The Long Crisis

Those never say die Black Swans are on the move again. The Dow lost about 104 points yesterday as a series of downgrades by the ratings services downgraded Greece and a number of Dubui firms with close government ties. Today Spain was added to the negative watch list.

Yesterday stocks, gold and oil all fell while the dollar rallied after Dubai World’s Nakheel PJSC reported losses of $3.65 billion on writedowns, Fitch Ratings downgraded Greece’s credit, and German industrial production unexpectedly dropped. About noon today the Dow is up about 10 points but looking heavy. Over the next few days look for some serious downside action as the Sovereign debt crisis spreads its wings and takes on the look of a Black Swan.

While the recent last Dubai fly by of the Black Swans only caused turmoil in the US stock market for a day or so the news over the past 48 hours was more unsettling.

“Greece is a whole lot more important than Dubai,” said Uri Landesman, New York-based fund manager at ING Investment Management. “There are a lot of banks, in Europe especially, that have exposure to Greece, so if there’s a major problem in Greece, that would be more important than a problem in Dubai.”

Yes, I know that I am using the term “Black Swan” loosely. A true Black Swan event by its very definition is an unexpected disastrous event and debt problems with Dubai, Greece, and Spain are by now widely anticipated. However, the fallout from the Dubai, Greece, and Spain sovereign debt troubles have the potential to trigger true Black Swan events in parts of this interconnected world that are far removed from Dubai, Greek, and Spanish financial centers.

Fitch Ratings also mentioned the the UK and US were on a path that is headed straight for financial trouble, and that unless the present course is somehow corrected it is no longer unthinkable these two spend, spend, spend, nations could lose their Aaa debt ranking.

Now that would lead to a feast of the Black Swans. With Dubai, Greece, and Spain troubles with excessive debt in the spotlight, it looks like many US stock market traders are beginning to question the lofty level of the market after the rally from last March’s lows. After all the US government is creating more debt than any entity in the world. Is the eventual day of reckoning near?

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