India Studying Effect of Dubai’s Debt Delay Plan on Its Economy

The spillover effects of Dubai's debt delay plan could lead to a downturn in India's economy. However, the direct impact of this is still being studied by India. Remittances from Dubai account for about 25% of the remittances in India. This coupled with the large amounts of receivables that Indian companies have with Dubai's companies could bring about a "W-shaped" economy.

Dubai Crisis May End in ‘Major’ Default

Dubai World, a state-owned enterprise, has requested to reschedule its USD 80 billion of debt that has been used to fuel the construction boom in the last 4 years. With property prices down by 50% from its 2008 peak, it currently has trouble servicing its loan.

Analysts fear that this event might trigger a series of defaults by other emerging economies. This has caused the spread between US Treasuries and developing nations' bonds to increase by 14 basis points. However, many governments believes that this crisis is "containable".

Stocks, Commodities Gain on Economic Optimism as Dollar Slumps

The economic outlook in America is slowly turning optimistic as the current data shows. Weekly jobless claims fell to the lowest level since September 2008, while home sales, consumer confidence and personal spending topped estimates. These optimistic data has caused stocks and commodities to gain. These gains are also partially due the weakening of the greenback. The main reason for this is the fear that investors will perform carry trades (i.e. the buying of high-yielding assets using money borrowed from low interest rate nations).

Gold prices have soared for another reason as well. That is due to the news of India's central bank intention of stocking up on the bullion.

Pimco’s Gross Increases Government Debt to Most in Five Years

Bill Gross has increased the proportion of government debt in its portfolio to the highest level in 5 years. This shows how overvalued asset prices Bill believes them to be.

The "Total Return Fund" currently has 63% of its assets invested in government debt. He thinks that with low interest rates, regulatory tightening, lower consumption, slower growth and shrinking global economic role for America, investors will be experiencing low returns for the subsequent years. This is his rationale for over-weighting on government debt.

Dollar Slump Persisting as Top Analysts See No Bottom

Analysts see that the dollar will continue its downhill slide in the medium term as long as the Fed carries on its low interest rate policy for an "extended period". History has shown that it takes a period of about 12 months after an increase in interest rates for the dollar to appreciate relative to the other currencies. Many analysts believe that the dollar will continue its slide even till after 2010.

Financial markets around the world have been too optimistic about global demand. Risk aversion should rise again.

Dollars Strengthens as Equities Drop

People are taking their profits by selling equities and buying treasuries. This has caused the greenback to rise. This phenomenon is not unusual as the year end is approaching and naturally fund managers are booking in their profits. Now is not the time for people to be taking additional risks.

Pimco’s Gross Says Risk of Asset Bubble Rises With Low Rates

Bill Gross advises investors to invest in utility stocks. The asset bubble is currently being inflated again with persistent low interest rates. Low interest rates force investors to invest in high risk securities. This increases the systematic risk in the financial markets.

Bernanke Signals ‘Extended’ Low-Rate Period May Become Longer

The Central Bank has signaled that the period of low interest rates would not come to end so soon. With jobless rates remaining high and increasing, it is not within the Federal Reserve's interest to raise interest rates. As for the issue of asset prices, the Federal Reserve Chairman is of the opinion that there are no evidence pointing to any misalignment between asset prices and fundamental value. This is an issue that is difficult for anyone to comment on. There is no solid timeline on the exit strategy of the government stimulus given the current economic situation in America.

As for the emerging economies, they believe that low interest rates in America is inflating prices around the world. There is a fear that this will turn out into another financial crisis causing a meltdown in the economies.

Wall Street Faces ‘Live Ammo’ as Congress Aims to Unravel Banks

Paul Kanjorski is planning to dismantle banks that are deemed too big to fail. This is to preempt the next financial meltdown. Bill Clinton signed the repeal of the Glass-Steagall Act a decade ago and now politicians seem keen to reinstate this to prevent the next financial crisis. This has to be done to keep tax payers safe from future bailouts required.

Bloomberg Professional Confidence Index Global Economy

This index comprises responses from users globally about the outlook of the economy. A value above 50 denotes a positive sentiment about the global economy.

As central bankers withdraw their stimulus around the world, confidence in the outlook of the global economy has fallen in many countries. With the rising unemployment around the world, this will take out a large chunk of the consumer spending required to spur the economy back to growth. Hence, many believe that the current growth could just be a two quarters kind of event.

Greenspan Says Stock Market Rally ‘Re-liquifying’ U.S. Economy

All the price indexes are rising from the impact of the government stimulus of USD 787 billion. However, whether this will last is another story. Overall, such price increases will help to prevent foreclosures as the equities of the mortgages would allow home owners to keep their homes.

Inventories have also been depleting. This will signal manufacturers to ramp up production and therefore employ more staff. After that, the economic outlook would depend on what the stock market does. This is because of the "wealth effect" associated with the stock market. According to Greenspan, the deciding point is in the second quarter of 2010.

Tobin Taxes

Europe and US are split on the need for Tobin tax, a tax on every trade of the financial markets. This was portrayed during the ongoing G20 meetings.

Unemployment Rates in the US Jumps to 10.2%

Unemployment data for the October is out. US employment rate rose to 10.2%. This will definitely put pressure on consumer spending making the sustainability of the recovery a question.

Buffet's bet on Burlington Northern Santa Fe Corp.

No changes will be made as it always has been the case for the investments made by Buffet. In fact, it is important that Buffet utilizes the management's capabilities and keep them in their current place. That is what he will do.

Rose, CEO of BNSF, will have an easier time in borrowing funds. That will be one of the perks of being acquired by a triple-A rated company.

The reason for Buffet's investment in the company is simple. BNSF has managed to double its revenue from 2001 to 2008. They have also managed to reduce expenses while at the same time expanding capacity. This has been achieved by reducing variable costs through the use of longer and fewer trains. Capacity has been increased by including parallel tracks and increasing the number of locomotives under the company's ownership. The company also has no problem in generating free cash flow.

Buffet seems to understand the US economy well. By making a bet on railroads when diesel prices are increasing, Buffet understands that railroads will be the transport mode of choice as trucks would be more expensive in such a situation.

Feds Pledge to Keep Rates Low

The Federal Reserve has pledged to keep its interest rates low for an "extended period" as long as inflation remains low and unemployment fails to decline. The Chairman (Ben Bernanke) is of view that the current recovery is still reliant on the government stimulus and thus it is still too early for them to pull out of the economy.

Burlington Northern Santa Fe Corp Acquired by Buffet

Buffet has stuck to the bread and butter of his investment expertise. He has acquired the entire stake in Burlington Northern Santa Fe Corp, a railway company, and has finalized the deal within 10 days.

Explanation on the Purchasing Managers Index (PMI)

The data for the index are collected through a survey among 400 purchasing managers in the manufacturing sector on five different fields, namely, production level, new orders from customers, speed of supplier deliveries, inventories and employment level. Respondents can report either better, same or worse conditions than previous months.

Banks' Reluctance to Lend

Timothy Geithner (TG) is concerned that the banks' reluctance to lend could cause the economy to experience hiccups to its march to recovery. Although recent manufacturing data shows that the economy is well on its way out of the recession, the unemployment figures were not as rosy. This coupled with the decreasing household and business borrowings will hinder the economy's recovery.

TG has also expressed that no further government stimulus would be required as the previous package has not been fully utilized as yet and half of the package is still available for them.