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Third Down, and 15 to Go!

Something big happened yesterday, while many of us were enjoying Turkey and dressing.  The world’s financial markets, and stock markets, took a hit when Dubai asked lenders to postpone payment on $80 billion in debt for at least six months.  This news has roiled around the globe and is causing a sell-off in the U.S. markets this morning.  Investors don’t like uncertainty, and a sovereign debt default certainly causes uncertainty!

Dubai has been on a building binge for the last few years.  Building the world’s tallest skyscraper, islands that can be seen from outer space, indoor snow skiing and high end shopping malls.  The problem was that as oil fell from $145 per barrel to $30, the money supporting this ‘boom’ was drying up, and buyers disappeared.  Condominiums standing empty, malls with no customers, and ski lifts going round and round don’t pay the bills.

As overseas markets fell, so did the dollar.  Investors were moving to ‘safe’ currencies, which did not include the dollar.  In times of fear, investors pull out of equities and get liquid.  The dollar has been the ultimate ‘safe haven’ for the last 100 years; this is part of the cache of being the ‘world’s reserve currency.’  Perception is the key to that status, and overseas investors voted with their pocketbooks yesterday.  It does not bode well for the dollar.

The dollar is rallying today, now that the U.S. markets are open.  American investors are selling stocks, and moving to dollars.

We have used a lot of ‘ink’ about the mistakes the U.S. government and Federal Reserve are making, with higher deficit spending and ‘quantitative easing’.  China, Russia, OPEC countries, and even Japan have talked of ending the U.S. Dollar dominance for world trade.  Inflation and the destruction of the dollar are the only way this game ends.

To use a football analogy, on Thanksgiving Day, we saw another touchdown by the opposing team.  The ‘game’ is close to a shutout, with all hope of a momentum shift, and a comeback becoming more distant.  Or you could say, it’s third down and 15 to go!

Disclosure: No Positions