Jan Ake Jonsson, the CEO of Saab, is in Detroit today – along with a number of Swedish government officials – in hopes of speaking with other potential buyers after the deal with Koenigsegg Automotive AB fell apart.

Three potential buyers have slowly come forward including Beijing Automotive Industry Holdings, The Renco Group Inc. and investors Merbanco Inc. Obviously, the biggest name on the list is BAIH, and they are truly in a position to execute a Saab business plan; however, will BAIH and GM be able to finish a deal?

Frankly, this sounds like a last, desperate, Hail Mary type of play on the part of GM but if Beijing Automotive Industry Holdings plays their cards right they company can walk away with Saab at a fire sale price.

On another note, it looks like the problems of Dubai are going to magically go away… OK, the situation is not exactly that happy but it now looks as if the central bank of the UAE will provide a funding to insure against a default of Dubai debt. The roughly $700 billion the UAE central bank has on the books is more than enough to save Dubai, it is sad to see this happen.

Why?

Quite simply the action will calms fears and perpetuate the unrealistic belief that there will always be someone to bailout those in need, that too big to fail is a reality. If a default can happen to Dubai, it can happen to any government, but not every government will have an angel to provide them with a rescue package.

What would the world to then?

My guess is panic.

Actually, surprise really is not the correct term. A number of people and rating agencies have stated for about a year that by 2011 one in four mortgages would be underwater – that is the borrower owes more than the property is worth.

First American CoreLogic, a real estate information company, now says that 10.5 million households have negative equity in their property. For those who claim the residential real estate market have bottomed, think again. Let us deal out a few reasons why.

The case for the next leg down in real estate

1. Foreclosures are making record highs each month. This means there will continue to be extra inventory on the market, pushing down prices
2. People with negative equity – especially large amounts – will start walking away from their property (see point number 1)
3. $110 Billion in Adjustable Rate Mortgages will reset in the next two years. Seeing a large portion of borrowers cannot refinance as it is, a wave of ARMs resets will cause pressure on borrowers again leading to people being unable to pay their mortgage.
4. Unemployment is expected to remain high over the next several years. If jobs are hard to come by, how can people pay their mortgage? (again, see point 1)

What I find interesting is that 11% of people who took out mortgages in 2009 ALREADY owe more than what their property is worth. If that is not a sign that the market continues to trend downward I don’t know what is.

While the world was caught off guard by the news that Dubai is on the verge of defaulting on their debt, Sheikh Ahmed bin Saeed al-Maktoum, a family member of the Dubai’s ruling class, noted the decision to announce was carefully planned. I have no doubt the decision was planned; however, what does not add up to me is this quote:

“unprecedented growth, in Dubai and across the (United Arab Emirates), over the past decade has helped lay the foundation for what is now a broad-based sustainable economy beyond just natural resources.”

Is the United Arab Emirates truly in a position to continue growing beyond their involvement in natural resources? I would be hard pressed to believe such a statement.

The unprecedented growth in the UAE was based on energy, all other industries were offshoots. Why do you think the UAE is pushing for higher energy prices? The revenues from energy production fund government operations, and without that revenue the governments of the UAE will constrict – if not collapse.

A potential saving grace for Dubai may be their big brother, Abu Dhabi.  This write up by Northern Trust bank suggests Abu Dhabi may help the country restructure debt in exchange for assets such as Emirates airlines. As John Galt points out, someone sold a large amount of gold at the open of the markets after the Dubai news – was Dubai trying to raise funds, or was Abu Dhabi getting ready to assist? A rescue move by Abu Dhabi move would make sense on a number of levels – both business and cultural.

The real question that should be asked is this: Are any other governments facing default and would would be their “big brother” providing a rescue?

If Dubai does default, the credit markets will slow yet again, especially into emerging markets.  Such an event will put even more pressure on smaller governments facing debt issues due to the global economic depression. But what about other other governments, what about the “stable” countries such as the United States, United Kingdom, the European Union and Japan?

The sovereign debt worldwide has increased roughly $15.3 trillion dollars between 2007 and 2010, and the majority of the debt was placed squarely on the books of the countries above. If the United Kingdom or Japan were to default a number of countries may be able to assist, but if the United States where to lapse on debt there is no one with a bigger checkbook that could come to the rescue.

The future remains to be seen but if it can happen to Dubai – a country that was the jewel of the UAE – it can happen to anyone. Over the next year we may understand that the term “too big to fail” is indeed false.

Dubai, the skyscraper building United Arab Emirates shangri-la has essentially defaulted on their debt.  The country asked creditors for a “standstill” on debt payments for the next 6 months as the country attempts to get a hold on their economic situation.  If Dubai does not manage to pay their debt, renegotiate their terms or find a way to satisfy their creditors the country will trigger the biggest government default since Argentina’s collapse in 2001.

How did Dubai end up facing a collapse?

It starts with the roughly $80 Billion Sheikh Mohammed Bin Rashid Al Maktoum, Dubai’s ruler, borrowed in an attempted to turn the Emirate into an economic and tourist mecca. Add in an economic collapse that triggered devaluation in real estate prices of close to 50%, as well as a massive cut in energy prices (yep, they still need profits from oil), and you have the perfect conditions for economic Armageddon.

And that is exactly what the country is facing, but how does this impact the rest of the world?

There is no question about it, the economic “recovery” that the U.S. and world governments are publicizing is thin at best, and an all out fraud at worst.  If Dubai does end up defaulting the banking system is going to face roughly $40 Billion in liabilities.  While the main exposure is within banks in the EU, such a large hit would constrict the credit market even more as banks and financial institutions will not want to continue risking exposure with lending practices.

For three months now I have consistently pointed out the economic risks the world faces. All one needs to do is put the pieces together, from bankruptcies of large US financial institutions to the defaulting of governments, it is clear the world economy is very sick.

The world is not going to come to an end in some giant bang, no.  What is happening, and will continue to take place, is the slow crumble of the economic system. Much like a frog in a pot of water that begins to boiling, people will not notice what is going on around them until it is too late. Look for more events to take place over the next several months and be prepared for a very hard mid-to-late 2010 if the economic conditions continue on their current path.

What was a shock yesterday is truly reality today.

GM is not in talks with another party to purchase Saab in the wake of the failed attempt to sell the brand to Koenigsegg Automotive AB. Unless something major happens, and happens quickly, the 60-ish year old car company will be a causality of the financial downturn – along with roughly 3,400 jobs world wide.

I wonder how many other classic brands and companies will fail during the downturn.

I was shocked this morning to see the large drop in the USDX; however, I’m near speechless at the loss suffered by the index.  At the end of NYSE trading today the USDX was down 1.17% (-.88) to 74.24, virtually at the low of the session.

India’s decision to buy gold and the Fed comments on rates helped drive the dollar down, but remember there is very little support in the index until 72.00.  I have no doubt that we’ll see a pullback in the next week, however, testing the 72 floor seems to be closers than ever. While I had expected to bounce around that target until Feb of next year, I wouldn’t be surprised to see that by the end of the year 09 OR early Jan 2010.

Anything can happen, yes. The government may change fiscal policy, yes.  As long as the economy is weak, and the feds keep the rates low, the dollar will continue to head south. The lower it goes will also lead to selling pressure by those who invested in the currency. You very well may be witnessing the death of the dollar and as a result you should really be asking yourself how you will protect your future.

Think about it before you wake up one day with half of the purchasing power you have today.

Yes, nothing goes straight up or down but the large drop in the dollar (USDX) over night made me say “WOW!” when I check my usual sources this morning. At of this very moment the dollar index sits at 74.53, or a drop of .55 in the last 12 hours.

There wasn’t much “bad” news, per se, that would be driving the drop. The one story that really caught my attention, and is most likely helping the drop, is the latest news that India was looking to buy more gold from the IMF. Obviously, the price of gold has also seen some action in response to the news – hitting another all time high.

Watching the market overnight makes me wonder if the economists expecting a drop of 6.4% vs. the Euro next year is an “optimistic” view.

Here is some big news – GM’s deal to sell off Saab to Koenigsegg Group AB has fallen apart. When it first became apparent that GM was going to sell or shut down Saab the Swedes had their sense of national pride kick, leaving Koenigsegg with the desire to turn their VERY small car company into the savior of Saab (and the Swedish brand).

Initially the deal made no sense. Koenigsegg only produced 34 cars during their first years of operation, how could the company become a high volume company?  They do not have the capacity or management experience to run the brand.  Turns out the deal didn’t make sense in the end as well seeing the stockholders did not believe Saab could switch from being a “high volume” brand to a luxury brand.

Without a buyer Saab is heading to the giant junk yard in the sky, that is to say Saab is going to close down. If the deal does fall apart it will be the third time GM has failed at selling off a unit – Opel and Saturn being the other two. These broken deals only go to show how bad the car industry really is.

For the last two months I have been talking about the death of the dollar. My conclusion, along with others who watch the financial world, is government policy has placed the dollar at risk in the global market.  The days of the U.S. Dollar acting as the world reserve currency is coming to an end, which will have negative long term effects on the U.S. economy.

While there is no one single reason that I have come to this conclusion, it is clear that the economic indicators are lining up for such a situation to occur.  The speed of such an event is unpredictable, some people are saying within the next year while others are pointing for the death to take place over the next decade.  In the end there is no single answer, and a number of events dictate if (or when) such a thing would even happen; however, economic analysts are calling for the dollar to depreciate 6.4 percent versus the euro next year unless the U.S. changes economic policy soon.

It is one thing for bloggers and economic watchers to call out trends, it is another when economists who work in the financial market to point out the problem.  Without action by the Fed (raising rates, cutting funds) the dollar is in trouble on the world market.

In my mind the U.S. debt it out of control.  Coming in at $12.1 trillion and growing countless people are wondering how the Government will be able to service the debt with an economy that is flat or contracting.

The short, very possible, answer is that will be unable to do so.  While the non-partisan Congressional Budget Office has sounded the alarm in the past some very shocking number are out from a number of sources – data that should make everyone take notice.

• Half of the debt ($4.8T) built over the next 10 years will be interest on existing debt
• Interest due in 2015 will be $533 Billion or 1/3rd of ALL federal income taxes collected for that year
• Roughly 40% of U.S government debt will need to be refinanced within the next year

The real question is this: What happens if (when) the U.S. cannot service the debt? Oh, yea. Maybe that is part of the reason why people are fleeing the dollar as an investment.