While most people were enjoying turkey, the supersized city called Dubai World asked for an extension on several billion of debt. The stated debt is $59 billion, total exposure could be as high as $80 billion. This news immediately ripped through European banks and sent the asian markets and overnight futures down the equivalent of 260 Dow points. With the recovery of 140 of that number today, the markets obviously discounted some of the negative news.  The VIX popped from 20 to almost 26, and back to 24, but rose again as traders bought protective puts toward the end of the session.

The issue now is whether the Dubai news is “discrete” or “continuous.” If this disclosure was expected, and banks have sufficient reserves, it could blow away; if it reveals more bank risk and regulatory problems, it could ripple around the world in another wave.

Separately, it looks like Black Friday may be good for the market; Monday’s tension will be between retail results if good and Dubai. If they both turn out badly, watch out.

 We are working on this week’s ETF-Letter and will go into detail there.

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