Can You Spot a Design in Market Madness? - Cartels at Work

Sixth of May 2010. A day I simply cannot seem to erase from my recent memory region. US markets plunged nearly 10% on a single day!!! Dow Jones Industrial Average crashed 1010 points from its day high. New York Times headlines screamed "Stocks Plunge on Concerns Over Greece". Investors on Wall Street are left licking their wounds and the general public sympathizes.

Concerns over Greece? What was so new about concerns over Greece on that particular day that stock prices had to be reduced to few cents and then made to rebound up to 70%  within an hour or so? By the way, financial problems facing Greece was not a new fact uncovered that very day that market players had to sell off in utter shock anything and everything in sight in such tearing hurry. In fact on 17 Dec 2009 I had published a post titled "Debt Laden Dubai - When Will The Woes End?". In that post I had indicated that Greece and Spain were simmering with debt troubles and global investors were worried more on that account than Dubai defaulting. It was common knowledge in global investment circles for the last six months or so that Greece was tottering on a serious financial crisis and would be the first of the European nations to start the Domino Effect. Now would the regulators please explain to US public as to what really happened on 6th May 2010 and who were the extraordinary beneficiaries?

One can understand European markets selling off with one or the other bad news. First from the blocks was Greece with its credit contraction, then Spain bailing out one of its banks and then Germany banning short selling - all that is understood. In between North Korea brandishes its sword on South Korea and China goes on clean up drive to rein in inflation by pulling back some stimulus packages in small measures. Perfectly fine. But what would you say when Financial Times on 26th May tells investors with all authenticity that China was going to sell its reserve of Euro bonds. China holds about $ 630 billion in Euro bonds. That news sent jitters down the spine of global investors.

The shock waves created in Europe from the shattering news in Financial Times was so great that Euro currency nosedived and almost became  serious competitor of Zimbabwean Dollar!! With it the European stocks were dragged down and US exports to Europe presented a great challenge. Pandemonium broke loose in global investment circles. Dow Jones lost 230 points from its day high. Investors were planning their exit strategies further when the very next day China in a surprise move rubbished the news of Financial Times and reiterated its faith in Euro and the European Union. European markets and Euro rebounded with zest and Dow Jones gathered 295 points extra weight.

In all this high drama, one thing stands out very clearly. Influential parties will go to any length and pull off any stunt to browbeat the investors. How can Financial Times, the venerable publication of global markets, be so callous as to publish a news which is so far from the truth? Who are responsible for painting such panic-setting scenarios? Has Financial Times apologized to the investors and to its readers? Will market regulators take some time off their busy schedule and look beneath the cover? Bizarre things are on the cards in global markets. There will be more rude shocks and many more deceptions. Wild swings will tear short term  traders apart on both sides of the trade. Welcome to the Year of Volatility, because cartels are at work with a vengeance.

I will be providing more evidence of big boys of Wall Street who are working in cahoots with other big global players to swindle billions from honest investors. Watch this space for more on this issue of cartelization. Till that time just mull over the news that Wall Street investment banks have engaged lobbying firms for close to $ 450 million to block financial bank reforms in US. You will get to know more about big boys of stock markets and their Machiavellian plans in the sequel to this article. God save US investors!!

Debt Laden Dubai - When Will The Woes End?

Fortnight ago Dubai World's request to its creditors for debt repayment restructuring plan had sent sentiments of global investors into a tizzy. In taking precautionary stance, global investors had exhibited an urgency to take cover at this slight bit of adverse news in global financial ecosystem. That amply indicates that risk taking appetite of global investors is surely on the wane. Otherwise, how do you explain a puny $ 26 bn expected default scaring the wits out of investors in South East Asia, across Indian Ocean to Europe and across Atlantic to the Americas?That's pandemic contagion, if you may!!

But why is the global investor getting spoofed so easily. Could it be that Dubai World episode portends destabilizing happenings in global financial ecosystem in days to come? Does Dubai World indicate that the cup of global financial woes is finally spilling over? Does Dubai epitomize the surreal world of tall dreams with borrowed money, whose nemesis is in offing? To get an answer to all that let us first understand the nuts and bolts of Dubai and Dubai World.

Dubai is one of the seven Emirates under the federal governance of UAE. It started off as a trade based oil-reliant economy but presently has turned itself on its head as a service and tourism oriented economy. This has been necessitated because of the belief that its oil reserve will last only twenty more years.

Dubai World is a state-owned conglomerate which deals in real estate, financial instruments and various other business ventures . Its real estate arm, Nakheel has to its credit the Palm Trilogy, three palm tree shaped man made islands, as also Burj Dubai, the tallest free standing 818m high man made structure being built. 'The World' is another extravagant real estate development project which aims at creating 300 islands off the coast of Dubai resembling the continents of the world. All such projects come at an exorbitant price and are insanely expensive for all parties connected with such projects.

It is estimated that the actual debt burden of Dubai's government-related-entities is 116% of emirate's GDP. That's what has prompted economist to put the tag of 'debt laden' to Dubai. Such a tag is also being put on fancied European countries like Greece and Spain. Many East European countries have also earned this sobriquet. So the global investor was spoofed not by the size of expected Dubai default, but that one sovereign default may trigger an avalanche of other sovereign defaults.

But now for some good news. Last Monday was pay time for Nakheel's bonds which had matured and the creditors could be paid off $4.1 bn. A bond default was avoided at the very last moment when Dubai's oil rich neighbouring emirate Abu Dhabi came to its rescue with $10 bn dole, like a knight in shining armour. This total sum of $10 bn will see off debt servicing requirements of Dubai World till April 2010. What after that! Will Dubai have to periodically stick out the begging bowl for servicing debt of its state owned entities?

To get an answer to that and more, do watch this space in coming days.