By Dan Norcini
Overnight news out of Dubai has sent global equity markets reeling and generated a safe haven flow into the US Dollar as carry trades are unwound and a flight away from risk occurs. Dubai has asked for a 6 month moratorium on its debt obligations, which for all practical purposes is a type of default. Needless to say, this came with little to no warning and has sent the markets into quite a tizzy.

Gold shot higher on the news and touched a record $1,195 before some light long liquidation connected with carry trade unwinding got underway. Look for it to be well bid on any setbacks in price as this sort of news is extremely disturbing. After all, we are talking about the financial hub of the Middle East. Imagine the repercussions that would occur should London have announced this sort of news and you can understand why stock markets were pummeled overnight.

Stocks have been floating higher and higher for the reasons described yesterday (increased profits due to expense cutting plus easy money and lots of liquidity) but this is the kind of news that could cut off all such rallies right at the knees. The reason – it creates fear and uncertainty, two of the prime ingredients in a selling binge. If Dubai could go under, then who or what might be next becomes the nagging question hanging over the markets like the proverbial sword of Damocles.

We are in a period in which we could experience price swings across the markets of the magnitude which will parallel those that we witnessed as the Japanese Yen Carry trade was unwound last year. Huge leveraged bets employing the Dollar as the borrowed currency have set up a situation in which billions of Dollars in one way bets are once again on the table. These idiots never learn as their greed will be the ruin of them all but unfortunately, it is always the innocent and those who play by the rules who get caught in the crossfire generated by the pond scum hedge fund community.

Be careful out there and be thankful that you own gold. Things are coming unraveled at an alarming speed. Just imagine the kind of losses that are now on the books of those banks who hold Dubai sovereign debt. Then again, that should not be a problem. The Central Banks can just print them some more money to replace those losses. Heaven help us all…

Courtesy: jsmineset.com