BAGAKOAA November 27, 2009 Skoo Be Doobe Be Doo Dubai
November 27, 2009
Skoo Be Doobe Be Doo Dubai
Well the markets getting close to wrapping up early today after taking a hit today because of some serious jitters over in Dubai. Their government has an investment corporation and when Oil was 90-120 a barrel, they went kinda crazy and over leveraged themselves. Without boring you, the U.A.E. is a government made up of seven Sheikdoms, the largest being Abu Dhabi. Dubai World investments is the one currently defaulting. They are asking that interest on more than 60 billion in debt be pushed back. Well that is sending investors all over the world to safe harbors. So you see equity market closing lower. (although the FTSE and the European market bounced back at the last minute this morning). You are seeing the dollar climb as it is considered a relative safe harbor. Because the dollar is strengthening, you are seeing commodity related stocks and ETFs adjust down a bit. Just look at your gold stocks, oil and oil related stocks today.
So are we in for another Armageddon? Probably not. There are going to be some banking stocks getting stung, like RBS, HSBC, Barclays, Lloyds, Standard Charter (sorry Douglas), and ING. So how do you play this news? Abu Dhabi is probably playing tough love with its neighboring Sheikdom Dubai by not immediately bailing them out.. To the UEA and Abu Dhabi, 60 Billion is like the cost of a used couch. We might have to think about it but it is not going to kill us if we buy it.
Unless the UAE as a whole abandons it brothers in Dubai, this should be addressed in a couple of weeks. So here is how I would play it. Keep an eye on what is going on with the WSJ, Bloomberg’s, and Baron’s coverage for the latest and greatest. Play the VIX (Chicago Board Options Exchange measuring the volatility in the market) trade, for the next few weeks as volatility will be in everyone’s mind. VXX, the Schwab VIX offering was up 5% today. I am in and will look for another 5-10% over the next week or so. On top of that look at your portfolio and look at the ones you love that might be taking an unrelated hit to this news. For instance GLD was down a tad, grab some as Gold should continue its rally. Oil stocks like CVX and RIG are both down today because of the stronger dollar. I added a few shares today on the dip. Large industrials took a small hit today so it was a good time to add some HON and BA and GD to the portfolio, IF you have done your homework. Adding to your bank holdings right now would not be advised. While most of the collateral damage in the Dubai defaults impact UK banks, the banking industry is so incestuous, it may take a while to figure out who might get hurt. If you have a bank you like, (HBAN, BAC, STD, WFC) hang with it and keep an eye on your stops.
Hope everyone had a great Thanksgiving Day here in the states and for the few readers outside the US, get to work, what are you doing reading this blog on your job.