For the week, the S&P500 was little changed (up 20.8% y-t-d), while the Dow slipped 0.1% (up 17.5% y-t-d). The Banks fell 1.5% (down 2.9%), and the Broker/Dealers sank 4.4% (up 43.3%). The Morgan Stanley Cyclicals dipped 0.1% (up 64.1%), and Transports declined 0.6% (up 10.9%). The Morgan Stanley Consumer index added 0.2% (up 22.1%), and the Utilities gained 1.0% (down 0.8%). The S&P 400 Mid-Caps declined 0.5% (up 27.0%), and the small cap Russell 2000 dropped 1.3% (up 15.6%). The Nasdaq100 added 0.1% (up 45.7%), and the Morgan Stanley High Tech index gained 0.1% (up 59.7%). The Semiconductors rose 0.6% (up 46.0%). The InteractiveWeek Internet index declined 0.4% (up 66.5%). The Biotechs rallied 2.2% (up 36.8%). Although bullion jumped another $27, the HUI gold index slipped 0.3% (up 55.9%).

One-month Treasury bill rates ended the week at 5 bps, and three-month bills closed at 2 bps. Two-year government yields dropped 8 bps to a new low 0.60%. Five-year T-note yields sank 19 bps to 1.95%. Ten-year yields were 17 bps lower to 3.20%. Long bond yields fell 9 bps to 4.21%. Benchmark Fannie MBS yields dropped 21 bps to 3.92%. The spread between 10-year Treasuries and benchmark MBS yields narrowed 4 to 72 bps. Agency 10-yr debt spreads narrowed one basis point to 45 bps. The implied yield on December 2010 eurodollar futures declined 5.5 bps to 1.125%. The 10-year dollar swap spread declined 1.5 to 9.5 bps, and the 30-year swap spread declined 4.0 to negative 15.5 bps. Corporate bond spreads were mixed. An index of investment grade bond spreads narrowed 9 bps to 141, while an index of junk spreads widened 14 bps to 590 bps.

November 27 - Bloomberg (Gabrielle Coppola): "Cisco Systems Inc. and U.S. wireless carrier Clearwire Corp. led $96.9 billion of bond sales this month, the busiest November since 2006... November sales compare with $45.8 billion last year and $125 billion in 2006..."

Investment grade issuers included FMC Corp $300 million.

Junk issuers included Clearwire Communications $920 million, AMD $500 million, CEDC Financial $380 million, and Salem Communications $300 million.

I saw no convert issues this week.

International dollar-denominated debt issuers included NIBC Bank $2.0bn, Digicel $500 million, Power Sector Assets $600 million, Grupo Televisa $600 million, and Aegon $500 million.

U.K. 10-year gilt yields fell 10 bps to 3.54%, and German bund yields dropped 9 bps to 3.16%. The German DAX equities index added 0.4% (up 18.2% y-t-d). Japanese 10-year "JGB" yields sank 6 bps to 1.25%. The Nikkei 225 sank 4.6% (up 2.5%). Dubai debt problems weighed on the emerging markets as the week came to an end. For the week, Brazil's Bovespa equities index gained 1.1% (up 78.6%), and Mexico's Bolsa added 0.4% (up 37.5%).Russia's RTS equities index was hit for 6.8% (up 116.3%). India's Sensex equities index declined 2.3% (up 72.4%). China's Shanghai Exchange fell 6.4%, lowering 2009 gains to 70.0%. Brazil's benchmark dollar bond yields dropped 13 bps to 4.81%, and Mexico's benchmark bond yields declined one basis point to 4.83%.

Freddie Mac 30-year fixed mortgage rates fell 5 bps to 4.78% (down 117bps y-o-y). Fifteen-year fixed rates declined 3 bps to 4.29% (down 145bps y-o-y). One-year ARMs were unchanged at 4.35% (down 83bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates down 5 bps to 5.90% (down 141bps y-o-y).

Federal Reserve Credit declined $1.6bn last week to $2.190 TN. Fed Credit has declined $56.7bn y-t-d, although it expanded $95.9bn over the past 52 weeks. Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 11/25) declined $2.7bn to $2.925 TN. "Custody holdings" have expanded at an 18.0% rate y-t-d, and were up $427bn over the past year, or 17.1%.

M2 (narrow) "money" supply increased $2.7bn to $8.392 TN (week of 11/16). Narrow "money" has expanded at a 2.7% rate y-t-d and 5.4% over the past year. For the week, Currency slipped $0.5bn, and Demand & Checkable Deposits dropped $27bn. Savings Deposits jumped $39.4bn, while Small Denominated Deposits declined $6.9bn. Retail Money Funds fell $2.3bn.

Total Money Market Fund assets (from Invest Co Inst) declined $8.9bn to $3.330 TN. Money fund assets have declined $501bn y-t-d, or 14.5% annualized. Money funds dropped $384bn, or 10.4%, over the past year.

Total Commercial Paper outstanding declined $10.6bn (15-wk gain of $182bn) to $1.257 TN. CP has declined $425bn y-t-d (28.0% annualized) and $384bn over the past year (23.4%). Asset-backed CP added $1.2bn last week to $498bn, with a 52-wk drop of $249bn (35.6%).

International reserve assets (excluding gold) - as accumulated by Bloomberg's Alex Tanzi - were up $803bn y-o-y to a record $7.537 TN. Reserves have increased $772bn year-to-date.

Global Credit Market Watch:

November 25 - Bloomberg (Laura Cochrane): "Emerging-market bond returns rose to an all-time high as the global economic recovery and record-low interest rates spurred demand for higher yielding assets from the world's fast-growing nations. JPMorgan Chase & Co.'s Emerging Markets Bond Index, the EMBI+, jumped to 496.74... the highest point since JPMorgan's data began in December 1993... Emerging-market governments and companies have sold 74% more bonds in 2009 than last year, with a sales rising to a record $566 billion..."

November 23 - Bloomberg (Gabrielle Coppola and Nikolaj Gammeltoft): "Borrowers have sold a record $1.171 trillion in U.S. corporate bonds in 2009, surpassing the amount sold in 2007... Sales of investment-grade and high-yield, high-risk debt compare with the more than $1.167 trillion that companies sold in all of 2007, a record year for corporate bond issuance..."

November 27 - Bloomberg (Christos Ziotis and Paul Tugwell): "Greek Finance Minister George Papaconstantinou said recent market volatility related to Greece was due in part to speculators. 'What we see in recent days in markets is in part due to speculative maneuvers as well as to the loss of credibility because of the previous government,' he told reporters... Greek stocks posted their biggest loss in more than a year yesterday and the difference in yield, or spread, between Greek and German 10-year government bonds widened to 209 bps today, the most since May 4, on concern that government finances are worsening. Greece expects a budget deficit this year of 12.7% of gross domestic product, the European Union' highest."

November 23 - Bloomberg (Tasneem Brogger and Agnes Lovasz): "Eastern Europe, where currencies and equities combined to produce total dollar-denominated returns of about 50% this year, is showing signs of unraveling as the continent's favorite investment because of runaway debts. Hungary's forint is the second-worst performer in the past month of 26 emerging-market currencies... Slovakia, Poland, Bulgaria and the Czech Republic are among seven countries showing the steepest increase in credit risk of 21 sovereign credit-default swaps tracked by Bloomberg."

November 25 - Bloomberg (Aaron Eglitis): "Latvian house prices fell 59.7% in the third quarter from a year earlier, the steepest drop among 30 markets surveyed worldwide, according to the Global Property Guide's quarterly report... 'The house price falls in several countries have been much larger than house price rises anywhere, and include unprecedentedly severe falls' in Latvia, the United Arab Emirates, Bulgaria, Iceland, Russia and Slovakia, the publishers of the report said, citing inflation-adjusted data."

Global Government Finance Bubble Watch:

November 24 - Bloomberg (Craig Torres): "Federal Reserve officials said record-low interest rates might fuel 'excessive' speculation in financial markets and possibly dislodge expectations for low inflation... 'Members noted the possibility that some negative side effects might result from the maintenance of very low short-term interest rates for an extended period,' minutes of the Nov. 3-4 meeting said, 'including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations.'"

November 23 - Bloomberg (Michael McKee and Steve Matthews): "Federal Reserve Bank of St. Louis President James Bullard said the central bank should retain the flexibility to respond to any weakening in the economy by extending beyond March its authority to buy mortgage-backed securities and agency bonds. 'I would just like to keep them active at a very low level instead of saying we're shutting down, shutting down permanently,' Bullard told reporters... 'Initially it would do nothing for the economy, but it would give the Fed the option to react to future news as it comes in.'"

November 27 - Bloomberg: "China's Politburo, the Communist Party's top decision-making body, said the nation will maintain stimulus policies next year as the world's third-biggest economy recovers from the global slump. The government will continue a proactive fiscal policy and a 'moderately loose' monetary stance, the state-run Xinhua News Agency reported today after a meeting chaired by President Hu Jintao. China will maintain policy continuity and stability, Xinhua said..."

November 27 - Wall Street Journal (Andrew Batson): "The new investments funded by China's stimulus plan may swamp world markets and lead to a surge in trade conflicts, an international business group said... The European Union Chamber of Commerce in China... said a combination of easy credit and other incentives for Chinese companies to expand has led to the construction of many new factories in areas like steel, aluminum, cement and chemicals. The increase in industrial capacity - at a time of global economic weakness - could drive down profit margins worldwide and lead to a backlash from other countries, the chamber said. 'The Chinese stimulus package has poured credit into increasingly questionable projects and will almost certainly increase direct and indirect subsidies to investment and manufacturing,' the report says. 'China's growth model requires that external demand - the European Union and the United States - be able to absorb the overcapacity it produces,' a prospect that is increasingly unlikely given the weak economic recovery in the developed countries."

November 25 - Bloomberg (Sandrine Rastello): "The International Monetary Fund said it will have access to a credit line of up to $600 billion to make loans during financial crises after contributing countries agreed to fold commitments into one pool. The agreement, yet to be approved by the IMF board, adds as many as 13 members from the current 26 to the so-called New Arrangements to Borrow, including emerging nations China, Russia, Brazil and India, the IMF said... The decision 'marks an important moment for multilateralism and the fund, which will help the IMF's effectiveness in its response to crises,' Managing Director Dominique Strauss-Kahn said..."

November 23 - Bloomberg: "China is risking a Japan-style bubble unless the country's regulators start to rein a record lending boom, BNP Paribas said. 'We're entering a phase where China could experience similar asset bubble that we saw in Japan in the 1980s,' said Erwin Sanft, head of China and Hong Kong equities research at BNP Paribas. 'If China continues its loose fiscal and monetary policy that could be those problems.' China implemented a stimulus package, cut interest rates five times since September 2008 and encouraged $1.3 trillion of lending to boost domestic spending... The credit expansion helped the Shanghai Composite Index rally 83% this year and home prices in 70 major cities climb at the fastest pace in 14 months in October."

Currency Watch:

November 25 - Bloomberg (Nicholas Larkin and Glenys Sim): "Gold climbed to a record in New York and London on a further drop by the dollar and on a report that India may buy more bullion for its central-bank reserves. Gold futures have rallied 12% since India said on Nov. 3 it bought 200 metric tons of metal from the International Monetary Fund... 'Central-bank buying has been one of the main factors of this recent rally,' Peter Fertig, owner of Quantitative Commodity Research... said... 'The weaker dollar is driving commodities higher.'"

November 25 - Bloomberg (Bo Nielsen and Oliver Biggadike): "The dollar approached a 14-year low against the yen as the Federal Reserve's signal that it will tolerate a weaker greenback encouraged investors to buy higher-yielding assets outside the U.S... 'Markets took it as if the Fed gave a green light to sell the dollar,' said Geoffrey Yu... strategist at UBS... 'At the same time, it seems that all central banks are sounding a bit more positive.'"

November 25 - Bloomberg: "China tightened rules on individuals transferring yuan and foreign exchange between bank accounts after speculation the nation's currency will strengthen caused a surge in capital inflows. An overseas individual or institution is not allowed to send foreign currencies to five or more Chinese individuals to convert it into the yuan on a single day or on consecutive days... 'The main aim of the new rules is to control inflows of hot money,' said Zhao Qingming, a senior analyst... at China Construction Bank... 'Individuals' cross-border transfers are an important channel for hot money to flow into China.'"

November 27 - Wall Street Journal (James Hookway and Alex Frangos): "Vietnam's decision to devalue its currency raises tensions across Asia as the region's export-driven economies jostle for an edge amid a slow recovery in orders from the U.S. and Europe. Vietnam shaved 5% off the value of its currency, the dong... its third devaluation since June 2008."

November 27 - Wall Street Journal (Katie Martin and Ira Iosebashvili): "Russian authorities escalated their campaign to discourage speculative investments, which have been flooding the country and risk driving up the value of the ruble and destabilizing the economy. The Russian central bank... said it would to boost its intervention in the currency markets, increasing ruble sales in a recently tightened trading range."

The dollar index declined 0.9% to 74.97. For the week on the upside, the South African rand increased 2.8%, the Japanese yen 2.8%, the Swiss franc 1.2%, the Mexican peso 1.1%, the Canadian dollar 0.7%, the Euro 0.7%, and the Danish krone 0.7%. On the downside, the New Zealand dollar declined 2.0%, the South Korean won 1.4%, the Australian dollar 0.9%, the Swedish krona 0.7%, the Brazilian real 0.5%, the Norwegian krone 0.4%, and the British pound 0.2%.

Commodities Watch:

November 25 - Bloomberg (Thomas Kutty Abraham): "Sugar may jump 36% to a 29- year high after a drought damaged crops in India, forcing the nation to import for a third year, according to Bajaj Hindusthan Ltd., the country's top producer."

The CRB index dipped 0.5% this week (up 19.0% y-t-d). The Goldman Sachs Commodities Index (GSCI) slipped 0.4% (up 45.2%). Gold gained another 2.3% to close at $1,178 (up 33.5%). Silver declined 0.8% to $18.335 (up 62.3%). January Crude fell $1.42 to $76.05 (up 70%). December Gasoline lost 2.7% (up 81%), while January Natural Gas jumped 9.1% (down 8%). March Copper was little changed (up 122%). March Wheat declined 1.9% (down 7%), while March Corn increased 1.6% (up 2% y-t-d).

China Bubble Watch:

November 24 - Financial Times: "A lot of things in China carry a whiff of excess. The cost of garlic is among them: wholesale prices have almost quadrupled from March. A halving of the planting area last year, and belief in the bulb's powers to ward off swine flu, provide some justification for the surge. But anecdotes of unbridled trading activity in Jinxiang county, home to China's largest garlic plant, suggest that the most likely cause is the most obvious - the abundant liquidity swilling through the system. New Loans in China may top Rmb10,000bn this year, double the run-rate of the preceding years; 2010 should bring another Rmb7-8,000bn."

November 25 - Bloomberg: "China's long-term food security and social stability may be threatened unless the world's largest grain producer invests more to fight the effects of drought, McKinsey & Co. said. Extreme drought caused by a 'high climate change Scenario' could more than triple crop losses in northeast China to 13.8 million metric tons, or 12% of the total, by 2030... China's corn harvest, the world's second-largest, plunged by 13 percent to a four-year low this year because of drought, a survey of farmers by... SGS SA for Bloomberg showed. 'China has a huge water problem which they are trying to solve," Jim Rogers...said. 'Someone is going to make a fortune as they try, whether they solve it or not.'"

November 27 - Bloomberg: "China's finance ministry completed its first sale of 50-year debt at a lower-than-expected yield as brokerages said life insurers purchased the securities. The 4.3% average yield at the 20 billion yuan ($2.9bn) auction compares with the 4.5% median estimate..."

November 27 - Bloomberg: "China, the world's largest soybean buyer, will purchase the oilseed and corn from the domestic market to boost farm incomes, the National Development and Reform Commission said."

Japan Watch:

November 27 - Bloomberg (Aki Ito): "Japan's unemployment rate in October unexpectedly fell for a third month, a sign that the worst may be over for the labor market. The jobless rate declined to 5.1%..."

November 27 - Bloomberg (Mariko Yasu, Maki Kitamura and Jason Clenfield): "Toyota Motor Corp., Canon Inc. and Sony Corp. are among Japanese exporters that may miss their forecasts as the yen strengthens more than they anticipated, eroding their earnings... Toyota, Sony and Canon, which generated more than 70% of revenue outside their home country last fiscal year, had projected the yen would average 90 to 95 to the dollar in the current period..."

India Watch:

November 24 - Bloomberg (Cherian Thomas): "India's withdrawal of monetary stimulus must be done 'carefully and strategically' to ensure the nation's economic recovery isn't derailed in an attempt to contain inflation, the central bank said. India's economic recovery is still 'sluggish', the bank's Deputy Governor Subir Gokarn said..."

Asia Bubble Watch:

November 25 - Bloomberg (Nguyen Dieu Tu Uyen): "Vietnamese lenders are facing a shortage of funds to meet rising demand for loans because gains in gold and the dollar are deterring people from putting money in the bank... Commercial banks have had to raise deposit interest rates to as high as 9.99% over the past week and offered gifts and bonuses to depositors to lure them back..."

November 25 - Bloomberg (Jason Folkmanis): "Vietnam's inflation accelerated to the highest level since May, driven by faster-than-targeted credit expansion, quicker economic growth and higher oil prices. Consumer prices increased 4.35% in November from a year earlier..."

November 25 - Bloomberg (Van Nguyen): "Vietnam's central bank devalued its currency and raised interest rates to rein in accelerating inflation and a widening trade deficit that is eroding confidence in the dong. The State Bank of Vietnam lowered the reference rate 5.2% to 17,961 against the dollar...The unofficial rate offered at gold shops in Ho Chi Minh City is 9% weaker than today's spot rate. Vietnam raised the benchmark rate one percentage point to 8%, after inflation accelerated this month..."

November 27 - Bloomberg (Seyoon Kim): "South Korea posted its biggest current account surplus in four months... The surplus widened to $4.9 billion last month from a revised $4 billion in September..."

November 24 - Bloomberg (Lilian Karunungan): "Indonesia is 'rightly concerned' about inflows into central bank bills and it 'makes sense' to limit the influx of capital, Noritaka Akamatsu, a senior adviser at the Asian Development Bank, said... Bank Indonesia Senior Deputy Governor Darmin Nasution said... the central bank is 'seriously' studying the option of limiting foreign fund inflows into its short-term bills."

November 23 - Bloomberg (Cathy Chan): "Teacher Retirement System of Texas, the seventh-largest U.S. public pension fund, will invest $200 million in private equity in Asia, whose economies are leading the world out of a recession."

Latin America Bubble Watch:

November 23 - Bloomberg (Catarina Saraiva and Carlos Manuel Rodriguez): "Mexico's credit rating was cut by Fitch Ratings after tumbling oil output and the worst recession since the 1930s swelled the budget deficit. Fitch lowered Mexico's foreign debt rating one level to BBB, the second-lowest investment grade and in line with countries including Russia and Thailand... The rating cut was the first by Fitch since it gave Mexico an initial rating of BB in 1995."

November 23 - Bloomberg (Paulo Winterstein and Helder Marinho): "Brazil's largest banks are too expensive after an 'absurd' rally this year spurred by prospects they will accelerate lending to meet rising consumer demand, according to Mercatto Gestao de Recursos... State-controlled Banco do Brasil SA more than doubled in 2009, while Itau Unibanco Holding SA and Banco Bradesco SA, the biggest non-government lenders, rose 58% and 57%... All three banks probably will increase lending by 25% next year as growth accelerates in Latin America's biggest economy, said Mario Pierry, an analyst with Deutsche Bank..."

November 23 - Bloomberg (Drew Benson and Eliana Raszewski): "Argentine highway operator Autopistas del Sol SA's bond default is adding to concern the budget gap will swell to the widest in nine years as the government takes over unprofitable companies, Moody's Economy.com says."

Unbalanced Global Economy Watch:

November 27 - Bloomberg (Simone Meier): "European confidence in the economic outlook improved in November to the highest since the collapse of Lehman Brothers Holdings Inc., suggesting the recovery in the 16-member euro region is gathering strength."

November 23 - Bloomberg (Simone Meier): "Europe's services and manufacturing industries expanded at the fastest pace in two years in November... A composite index based on a survey of purchasing managers in both industries in the 16-nation euro area rose to 53.7 from 53 in October..."

November 25 - Bloomberg (Marianne Stigset): "Norway's seasonally-adjusted unemployment rate stood at 3.1% in September..."

U.S. Bubble Economy Watch:

November 27 - Bloomberg (Rob Waters): "The number of Americans with diabetes may almost double in 25 years, and the annual cost of treating them may triple to $336 billion, according to a study published... in the journal Diabetes Care. Without new programs to assure that people get health care to manage their condition, 44.1 million people in the U.S. will have diabetes by 2034, from 23.7 million today... The number of diabetics on Medicare, the government plan for the elderly, will reach 14.1 million from 6.5 million today."

Central Banker Watch:

November 25 - Bloomberg (Jana Randow and Gabi Thesing): "European Central Bank officials are debating whether to put an adjustable interest rate on December's 12-month loans, with some saying it risks being interpreted as a signal they will tighten monetary policy in 2010, according to people familiar with the discussions."

Fiscal Watch:

November 23 - New York Times (Edmund L. Andrews): "The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.'s on terms that seem too good to be true. But that happy situation, aided by ultralow interest rates, may not last much longer. Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed. Even as Treasury officials are racing to lock in today's low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages. With the national debt now topping $12 trillion, the White House estimates that the government's tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher. In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan. 'The government is on teaser rates,' said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group... 'We're taking out a huge mortgage right now, but we won't feel the pain until later."

November 25 - Wall Street Journal (Jonathan Weisman and John D. McKinnon): "The White House is considering a bipartisan commission to tackle the nation's swelling deficit, as it seeks to show resolve on a problem that threatens its broader agenda. Top White House officials, including budget director Peter Orszag, met Tuesday with Senate Budget Committee Chairman Sen. Kent Conrad to discuss establishing such a commission..."

GSE Watch:

November 24 - Bloomberg (Jody Shenn): "Freddie Mac, the mortgage-finance company under government control, said defaults among its loans rose to a record 3.54% last month, while its portfolio of residential assets fell at an annualized rate of 21.6%. Mortgages at least 90 days late or in foreclosure among the single-family loans that Freddie Mac either owns or guarantees were 3.33% in September and 1.34% in October 2008... Defaults have climbed for 29 straight months..."

MBS/ABS/CDO/CP/Money Fund and Derivatives Watch:

November 25 - Bloomberg (David Glovin): "Bank of America Corp., the largest U.S. bank by assets, was sued by BNP Paribas Mortgage Corp. and Deutsche Bank AG over hundreds of millions of dollars in losses they sustained by investing in asset-backed commercial paper. BNP Paribas and Deutsche Bank... They say they bought a total of $1.6 billion in asset-backed notes issued by a special purpose entity known as Ocala Funding LLC, which provided funding for mortgage loans originated by Taylor, Bean & Whitaker..."

Muni Watch:

November 24 - Bloomberg (Michael Quint): "U.S. states tax collections fell for the fourth consecutive quarter as job losses and the economic recession cut revenue from income and sales levies, according to the Nelson A. Rockefeller Institute of Government. The decline of 10.7% in the period that ended in September, compared with a year earlier, was less than the previous quarter's 16.6% drop, which was the biggest since 1963..."

November 27 - Bloomberg (Terrence Dopp): "New Jersey, which faces an estimated $8 billion deficit, saw tax revenue collections fall last month by $222 million or 11.6% short of projections, the treasurer's office said..."

November 26 - Bloomberg (Susanne Walker): "New Jersey is grappling with a $1 billion shortfall in this fiscal year's budget and plans to reduce funding for schools, municipalities, higher education, hospital and pension plans to help close the gap, NJ.com said..."

New York Watch:

November 27 - New York Times (Danny Hakim): "New York State is running out of cash. Without a budget deal, New York will be left with just $36 million in the bank by the end of December, according to current projections. And the money will last that long, officials say, only if the state chooses to fully exhaust its emergency reserves by tapping several billion dollars' worth of temporary loans from its rainy-day fund and short-term investments. For weeks, Gov. David A. Paterson has invoked the shrinking amount of available cash in an effort to provoke the Legislature to deal with the state's $3.2 billion budget deficit. So far, the specter of such dire fiscal outcomes has been greeted with what amount to legislative shrugs, chiefly in the recalcitrant State Senate."

Speculation Watch:

November 27 - Associated Press (Jill Lawless and Aoife White): "They're getting nervous in Mayfair and Belgravia, London's hedge fund heartlands. Luxury car dealerships, designer boutiques and high-end restaurants have thrived on money from the unregulated investment funds whose discreet offices sit behind the solid wooden doors of those neighborhoods' elegant Georgian buildings. But now some funds are considering swapping London for the less-regulated alpine air of Switzerland or the emerging markets of Asia as the European Union tightens oversight of high-flying hedge funds. Recent British tax hikes have also spurred funds to consider leaving the city that has long been Europe's undisputed financial capital. 'The mood music has gone very bad here,' said Julian Adams, chief executive of... Adelante Asset Management Ltd. 'It's quite negative for business and for U.K. PLC.'"

Crude Liquidity Watch:

November 25 - Bloomberg (Anna Shiryaevskaya): "OAO Gazprom, the world's largest natural-gas producer, plans to almost double investment spending in 2011 to extend its pipeline network and develop new fields, Vedomosti reported... Gazprom plans to increase spending to 1.5 trillion rubles ($52 billion) in 2011..."

Dubai Watch

Global investors will be left this weekend pondering whether Dubai's standstill agreement on corporate debt repayment is borrower brinksmanship or a serious global debt problem and catalyst for a new round of global Credit market tumult. We've all got some work to do to get up to speed on this one.

November 26 - Financial Times (Simeon Kerr): "Sultan bin Sulayem, the chairman of Dubai World, was on the hajj, the Muslim pilgrimage, on Thursday, when he would have been with millions fasting and praying for forgiveness on Mount Arafat. International investors are in a less forgiving mood after the announcement that Dubai would be seeking a standstill agreement on the government holding company's debt pile, most immediately $4bn owed on a bond held by the Nakheel property subsidiary that comes due on December 14. The restructuring of Dubai World's debt has been in the works for some time, but investors had grown confident that the Islamic bond, or sukuk, guaranteed by state-owned Dubai World, would be treated separately and paid off to maintain confidence in the trade and finance-oriented economy. 'I think a lot of investors are feeling misled about the state guarantee and the chance of the bond being paid on schedule, and we can see that disappointment in Wednesday's closing prices,' said Raj Madha, banking analyst at EFG-Hermes in Dubai. 'That's going to make it tough for Dubai to go back to the market in the medium term, even if this bond is eventually paid."

November 27 - Financial Times (Jim Krane): "When you start building a third island shaped like a palm tree, intending it to be as big and crowded as Manhattan, you are crying out for a sober voice to bark: 'Stop!' But when that island is just one atoll in an artificial archipelago that would reconfigure the Persian Gulf coast into a thicket of trees, a map of the world, a whirling galaxy, a scythe and a sun that looks like a spider, what you need is some corporate restructuring. That, we learnt on Wednesday, was exactly what holding company Dubai World, the parent of Dubai's chief coastal developer Nakheel, would get. Last year, Robert Lee, one of Nakheel's executives, showed me a map of the future Dubai Waterfront as his company put the finishing touches on the more modest Palm Jumeirah, the skyscraper- and villa-crammed island that started the trend. 'That's crazy!' I said. 'Bold,' countered Mr Lee."

November 27 - Zawya Dow Jones (Andrew Critchlow and Oliver Klaus): "Pressure mounted Friday on oil-rich Abu Dhabi to step in with financial support for Dubai after fears of a debt default by one of its state-owned conglomerates hit stock markets in Asia and Europe. 'Abu Dhabi's support for Dubai might be less generous than the markets have assumed so far. Perhaps Abu Dhabi has forced Dubai to tackle the problem of excessive corporate debt 'in-house' first before extending more financial support,' Swiss lender UBS AG said... Persons close to the Abu Dhabi government told Zawya Dow Jones Friday that the United Arab Emirates as a whole won't allow Dubai to be crushed by the problems of its troubled business conglomerate Dubai World. The company, which has $60 billion of total liabilities, is seeking a debt standstill amid problems at its real estate and investment units Nakheel and Istithmar World. Abu Dhabi helped Dubai in February through the Central Bank of the U.A.E., which bought $10 billion of emergency bonds for the emirate. Abu Dhabi banks majority-owned by the government this week bought another $5 billion of Dubai sovereign debt. The U.A.E. is a federation of seven sheikdoms including Abu Dhabi and Dubai. Abu Dhabi is the senior partner in the grouping and controls 90% of its vast oil reserves, considered to by the world's fifth largest."

November 27 - Zawya Dow Jones (Alex Delmar-Morgan): "Dubai's carefully crafted international reputation as a role model for the Middle East and international financial hub is under threat, experts say. 'It's incredibly damaging,' Max Clifford, the British public relations guru, told Zawya Dow Jones. 'Its image as this wonderful, exciting place, where dreams come true are vanishing in a matter of days. Globally it's being seen as a total failure,' he said... World markets have recoiled on fears that banks' exposure to Dubai's debts could trigger a second financial crisis, in the manner of the the U.S. sub-prime mortgage debacle. 'Dubai's reputation has been impacted in a major way and it will be difficult for the emirate to recover from the negative backlash in the medium to long term,' John Sfakianakis, chief economist at Banque Saudi Fransi... 'Currency and bond markets across the globe were also exposed to developments that have become the source of the biggest destruction of confidence in Dubai's history,' the note said."

November 27 - UK Telegraph (Richard Spencer): "Question: Where did Dubai go wrong? I thought it was in the 'oil-rich Gulf'? Answer: Dubai is part of the United Arab Emirates, seven city-states which have separate ruling families, separate budgets, but security, immigration and foreign policies in common. Abu Dhabi has nearly all the UAE's oil. To keep up, Dubai from the 1950s on diversified its economy into ports, trade, services and finance, largely successfully. But its liquidity-fuelled real estate and tourism binge in the last decade may have been one step too far. Question: What is the extent of its problems? Answer: The emirate has said it has $80bn of debts, though some analysts say the true figure could be double that. Dubai World, the state-owned holding company whose bail-out plans triggered the current crisis, has liabilities of about $60bn, though only part of that is debt. The main problem is its real estate subsidiary Nakheel, which has huge bonds coming due, including an Islamic bond for $3.5bn in December. It appears to have little cash flow to meet payments - as well as relying on debt, it also sold most developments off-plan, with new developments now on hold."

November 27 - Bloomberg (Anthony DiPaola and Chris Bourke): "Dubai, the Persian Gulf emirate whose state-run companies are seeking to defer debt payments, may owe more than the $80 billion to $90 billion in liabilities assumed by investors, UBS AG analysts said..."

November 26 - Bloomberg (Chris Bourke): "Nakheel PJSC, the Dubai-owned developer whose parent is seeking to delay debt payments, may need $2 billion to finish residential developments, according to an analyst... Nakheel may be liable for about 20% of an estimated $11 billion required to build 40,000 homes that it and other Dubai developers have started, said Saud Masud, a real estate analyst at UBS AG."

November 27 - Bloomberg (John Glover): "Bonds sold by Nakheel PJSC, a real- estate developer controlled by Dubai, plunged more than 50% after the Gulf state sought to delay debt payments... Nakheel's $3.52 billion of 3.17 percent Islamic bonds dropped to 50 cents on the dollar, from 71 cents yesterday and 107 cents on Nov. 20... The notes were due to be redeemed at 109.5 cents on Dec. 14."

November 27 - Bloomberg (Lester Pimentel): "Dubai's debt woes may worsen to become a 'major sovereign default' that roils developing nations and cuts off capital flows to emerging markets, Bank of America Corp. said. 'One cannot rule out -- as a tail risk -- a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s,' Bank of America strategists Benoit Anne and Daniel Tenengauzer wrote..."

November 27 - Bloomberg (John Kohut): "British banks have the most loans outstanding to the United Arab Emirates in Europe, constituting $49.5 billion of a total of $87.3 billion extended by the continent's lenders to the Gulf country as of June 2009, Royal Bank of Scotland Group Plc said..."

November 27 - Wall Street Journal (Stefania Bianchi): "Dubai's fragile real-estate market could suffer another collapse in prices after the city-state asked for a standstill on Dubai World's debt and its struggling real-estate unit Nakheel. 'Should they effectively default, it can become one of the biggest sovereign defaults since the Argentinean crisis,' said Marina Akopian, partner at HEXAM Capital... 'It will certainly have a very negative impact on the Dubai property market and I suspect on property markets globally.' ...An estimated 50% has been wiped off the average price of real estate in the emirate since its peak... Earlier this month, UBS said Dubai property prices could drop a further 30% over the next 18 months and may take at least 10 years to recover... 'This type of crisis brings fundamental weaknesses to the surface faster. This could play out in the next six months or so," he said. UBS said one of the biggest concerns for Dubai real estate is the "funding gap" to finish properties that are already started and on which investors are defaulting. The bank estimates that $11 billion is needed to complete an expected 40,000 residential units by the end of 2010.

November 27 - Reuters: "Abu Dhabi Commercial Bank has at least 8-9 billion dirhams ($2.18-$2.45 billion) exposure to Dubai World and related entities, which will require the bank to book more provisions, an senior executive of the bank said. 'We have to face the stress that will be caused to our balance sheet and profit and loss account due to this exposure to Dubai World and associated companies because it is a default,' the executive, who declined to be named, told Reuters..."

November 27 - Wall Street Journal (Chip Cummins in Dubai and Dana Cimilluca and Sara Schaefer Munoz): "Investors sold banking stocks across Europe and Asia and jacked up the price of insuring against Dubai defaults, a day after the government said it would take charge of restructuring its corporate flagship, Dubai World, and asked creditors to accept delayed payments. A... six-month standstill in debt payments took investors and analysts by surprise. It followed months of positive moves and comments from government officials suggesting Dubai and the federal government of the United Arab Emirates were willing to step in to plug financing holes. 'The most negative effect of [the] announcement is a major shock to confidence in the U.A.E. and the region more generally,' said Richard Fox, a credit analyst at Fitch... 'People will now question government support.'"

November 27 - UK Telegraph: "Let's be generous here. Maybe Dubai was just trying to set another record. It's already given us the biggest building, biggest indoor ski slope, biggest shopping mall and biggest theme park. Surely, it was only a matter of time before it went for another biggie: the biggest debt-market cock-up. Just have a squint at the planning that went into this one. Here's the latest from Sheikh Ahmed bin Saeed Al-Maktoum. 'Our intervention in Dubai World was carefully planned and reflects its specific financial position,' declared the chairman of the grandly titled Supreme Fiscal Committee. 'The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react.' Sadly, the Sheikh did not spell out all the careful planning that went on."

November 27 - Bloomberg (Francois De Beaupuy): "French Prime Minister Francois Fillon said Dubai's request to reschedule debt repayments shows the global financial crisis "is not over" and that stimulus efforts must be maintained to avoid "breaking the weak recovery.'"