40 at UBS
Baidu (BIDU) – Bernstein Freeport-McMoRan (FCX) – Removed from Conviction Buy list at Goldman Supervalu (SVU) – Morgan Stanley Franklin Resources (BEN) – Pali Research Bristol-Meyers (BMY) – Removed from Global Top 40 at UBS
Long positions in stocks mentioned: GS, MSFT
Be sure to keep everything in perspective and until next time, “may the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
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