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Tuesday, December 15, 2009

Morning Market Report

Considering the amount of news, the markets have been relatively quiet. The three indices are all up for four days in a row. The increases have been relatively mild. Yesterday, Abu Dhabi floated its neighbor Dubai $10 billion.

Oil-rich Abu Dhabi pumped $10 billion into its indebted neighbor Monday, sending stocks soaring while sparing Dubai and the rest of the Emirates federation the humiliation of an imminent default by one of the struggling Arab boomtown's star companies.

The bailout was about more than petrodollar transfers from one United Arab Emirates sheikdom to the other. Dubai officials seized on the news to try to repair damage done by weeks of uncertainty stemming from their unwillingness to fully stand behind Dubai World as the conglomerate looked to restructure some of its $60 billion in debts.

This eased fears, if not ended them entirely, that Dubai would default on its $70 billion loan. Markets responded positively however the Dow ended up less than 30 points. Late last week, it was suggested that Greece may default on its loan and even raised suspicion that Greece would be removed from the EU.

Greece has been facing its worst debt crisis in decades amid global recession. It faces political pressure from the European Union to straighten out its finances and obey deficit limits intended to support the shared euro currency."Greece faces the risk of sinking under its debt,"

Papandreou said, adding that the country "has lost every trace of credibility" and that financial markets want to see action."Our slogan of 'Either we change or we sink' is more pertinent than ever," he stressed.Greece is not the only country in the eurozone facing debt problems. Ireland, Spain and Portugal all are suffering from extra scrutiny in bond markets.

Meanwhile, this morning Moody's is flexing its muscle.

Sovereign debt risk is rising globally, particularly in the United States and United Kingdom, which must outline plans to manage public debt or face ratings deterioration as soon as 2011, Moody's global head of sovereign ratings said on Monday.

"2010 is probably going to be a tumultuous year for sovereign risk," Pierre Cailleteau, Moody's global head of sovereign ratings, said in a phone interview from London. "Long-term interest rates will rise globally, which will reveal the real costs of the financial and economic crisis."

So, sovereign debt seems to be the story of the moment. The Dow is giving back about what it gained yesterday. Some really big news comes from oil. It fell below $70 a barrel yesterday. It's currently sitting at $69.77 a barrel. Meanwhile, gold is at $1114 an ounce continuing its downward trend.

Meanwhile, bonds are in a very troubling area. They've responded to all sorts of stimuli. First, it was the announcement by Moody's that our debt may get donwngraded and this morning an inflationary report showed a slight uptick in inflation. As such, the ten year bond is now at 3.61%. That's the highest in several months. Mortgage rates were below 5% as of yesterday but we'll see where they end up. The yield spread between the two and ten year is now at 2.74% and just below all time highs from June. The three month t bill is at .025%. It's still in positive territory but barely.

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