Something to Think About
As I am sure everyone knows, the small city-center of Dubai is trying to delay payments on debt which may or may not constitute a debt default. There was some degree of panic across the world markets on the news because after all, things like this don't happen in the midst of a robust recovery like the one we are told we are in. All eyes turned towards the US market open today to see how bad things were going to get.
Answer: Not bad at all.
Yes, the indices all ended lower by about 1%, but there was no real force behind the selling. It almost seemed staged; something like "this Dubai news is bad, we should sell off a bit to show a good face".
Here is my take on the whole thing. Over the last week we have seen severe credit/debt/currency stress headlines. Items include the Dubai issue, Greece CDS, Vietnam devaluing by 5%, and new increases in personal bankruptcy. None of these things make a difference even though they should. Why you might ask? The answer is very simple:
Everyone everywhere now firmly believes that there will not be any shock to the system that a government will not bailout.
Example, from Clusterstock today:
JP Morgan: Stop Freaking Out, The UAE Can Easily Save Dubai
No worries if the biggest waste of construction in the middle east is going down, the UAE government will step in and make HSBC (among others) whole. If not the UAE, any exposure JP Morgan may have would qualify under the "too big to fail" category and promptly be backstopped.
This is leading to a dangerous mindset. Market participant s are almost cocky right now and placing bets under the idea that one cannot lose. When I tried in vain to get Moral Hazard discussed over the last year and a half, this is what I had in mind. Want to finance a huge water park in the middle of the Sahara Desert? What? Nobody came to go on the slip and slide? The property is now worth only 30% of the old price? No worries, bond holders will be made whole and no lasting damage will be allowed to the banks.
Expect this to manifest itself in news ways as market players use the FED/Treasury pledge of never ending support to trade against.
Friday Night Entertainment
A bit of entertainment to start the official weekend.
Picture Pages
"Picture pages, picture pages, time to get your picture pages, time to get your markers and your pencils!"
You Are Being Watched
see more Lolcats and funny pictures
Is this a beautiful princess?:
see more Epic Fails
I say NO.
Film Clips
Some more cinematic masterpieces.
From a discussion elsewhere I was reminded of the dark humor film "Heathers" which is a must see:
All the poker talk put me in the mind of "Rounders" widely regarded as launching Texas Hold Em into the stratosphere. Enjoy this scene:
"Not hungry?" Classic.
If you have not seen "Revolutionary Road" then you have not seen a modern classic:
Rock Blogging
Some music to end the show.
Housing Doom had a Johnny Cash song posted for Thanksgiving and that put "It Ain't Me Babe" on my radar. I really love the version form the film Walk the Line so check it out:
Now everyone knows Economic Disconnect is a huge hair band fan. Enjoy the power anthem "Somebody Save Me" from Cinderella:
I saw these guys live at a show in 1999 and they sound the same live as their studio album.
Another stellar live show performer is Depeche Mode. Take a listen to "Enjoy the Silence":
One of my favorite songs is Don Henley's "The Boys of Summer":
Nice HD version.
Last call! Final curtain call.
When Motley Crue had their big comeback album, "Dr. Feelgood" there where plenty of songs that got all the headlines. The best song on the album, in my opinion, is "Wildside" though it is not as well known:
NICE! Love this song.
Have a good night.
If you read Landry's Boys by Peter Golenbock, the best book on the Dallas Cowboys in print, at the end it tells the story of the demise of Clint Murchinson, Jr. Heir to an oil fortune, he transformed the league when he formed the Cowboys (actually they were first named the Steers, then the Rangers, which is why they have stars on their helmets, those were to represent their badges, before the final name change at the last minute) and insisted on them playing in the then Capital division. And the rest as they say is history.
ReplyDeleteMurchinson wanted his team to play in the East, because that's where the New York Football Giants played, in the media capital of the world, and he wanted maximum exposure. Tex Schramm designed the uniforms so that they looked best on television. Tom Landry fundamentally changed the game with his revolutionary innovations. And the Dallas Cowboys captured the imagination of America, rising to become the most popular franchise in all of sports.
Meanwhile, Murchinson was slowly wasting his fortune. First on booze, then Cheerleaders, then cocaine, then stock speculation, and finally wild real estate deals. He actually invested a considerable amount of money in a ski resort in Iraq, of all places, if you can believe it. And it all came crashing down. He lost everything and went flat broke. This is why he was forced to sell his beloved team to Bum Bright--he had to to pay off his debts.
From a billionaire to destitute in a little over 25 years. That's the way it's supposed to be, when you waste money and make bad investments. No bailout for you!
I bring this up because you reminded me of the story when you mentioned investing in a water park in the middle of the Shara Desert, GYC. I had to laugh. Greater men have blown greater fortunes on idiotic ventures before. And will again. Or maybe not.
You're exactly right, apparently moral hazard is a thing of the past. Everyone everywhere is making wild bets with other people's money, because they believe that if it all goes wrong the government will cover the losses. It is a dangerous mindset, one that is clearly unsustainable. The taxpayers of the world cannot afford to keep fronting the money for rampant corruption, waste and fraud. This will not end well.
Speaking of taxes, you know I got a bill from the IRS the other day for $7.34. Are you kidding me? I just sent you guys over $13,000 in April, and you wait until November to tell me I owe you a lousy couple of dollars?
I called my accountant, whom I paid $450 to prepare my taxes, because he had told me I had a refund coming and I had told him to apply it to next year's taxes. What is up with this? He didn't have an answer.
$7.34. Good grief.
Gawains,
ReplyDeleteeloquent as ever, thanks for stopping in.
"Everyone everywhere now firmly believes that there will not be any shock to the system that a government will not bailout."
ReplyDeleteEven worse, it is entirely possible that the Dubai debacle is a case of "ruthless default". It's not like anybody is going to march into Dubai and repo a building. In any case, I am seeing a lot more anecdotes about commercial debtors ceasing payments because they expect a favorable workout once the government becomes the receiver.
GYSC
ReplyDeleteI emailed the Dubai part of your post to my brother today, he said they were discussing this in sunday school this morning and I thought he might enjoy your take on it.
The black LOL cat reminds me of my daughter's cat that she had a couple of years ago.
It was hit by a car and killed, I still remember my daughter sitting in my lap trying not to cry but eventually giving in.
We still miss that cat.
Watchtower,
ReplyDeleteyeah, cats really get me too.