Hedging for Disaster

... I think it’s time to revisit the concept of hedging for disaster, something I advocated during another "recovery," in October of last year, where we made our cover plays to carry us through a worrisome holiday season and into Q1 earnings - "just in case." The idea is of disaster hedges high return ETFs that will give you 3-5x returns in a major downturn. That way, 10% allocated of your portfolio to protection can turn into 30-50% on a dip, giving you some much-needed cash right when there is a buying opportunity.
... As far as hedging goes, if you are 50% invested and 50% in cash and you are worried about losing 20% on the stock side in a major sell-off, then the logic of these hedges is to take 40% of your cash (20% of your total) and put it on something that may double while the other positions lose. If things go down, your gains on the hedge offset some of the losses on your longer positions. If things go up, you can stop out with a 25% loss, which will "only" be a 5% hit on your total portfolio but it means we are breaking through resistance and your upside bets are safe and doing well. That is not a bad trade-off for insurance in this crazy market. Also, be aware that these are thinly traded contracts with wide bid/ask spreads and you need to use caution establishing and exiting positions.

... “Investor sentiment is worsening because of the reignited uncertainty about credit,” said Naoteru Teraoka, who helps oversee $16 billion in Tokyo at Chuo Mitsui Asset Management Co. “There’s uncertainty about the future and companies are cautious.” The Nikkei pulled back another 135 points (1.34%) and finished right at the 10,000 line while the Hang Seng dropped 318 points (1.44%), after failing to hold the critical 22,000 mark, and wound up at 21,741 and the Shanghai Composite also dropped 1.4%, failing to hold support at 390 and looking more like a double top here than an index that’s consolidating below 400.

Europe is holding on to small gains ahead of our open (8:30) as German Exports continue to do well and the UK declares they will keep their stimulus plans (and presumably, easy money policies) in place through 2010. No news coming out of Europe is going to impress us at the moment as the FTSE failed our 5,250 watch line and the DAX failed at 5,750 as well, so those are bearish signals for the global economy. Certainly this is a reflection of default concerns from both Greece and Dubai, who have both had their ratings cut to near junk status this week. Russia’s finance minister added to the chorus of concerns Tuesday. He said Russia is "still a weak link" in the global economy and would be vulnerable in case of a reversal of the tide of money now flowing in, partly because of higher oil prices.

Greece’s case could present the European Central Bank and the European Union with a dilemma: whether to bail out the country or possibly see a euro-zone member face a debt crisis. The first course could reduce the pressure for fiscal discipline, while the second could damage the credibility of Europe’s great single-currency experiment. The real danger here is triggering a rapid rise in interest rates before international banks have a chance to stabilize their balance sheets.

Mario Draghi, the governor of the Bank of Italy, highlighted the danger posed by a "huge wall" of corporate and public debt. He cited estimates of around $4 trillion in non investment-grade and commercial-real-estate-based debt coming due over the next five years, "trillions" of dollars of bank debt and public debt on top of all that. "We are actually seeing sovereign risks that materialize," Mr. Draghi noted, referring to Fitch’s downgrade of Greece’s sovereign debt Tuesday. "All of this will certainly increase the risk premium in an otherwise safe asset, and may bring in sometime higher interest rates," he added.

We’re already well short on Commercial Real Estate but that sector never ceases to amaze us by staying up despite all news to the contrary. At the moment, we are resigned to being patient until Jan earnings announcements give us a better look under the hood of these players and, until then - we have our disaster protection - just in case things go south faster than we thought they would.

Keep in mind that this morning we are playing for our bounces but by no means bullish overall. Goldman’s market goose of the day is to announce that there will be no Fed hike until 2012 so all aboard the free money express. Of course, someone should tell GS that the money train left the station a long time ago and, unless the Fed is going to start paying us to borrow money, rates aren’t going any lower. Today is not a big data day, with Wholesale Inventories at 10 and Oil Inventories at 10:30, where we may finally get a draw after 2 weeks of builds. Since a 2Mb build is being forecast by crooks in the pockets of Big Oil analysts, it will be very easy to beat and move oil higher.

High oil was a big factor in killing consumer confidence in last night’s poll, with half of those polled saying they feel LESS financially secure than they did last year and just 1 in 3 people saying they think the economy will improve in the next 6 months. Mortgage Applications came in mixed but the numbers can easily be spun positively and that’s all that will count this morning on that report.

We’ll try to be agnostic and watch our levels, but let’s all be careful out there, I’ll feel much better with a little more disaster protection despite the fact that we are mostly cash and bearish since taking it off at the top over the past couple of weeks. As I said above, we were so bearish we had to sell DIA puts to lock in gains, but we’ll be happy to buy them back if our lower levels start failing and we’re on the way to that 1.25% sell-off for the day.

(by Philip R. Davis at SeekingAlpha, December 9, 2009)

International Property Show - Dubai 2009 opens with over 150 exhibitors from 20 countries

H.H. Sheikh Mohammed bin Khalifa Al Maktoum, Chairman, Dubai Land Department inaugurated today (February 15, 2009), the 'International Property Show - Dubai 2009', property exhibition.

The show is set to showcase exceptional development projects from over 150 exhibitors from across the globe that are seeking to leverage the high attendance of international and regional investors at the annual industry event.

Strategic Marketing and Exhibitions (SME), the event organiser, has revealed that the show, which will run until February 17, 2009 at the Dubai International Convention and Exhibition Centre (DIEC), is set to capitalise on the shift in property prices in Dubai, as well as the projected rise in the number of expatriates in the emirate in 2009.

Amidst the projections that Dubai's economy will expand by 2.5% in 2009, in addition to the expected arrival of many foreign residents, exhibitors and investors are upbeat about this year's event. The exhibition's association with the Real Estate Regulatory Agency (RERA) and the Dubai Land Department (DLD) has also contributed to the high level of confidence of investors at the show.

As the event's Strategic Partner, RERA has set up a special pavilion within the venue - the 'RERA Consultancy Zone', where representatives from the agency are answering the inquiries of commercial and residential investors and specialised visitors from the property industry. A dedicated pavilion has also been assigned to banks and financial institutions to aid investors seeking financial assistance.

Speaking at the inauguration, H.H. Sheikh Mohammed bin Khalifa Al Maktoum expressed optimism over Dubai's property market growth. 'Dubai will be the fastest city to recover from the impact of the ongoing credit crunch, and the emirate's real estate sector will once again witness a period of long term boom. However, developers need to remain focused on their goal of continuing with the projects that they have already started and ensure that these projects are delivered on time.

Developers who are registered with Rera can be assured of total support from Dubai Land Department. The impressive participation of players at the 'International Property Show - Dubai 2009' underlines the high confidence in the UAE's property sector.'

Currently in its fifth edition, the 'International Property Show - Dubai 2009' has gathered the support of UAE-based master developer Falconcity of Wonders as the Gold Sponsor, and Al Arabiya TV as the exclusive broadcast partner. Leading real estate companies showcasing their UAE-based developments at the show include - Khoie Properties, who are showcasing the Dhs3.5bn 'La Hoya Bay' project and Bonyan International Investment Group highlighting its 'Eye of Ajman' project. In addition, other local developers include Tiger Properties, Roots Land Real Estate, RAK Properties, Corner Stone Real Estate, Dubai World Central, Chapal World LLC, Savannah Properties, Threesixty, and KM Properties, Time Properties, Asia Star Properties International, and Sherwoods Independent Property Consultant.

'We extend our sincerest appreciation to H.H. Sheikh Mohammed bin Khalifa Al Maktoum for gracing us today with his presence at the 'International Property Show - Dubai 2009', and to all the local and international real estate companies who have supported this exhibition. We are also pleased by the good turnout witnessed at the event from developers, in addition to professionals from the property and finance sector, despite all the challenges imposed by the current global economic crisis. Finally, I would like to wish all the participants significant success, and we look forward to attain the goals of this exhibition, and consequently support the local and regional real estate sector,' said Dawood Al Shewazi, Managing Director, SME.

'This year's edition of 'International Property Show' features the participation of local companies licensed by the Real Estate Regulatory Agency (RERA) as we aim to showcase only licensed real estate projects. This has been the result of full coordination and cooperation with RERA, which entailed the submission of all the registration documents for each and every project at the show,' concluded Al Shezawi.

The 'International Property Show - Dubai 2009' was first organized in 2004, and has since grown to become the definitive event for companies seeking to establish strong personal relationships with worldwide players in property and investment industries. The global delegation at this year's event include high profile companies from the UK, US, Malaysia, Spain, Thailand, South Africa, Bulgaria, Korea and Cyprus. Among these are high profile names such as Florida Choice Realty Services, Crown Acquisitions Worldwide PLC, Estateman Limited, Capital Land Acquisitions Ltd. and Harlequin Hotels and Resorts from the UK, and KW Luxury Homes, Stonehenge Builders Inc. and Rapid USA Visas from the US.

Dubai Faces Further Liquidity Challenges, Says Moody's

13 February 2009
DUBAI - Gulf Arab companies especially in Dubai are facing further liquidity challenges as well as declining credit quality amid the steep global downturn, ratings agency Moody's Investor Service said on Thursday.

"Dubai is particularly vulnerable due to its closer integration with key sectors of the global economy, particularly real estate, tourism, trade and financial services," said Moody's in its 2009 outlook on Arabian Gulf corporates.

While corporate issuers in the region largely remained in a financially strong position in 2008, "overall credit quality in the region has declined, and is likely to continue to do so moving forward."

Moody's estimated that companies in the region require some $35 ?billion to $40 billion in debt refinancing this year.

The Gulf region has seen an unprecedented economic growth in recent years but the worldwide recession took a turn for the worse in the fourth quarter, hitting even the most resilient economies in the region as oil prices which fuelled local real estate markets, also collapsed on weak demand.

"Fundamental credit quality is likely to be tested in the downturn," said Moody's, adding that the Gulf has never before been financially tested on such a large scale.

"Rated gulf corporations are not immune from the global financial and economic crisis, particularly where they rely on external demand for their goods and services, or on fresh liquidity to support their operations", said Moody's.

The ratings agency said Dubai in particular, is facing an unprecedented level of contingent government liabilities, that call into question "less so its willingness, but its ability to support flagship corporates in the event of such a requirement." Dubai's mostly government-run corporates will need to refinance about $15 billion of $70 billion in debts in 2009. The total corporate debt in the Gulf region reached some $20.4 billion last year, heavily concentrated among government-related issuers. UAE issuers made up 90 per cent of total outstanding rated debt, with Dubai alone representing 51 per cent and Abu Dhabi, 39 per cent.

The total rated and unrated ?corporate financing requirements among members of the Gulf Cooperation Council in 2009 is about $35 to $40 billion.

"Addressing these maturities will be a significant challenge, although we expect liquidity to return to the markets as 2009 progresses, and bond spreads to recede from some of the panic-stricken levels seen in the second half of 2008," said Moody's.

It said that as markets re-open, issuers with sound credit fundamentals and government-backing should be able to close financing transactions, but these come at a price."The end of cheap money money has also reached the Middle east, and we expect companies will have to accept far more expensive funding going forward in return for better long term liquidity."

The tougher credit landscape will force companies to reassess their business plans as they respond to the new environment, Moody's said.

Moody's also expressed concern about the recent move of Abu Dhabi to inject Dh16-billion in fresh liquidity to five banks and said this may have a bearing on future credit ratings.

It said the move has been ?interpreted "as a sign that Abu Dhabi is becoming more reticent about supporting banks and other systemically important entities in other emirates."

"Moody's will continue to monitor developments closely. If a trend of selective treatment within the federation becomes discernible, Moody's stands ready to reduce its high support assumptions for government-owned companies in other emirates outside Abu Dhabi."

© Khaleej Times 2009