The company expected the job cuts and rationalization of pay to help it deal with recessionary pressures that were hurting its already unprofitable business.

In March, the company signed a deal with an Abu Dhabi state-sponsored financial institution that brought in some cash, enabled it to operate in a fabless model and improved its chances of achieving profitability in the near term.

CEO Dirk Meyer said that the company’s new product lineup and the strengthening economy were the reasons for the increased confidence. He expressed optimism regarding the company’s achieving profitability by year-end.

Some analysts expect the company to benefit from Hewlett Packard Co.’s (HPQ) decision to cancel some existing programs with chip giant Intel (INTC). Even if it does not make such gains, AMD will undoubtedly benefit from the turnaround in the chip market.

Chipmakers Intel and Texas Instruments (TXN) recently raised their guidance for the third quarter, citing improving business conditions. Semiconductor equipment makers ASML Holding NV (ASML) and KLA-Tencor (KLAC) also raised their forecast. While foundries Taiwan Semiconductor Management Co. (TSM) and United Microelectronics Corp. (UMC) saw signs of recovery, the SIA stated that global chip sales increased 17% in the second quarter, signifying a resurgence in the segment.

The acquisition would transfer the majority holding from Singapore investment agency, Temasek (Moody’s rating Aaa) to ATIC (Abu Dhabi’s sovereign rating Aa2).

Analysts differed on how the acquisition would affect Advanced Micro Devices (AMD), which had earlier united with ATIC to form Globalfoundries. Although Chartered and Globalfoundries will continue to operate as separate entities, increased scale of operations could result in cost synergies. Since AMD includes Globalfoundries in its consolidated results, the deal could shorten its road to profitability.

The deal would also open up Globalfoundries to several big customers, such as Microsoft Corp. (MSFT), Broadcom Corp. (BRCM), Marvell Technology Group (MRVL) and Texas Instruments (TXN). Its end market exposure would rise with the addition of communications and gaming to the computing and select consumer space.

Opinions are divided on whether the acquisition would bring significant technology enhancements. While the deal should bring some benefit in general, we don’t expect it to be adequate to overcome competition. The foundry space is dominated by Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics (UMC), which together serve around two-thirds of the total market.

While TSMC has strong customer relationships with the likes of Intel Corp. (INTC), Qualcomm (QCOM), NetLogic Microsystems (NETL) and NVIDIA Corp. (NVDA), which have brought it to the number one position, UMC is the most commonly selected second source.

AMD management reconfirmed that there would be no breach of the x86 licensing agreement with Intel. They also expressed optimism regarding probable cost benefits from superior scale of operations.

The project includes development of natural gas condensate reservoirs within the onshore Shah field, construction of a new one billion cubic feet/day natural gas processing plant, as well as new natural gas and liquid pipelines and sulfur-exporting facilities at Ruwais Industrial City, UAE.

The Shah development, located approximately 180 km south-west of Abu Dhabi, would have the capacity of pumping 540 million cubic feet per day of gas. The project is expected to be completed by early 2015.

Under terms of the deal, both entities will equally share costs of the project and set up a new company to manage Shah facilities once it becomes operational. ADNOC will own 60% interest in the joint venture, while ConocoPhillips would own the rest.

We believe that this deal with ADNOC to develop the Shah field is another example of ConocoPhillips’ growing exposure to lucrative international regions. However, the outlook on U.S. natural gas and refining markets remains relatively cautious. And since the company has heavy exposure to domestic natural gas (about a third of total volumes) and refining segments, we are concerned.

As such, we maintain our Hold recommendation on ConocoPhillips’ shares given the company’s competitive disadvantages relative to its super-major peers such as Chevron (CVX) and Exxon (XOM).

We've got Matt Hougan and John Spence and Chuck Jaffe and the Wall Street Journal—and now even Murray Coleman all jumping in and speculating on what's going to happen with iShares. The truth is that none of them know—and even the people over at BGI probably don't know. But I do.

I just don't see it happening. Or rather, I do think that an eventual separation has become exponentially more likely ... I just don't think it happens immediately. 

First of all, let me point you to the best blog on the topic yet. It's Paul Amery's blog from over on the http://www.indexuniverse.eu/ site. Here are the Cliff's Notes^TM of what Paul covered in his blog that few others have hit upon:

1. Barclays needs to tell the U.K. government whether or not it plans to take the Queen's money in her "save the world" scheme. That's a week from today. A week. And Barclays needs the (~$4 billion) that would be raised by selling iShares to avoid being the Queen's, uh, lady dog friend as I put it in MY .eu blog (the editorial staff edited that out. Probably that prude Hougan. I know it wasn't Paul, because his clever allusion to my reference talking about the "Queen's Corgis" was not itself edited out). Anyway, I'd like to see you, say, try to sell your house for top dollar in this market-in a week. That's why it probably won't happen immediately.

2. But there are lots of reasons why it might well happen. For starters, in the BGI group, there is HUGE internal ownership (of about 6%) and an enormously generous profit-sharing scheme that:

a) Makes Barclays want to get rid of that ownership;

b) Might have the BGI guys incentivized to get while the getting is good. After all, they could potentially run their own business, which may well be appealing to Lee Kranefuss, after being tacitly passed over in the grooming for the next head of the Big Bank); and

c) Encourages the employees to push for getting a cash and ownership payout now, instead of leaving themselves at the whims of an angry public while working in a state-owned enterprise? Would you prefer "anything goes" or "beneficial ownership in my own company"?

3. Clearly Barclays is an EAGER seller and is working very hard to try to make this sale happen, even offering to finance almost the entire purchase price, according to an excellent Wall Street Journal article from a couple days ago.

4. Finally, as Paul pointed out, a "death spiral convertible" (love that term) dilution clause was grantedby Barclays to its Abu Dhabi and Qatari investors in October. So it would come as no surprise whatsoever if some of those same Middle Eastern investors were involved in the private-equity-led consortium to buy iShares.

Despite all that, in this market and with that time frame, I just don't see it happening. I've put out a headline that makes me look foolish if the iShares deal does go through within the next week—which it well could if all the effort going into this deal is any indication. So I'd look dumb, but it could be no match for Hougan's horror-show USO-USL bungle (which I'll never let him forget).

But the seed has indeed been planted (and not for active management as Chuck Jaffe misquoted me as saying in his column—though I did say I think active is coming to iShares regardless). I said the seed had been planted for a separation of the iShares franchise from Barclays at some point. Only time will tell if the opportunity could have never been better.

Barclays Sells Stake To Middle Eastern Investors

In this Bloomberg News report, Barclays Plc said it sold a 32% stake to Abu Dhabi's royal family and two Qatari investors after the London-based bank turned down government aid.

The financial giant is parent to Barclays Capital, issuer of exchange-traded notes, and Barclays Global Investors, the leading ETF family in the U.S. The article notes that shares of Barclays Plc dropped 10% on Thursday to their lowest levels in two decades.

The fall seems to also be attributed to admissions by Barclays that its deal in October includes provisions that could require it to sell more shares at a discount to the group of Middle Eastern investors. 

You can read the story here.

The Plight Of Barclays & ETNs

This Wall Street Journal story running in the paper's Friday morning editions and on its Web site considers the plight of Barclays' latest woes in terms of the many ETN investors holding such notes in their portfolios. 

You can read it here.

Option Activity Jumps In ProShares ETF

Is the sell-off in government bonds about done? This report by Reuters explores the fact that options volume in a ProShares UltraShort Treasury ETF soared on Thursday.

An analyst notes that buying and selling activity in puts with February options expiration dates indicates traders are betting on rising prices and declining yields in Treasuries.

You can read the story here.

Huge Losses Causing Hedge Funds To Cut Fees, Overhaul Strategies

This enterprising Bloomberg News article contrasts the fact that hedge funds recorded record asset losses last year despite the fact that average investment returns by some counts wound up beating the S&P 500. 

Such clashing events are leading experts to expect in 2009 that hedge funds will slash fees and offer more transparency to investors. Interestingly enough, another comparison of corresponding data cited in the article points to a leading hedge fund index starting the new year way ahead of the S&P 500.  

Recovery Of Financials Still Not In Sight?

In this look at the plight of ETFs covering financial stocks, Investor's Business Daily markets reporter Trang Ho writes that the sector continued its fall on Thursday. 

That seems to suggest that the previous day's "monstrous rally was merely an oversold bounce and that a bottom has yet to form," she wrote.

You can read the story here.

• World stock markets tumbled Thursday, with benchmarks in Tokyo and Seoul losing almost 7 percent each. (AP)
• Five years after Federal Reserve Chairman Ben S. Bernanke helped stamp out the risk of deflation, the threat is returning as the financial crisis and a worsening economic slump pull inflation lower. (Bloomberg)
• The RBA said in a monthly bulletin today that it bought A$3.15 billion ($2 billion) of its own currency last month, the biggest net purchase on record, as the local dollar posted a record monthly decline.

• U.S. options trading slowed this month from a record pace after hedge funds collapsed and the biggest market swings since 1929 made equity derivatives too expensive to be used as insurance against stock losses. (Bloomberg)
Key Reports (WSJ):
8:30a.m. Initial Jobless Claims For Nov 18 Week: Expected: -11K. Previous: +32K.
10:00a.m. Oct Conference Board Leading Indicators: Expected: -0.6%. Previous: -0.3%
10:00a.m. Nov Philadelphia Fed Business Index: Expected: -38. Previous: -37.5.
10:00a.m. DJ-BTMU Business Barometer For Nov 8: Previous: -0.7%.

Quotable
“Early in life I had noticed that no event is ever correctly reported in a newspaper.”

  George Orwell

Best of CC: Below is a reprint of our 9 July 2008 Currency Currents where we examined the break down in the correlation between oil and the dollar—it was telling us something as we suspected.  It’s another example of why we pay close attention to intermarket correlations; it can be a very powerful tool for currency traders. 

FX Trading – $ vs. Crude…Hmmm! (9 July 2008 Issue)
Can we continue to hang our hat on the view that much of the bad news is already in the price of the dollar?  Well, based on the dismal views about the US economy, which we don’t dispute, which we seem to find everywhere we look, the short answer is yes.  But it’s not just that belief.  Something seems to have changed—though even this is a thin reed of reasoning we grant you.

Back in mid-April the US dollar index made its closing low (and its all-time low in mid-March, the day the Fed saved Bear Stearns).  At the time, crude oil was trading at $116 per barrel (heck, downright cheap in retrospect…LOL).  By now of course, everyone had caught on to the crude-$ connection that says the dollar goes lower when oil goes higher.  But, the problem with this new theory is that crude oil has rallied about $29 since mid-April, or a cool 25%!  However, the US $ index has rallied too—up 2%! 

Based on the crude-$ connection, that wasn’t supposed to happen. 

Chronology of key players’ recent trips to the Middle East (read Saudi Arabia):

• Vice President Dick Cheney – Mid-March
• President George Bush – Mid-May
• Treasury Secretary Hank Paulson – Late-May and Early-June

And on June 1, 2008 this from Reuters:

ABU DHABI (Reuters) - Treasury Secretary Henry Paulson said on Sunday leaders of Gulf oil producing states had told him that abandoning their currency pegs to the dollar will not solve their inflation problems.
Paulson, two-thirds of the way through a four-day trip to Saudi Arabia, Qatar and the United Arab Emirates, said leaders in the region have "quite an awareness that the peg does not influence inflation to a significant degree.
"They recognize that inflation is the overriding issue ... Ending the peg is not the solution to the inflation problem."

Hmmm…

Is it possible the Gulf States were treated to a litany of promises that the dollar was nearing a bottom and now is not the time to abandon said dollar pegs?  Again, we have no clue. But, it would be a nice fit with the ongoing lack of correlation between all-time highs in crude and the $ index cautiously trending higher.

Stranger things have happened.  Stay tuned. 

Regards,
Jack&JR

This from Taipan Publising’s emerging market blog:

Last Tuesday, I told Taipan Publishing Group subscribers in Taipan Insider that one Middle Eastern country was injecting massive amounts of cash into international markets.

That’s not really news nowadays, though, is it? Everyone’s heard of the $7.5 billion Citigroup (NYSE:C) bailout by Abu Dhabi back in November 2007.

But things have noticably been slowing down. When billions of dollars worth of investments get halved in value in less than a year, it makes you think.

Yet for some…

Boo!

We begin today with a Halloween hypothetical: If you’re a mainstream economist or financial journalist, what’s the scariest possible scenario that could arise from an economic crisis?

Answer: That the ephemeral specter of the American consumer, whose purchases now make up over 70% of economic activity in I.O.U.S.A., would stop spending.

Uh-ho. In the third quarter of 2008, consumers reigned…

What is interesting is that our top key news event back on 28 Aug ‘07 was Barclays, a UK bank that is in the news again today after sealing a deal to obtain funds from a couple of places that still have some—Abu Dhabi and Qatar. 

We particular liked this old issue because it lays out a thought process to help shield us from a world chock-full of guru-ism, which is always a danger to one’s trading account.  

As you know, we’ve been looking for a dollar “correction” and lately have caught a bit of it, after being first steamrolled.  But as you also know, the dollar doesn’t have to “correct,” and its cranking again this morning.  Are we seeing a digestion of the sharp moves higher in the euro and pound and Aussie over the last few days, or something more?

It seems the market is increasingly firming to the idea that growth in the Eurozone and UK could be much worse than in the US.  And as Chinese growth continues to fade, dampening the fortunes of many others in the region, the old ugly greenback, warts and all, is looking like a relatively decent place to hide in a world still full of potentially very ugly outcomes.

 Tuesday 28 August 2007 6:00 a.m. EST   http://www.blackswantrading.com

Key News
• Barclays has been left with an exposure worth several hundred million dollars to failed debt vehicles created by its investment banking arm amid growing scrutiny over its links to Sachsen LB, the failed German public sector bank.  (FT)
• The [UK] house price boom of recent years could be set to slow to a near standstill next year even assuming the credit market storm blows over. (FT)

Key Reports Due (WSJ): 
7:45a.m. ICSC Chain Store Sales Index For Aug 25. Previous: +0.2%.
8:55a.m. Redbook Retail Sales Index For Aug 25. Previous: -0.7%.
9:00a.m. Aug Richmond Fed Manufacturing Index. Previous: 4.
10:00a.m. Aug Conference Board Consumer Confidence. Expected: 105. Previous: 112.6.
5:00p.m. ABC/Wash Post Consumer Conf For Aug 26. Previous: -20.

Quotable
“The indirect effects of greater uncertainty and higher volatility are more important in today’s world. Tracking the transmission of economic shocks from one country to others used to be straightforward when trade linkages were the main channel of contagion.  For example, countries with greater trade exposure to the US and/or commodity markets tend to have highly synchronized business cycles.  However, with increasing globalisation, cross-border financial links have also become an important source of transmission across the world. As a result, although direct effects of the liquidity squeeze may remain small, we should not ignore the indirect effects of greater uncertainty and higher volatility in global financial markets. In other words, market dislocations and growth fluctuations can now spread through an intertwined set of financial and economic channels that could magnify the shock.”  

Serhan Cevik and Katerina Kalcheva

FX Trading – Ultimately a probability bet it is! 

Cross-border financial links are much tighter in a “globalized” world, no doubt.  Thus, contagion is more than a four letter word.  When these cross-border financial links are supercharged with leverage, as they are, it’s difficult to believe we’ve seen the worst of it. 

We think the first round of risk-reduction effectively pulled the pin on many hedge fund grenades.  As these explode, the whiff of confidence we saw among the financial market Tout TV crowd—hoping, praying, and saying anything that might help their story—will likely explode too.  And of course, this crowd will blame the Fed for the woes instead of what is always the case: greed and a belief the future will somehow resemble the most recent past leading to complacency.  (This is not to say that central bank policy isn’t to some degree culpable as contributing to the crowd’s complacency.)

If I hear this mantra call of the recent past one more time I think I’m going to scream, “The dollar is going lower and gold is going higher.  Sure, gold isn’t acting like it should, but it will.  And the bargains in gold stocks are incredible.”  Scream I will not because it’s wrong.  But because of two things: the arrogance with which those who looked at a weekly chart say it, and the mindlessness of the mantra at the core.  Unfortunately, in the newsletter world one can’t escape this arrogance—it seems the general nature of a so-called “guru.”  And as the newsletter world is set up as the parent-child relationship game, arrogant “gurus” not only survive, but seem to make the most money; just I case you needed a little insult added to intellectual injury. 

Again, it’s not that the “gurus” will be necessarily wrong—it’s just that their arguments, lack of critical thinking, and seeming source of their knowledge is so flimsy for the most part.  If the future resembled the recent past we wouldn’t be in the midst of a global credit crunch.  And because we are in the midst of a credit crunch it means some things have changed.  And if some things have changed, why should there be any degree of confidence that trends that existed before things changed (which had reasons likely well beyond the grasp of most of us, though the price trend validated our rationales) will reassert themselves? 

At Black Swan we talk and write about things as if we have some knowledge of them.  This is unfortunately how we communicate our views.  And we have stepped into and will continue to step into the guru trap, for the fact that we tell a story about markets (provide our guess is all it is) in public immediately subtracts from our ability to be objective.  And it assumes we have some reliable source of knowledge.  What you don’t see is that no matter how much confidence we may exude about a particular theme—there is continuous self-doubt in us simply by the mere fact we have verbalized a story based on, themes driven by the recent past, and all the time knowing that all knowledge is flawed.  Full circle back to the criticism we just flung at so-called “gurus” who mantra-like love gold and hate the dollar—we plead guilty. 

“What should we do, I suggest, is to give up the idea of ultimate sources of knowledge, and admit that all human knowledge is human:  that it is mixed with our errors, our prejudices, our dreams, and our hopes: that all we can do is grope for truth even though it be beyond our reach.  We may admit that our grouping is often inspired, but we must be on our guard against the belief, however deeply felt, that our inspiration carries any authority divine or otherwise.”
 
   Karl Popper

This all may sound a bit psycho-babble-ish to you, and maybe it is.  But there is a point to this ramble.  And it’s this, and we need the help of one more quote to finish it:

“An edge [in trading] is nothing more than an indication of a higher probability of one thing happening over another.”

  Mark Douglas

No matter how we dice and slice this stuff we call speculation, or investment, it is nothing more than a probability bet.  It always has been, and it always will be. 

Ah ha!  So working from that definition, maybe the most recent past lays out the highest probability for the future?  Hmmm…maybe that’s why they call them “gurus” after all. 

One probability bet that we’ve been sharing lately is the idea that maybe the path of the British pound won’t resemble the recent past.  Lately we’ve been wrong about this.  But if the assumption that cross-border financial linkage bonds this global system together and the derivatives side of the fence is where most of the problems are emanating, than we would suggest London could get hit harder than most places. 

And if London takes it on the chin, UK growth will suffer.  If UK growth suffers, the Bank of England’s may likely cut interest rates.  Of course this rating cutting game could all be relative in a world where many central banks are racing to do the same.  But either way, it doesn’t bode well for a currency that on a purchasing power parity basis is the most overvalued of the majors. 

GBPJPY Monthly Chart: Last month, before the four letter word of contagion cascaded throughout our fair land, this pair tested its 1992 high…

Is it a decent probability bet?  Asking that simple question does what is needed: if forces us to boil it down to a yes or a no.  That’s a requirement if we want to play the game; that we know for sure. 

Jack&JR

What is interesting is that our top key news event back on 28 Aug ‘07 was Barclays, a UK bank that is in the news again today after sealing a deal to obtain funds from a couple of places that still have some—Abu Dhabi and Qatar. 

We particular liked this old issue because it lays out a thought process to help shield us from a world chock-full of guru-ism, which is always a danger to one’s trading account.  

As you know, we’ve been looking for a dollar “correction” and lately have caught a bit of it, after being first steamrolled.  But as you also know, the dollar doesn’t have to “correct,” and its cranking again this morning.  Are we seeing a digestion of the sharp moves higher in the euro and pound and Aussie over the last few days, or something more?

It seems the market is increasingly firming to the idea that growth in the Eurozone and UK could be much worse than in the US.  And as Chinese growth continues to fade, dampening the fortunes of many others in the region, the old ugly greenback, warts and all, is looking like a relatively decent place to hide in a world still full of potentially very ugly outcomes.

 Tuesday 28 August 2007 6:00 a.m. EST   http://www.blackswantrading.com

Key News
• Barclays has been left with an exposure worth several hundred million dollars to failed debt vehicles created by its investment banking arm amid growing scrutiny over its links to Sachsen LB, the failed German public sector bank.  (FT)
• The [UK] house price boom of recent years could be set to slow to a near standstill next year even assuming the credit market storm blows over. (FT)

Key Reports Due (WSJ): 
7:45a.m. ICSC Chain Store Sales Index For Aug 25. Previous: +0.2%.
8:55a.m. Redbook Retail Sales Index For Aug 25. Previous: -0.7%.
9:00a.m. Aug Richmond Fed Manufacturing Index. Previous: 4.
10:00a.m. Aug Conference Board Consumer Confidence. Expected: 105. Previous: 112.6.
5:00p.m. ABC/Wash Post Consumer Conf For Aug 26. Previous: -20.

Quotable
“The indirect effects of greater uncertainty and higher volatility are more important in today’s world. Tracking the transmission of economic shocks from one country to others used to be straightforward when trade linkages were the main channel of contagion.  For example, countries with greater trade exposure to the US and/or commodity markets tend to have highly synchronized business cycles.  However, with increasing globalisation, cross-border financial links have also become an important source of transmission across the world. As a result, although direct effects of the liquidity squeeze may remain small, we should not ignore the indirect effects of greater uncertainty and higher volatility in global financial markets. In other words, market dislocations and growth fluctuations can now spread through an intertwined set of financial and economic channels that could magnify the shock.”  

Serhan Cevik and Katerina Kalcheva

FX Trading – Ultimately a probability bet it is! 

Cross-border financial links are much tighter in a “globalized” world, no doubt.  Thus, contagion is more than a four letter word.  When these cross-border financial links are supercharged with leverage, as they are, it’s difficult to believe we’ve seen the worst of it. 

We think the first round of risk-reduction effectively pulled the pin on many hedge fund grenades.  As these explode, the whiff of confidence we saw among the financial market Tout TV crowd—hoping, praying, and saying anything that might help their story—will likely explode too.  And of course, this crowd will blame the Fed for the woes instead of what is always the case: greed and a belief the future will somehow resemble the most recent past leading to complacency.  (This is not to say that central bank policy isn’t to some degree culpable as contributing to the crowd’s complacency.)

If I hear this mantra call of the recent past one more time I think I’m going to scream, “The dollar is going lower and gold is going higher.  Sure, gold isn’t acting like it should, but it will.  And the bargains in gold stocks are incredible.”  Scream I will not because it’s wrong.  But because of two things: the arrogance with which those who looked at a weekly chart say it, and the mindlessness of the mantra at the core.  Unfortunately, in the newsletter world one can’t escape this arrogance—it seems the general nature of a so-called “guru.”  And as the newsletter world is set up as the parent-child relationship game, arrogant “gurus” not only survive, but seem to make the most money; just I case you needed a little insult added to intellectual injury. 

Again, it’s not that the “gurus” will be necessarily wrong—it’s just that their arguments, lack of critical thinking, and seeming source of their knowledge is so flimsy for the most part.  If the future resembled the recent past we wouldn’t be in the midst of a global credit crunch.  And because we are in the midst of a credit crunch it means some things have changed.  And if some things have changed, why should there be any degree of confidence that trends that existed before things changed (which had reasons likely well beyond the grasp of most of us, though the price trend validated our rationales) will reassert themselves? 

At Black Swan we talk and write about things as if we have some knowledge of them.  This is unfortunately how we communicate our views.  And we have stepped into and will continue to step into the guru trap, for the fact that we tell a story about markets (provide our guess is all it is) in public immediately subtracts from our ability to be objective.  And it assumes we have some reliable source of knowledge.  What you don’t see is that no matter how much confidence we may exude about a particular theme—there is continuous self-doubt in us simply by the mere fact we have verbalized a story based on, themes driven by the recent past, and all the time knowing that all knowledge is flawed.  Full circle back to the criticism we just flung at so-called “gurus” who mantra-like love gold and hate the dollar—we plead guilty. 

“What should we do, I suggest, is to give up the idea of ultimate sources of knowledge, and admit that all human knowledge is human:  that it is mixed with our errors, our prejudices, our dreams, and our hopes: that all we can do is grope for truth even though it be beyond our reach.  We may admit that our grouping is often inspired, but we must be on our guard against the belief, however deeply felt, that our inspiration carries any authority divine or otherwise.”
 
   Karl Popper

This all may sound a bit psycho-babble-ish to you, and maybe it is.  But there is a point to this ramble.  And it’s this, and we need the help of one more quote to finish it:

“An edge [in trading] is nothing more than an indication of a higher probability of one thing happening over another.”

  Mark Douglas

No matter how we dice and slice this stuff we call speculation, or investment, it is nothing more than a probability bet.  It always has been, and it always will be. 

Ah ha!  So working from that definition, maybe the most recent past lays out the highest probability for the future?  Hmmm…maybe that’s why they call them “gurus” after all. 

One probability bet that we’ve been sharing lately is the idea that maybe the path of the British pound won’t resemble the recent past.  Lately we’ve been wrong about this.  But if the assumption that cross-border financial linkage bonds this global system together and the derivatives side of the fence is where most of the problems are emanating, than we would suggest London could get hit harder than most places. 

And if London takes it on the chin, UK growth will suffer.  If UK growth suffers, the Bank of England’s may likely cut interest rates.  Of course this rating cutting game could all be relative in a world where many central banks are racing to do the same.  But either way, it doesn’t bode well for a currency that on a purchasing power parity basis is the most overvalued of the majors. 

GBPJPY Monthly Chart: Last month, before the four letter word of contagion cascaded throughout our fair land, this pair tested its 1992 high…

Is it a decent probability bet?  Asking that simple question does what is needed: if forces us to boil it down to a yes or a no.  That’s a requirement if we want to play the game; that we know for sure. 

Jack&JR

The United Arab Emirates' Börse Dubai will delay its planned launch of exchange-traded funds until next year, in recognition of the poor market conditions.

The UAE is among a host of small, oil-rich nations seeking to turn themselves into global, and diversified, financial marketplaces. These nations and their exchanges have been partnering with U.S. and European exchange leaders at a rapid pace and cementing plans to move into all the listed-product areas, including ETFs, which the global exchange have pioneered. Abu Dhabi, Oman and Saudi Arabia are also looking at ETFs. Egypt plans to introduce ETFs next year, as well (see story here.)

The pullback from a planned earlier launch of ETFs by the Börse Dubai is no surprise given the general pullback by investors, and will not likely slow down the long-term growth prospects for the marketplace.

While traditional stock funds have suffered to a much greater extent than ETFs in the current market, from exchanges like the Börse Dubai to ETF providers, it is a time for cautious introductions of new initiatives. PIMCO, which has high-profile plans to enter the ETF market in a major way, has also said it will probably introduce its highly anticipated ETFs later, rather than sooner.

While the Middle East is behind the U.S., Europe and Asia, and Latin America, in terms of ETFs currently, ETF executives think the Middle East and its concentrated wealth centers will be an important long-term market.

Turkey, with five ETFs across two asset managers, is the closest thing to a Middle Eastern ETF market, according to the most recent Barclays Global Investors survey of ETFs worldwide.

The Dubai Börse is now also in a strategic relationship with NASDAQ OMX, including an ownership stake, increasing its ability to compete for securities listings.

Dubai was also slated to introduce derivatives early next year, and will now launch both derivatives and ETF at the same time.

Addressing the European Parliament, President Sarkozy implored his European contemporaries to embrace the current period of economic upheaval as an opportunity to restructure the global financial system. According to the Daily Telegraph, he also articulated the concern of many Western authorities that sovereign wealth funds, located primarily in Asia and the Middle East, could use their massive cash reserves to scoop up key foreign assets at extraordinarily…

Abu Dhabi, the major Middle East financial center, says it's preparing to create a platform to launch exchange-traded funds.

In detailing plans on Thursday, Rashed Al Baloushi, the deputy chief executive of the Abu Dhabi Exchange (ADX), credits increasing ETF demand by retail and institutional investors in the Middle East for the exchange's decision to build an ETF-specific platform.

Across the Middle East, ETFs and other traded securities are proving more popular and catching the attention of exchanges. The Dubai International Financial Exchange (DIFX), as well as exchanges in Oman and Saudi Arabia, have also shown interest in adding ETFs.

The latest ETF plans are also part of ambitious efforts by many Middle East markets to diversify away from oil wealth and become true, global financial centers.

Earlier this year, the Abu Dhabi Securities Market signed a joint venture deal with NYSE Euronext. The United Arab Emirates' Borse Dubai and the Qatar Financial Authority bought large stakes in the London Stock Exchange last year, and DIFX inked a strategic deal with NASDAQ to develop its regional platform.

The Egyptian Stock Exchange has said it plans to list ETFs, stock and index futures and options, in the next year, and a major Egyptian bank already has plans to list an ETF on the primary Egyptian stock index (see story here.)

Baloushi made his comments while speaking at a brokerage conference in Abu Dhabi. ADX has been working with ETF consultants to study the success of ETFs in other global markets.

Across the globe, net sales of ETFs have been rising as net assets in traditional mutual funds have decreased. In Europe, for example, net sales into ETFs were $43 billion through the first seven months of the year, while traditional funds had outflows of $148.6 billion, according to Barclays Global Investors data.

The closest thing to an ETF market in the Middle East, at this point, is Turkey, where there are five ETFs from two asset managers, according to BGI.

-- this report was submitted by Eric Rosenbaum. He can be reached at: erosenbaum@indexuniverse.com

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