Dubai Background

Dubai is one of 7 Emirates that make up the United Arab Emirates. Abu Dhabi, with huge energy reserves and a sovereign wealth fund thought to be worth $630 billion, is the richest of them. Its banks are major creditors of Dubai and its companies, but news that they are no longer willing to keep buying or refinancing the debt of Dubai’s major companies shocked the global markets.

Dubai and U.S. Housing Speculators Play the Same Game

Dubai has very few energy resources and raises little money via income tax due to its competitive tax policies. The state has consistently run deficits and the Emirate’s growth has therefore been funded via the money markets.

A huge property-led boom saw money pile into infrastructure and construction projects (sound familiar?). Similiar to being on the cover of Sports Illustrated, building the world’s tallest building has always been viewed by investors as a sign that a local economy is about to head south.

Dubai World, the most indebted of Dubai’s state-sponsored companies, owes $60 billion of which $22 billion must be refinanced by 2011.

Worries About Impact Of Dubai Crisis Generate Substantial Selling Pressure

The U.S. stock market opened sharply lower (down roughly -3%) on Friday, November 27, 2009 in a reaction to the financial crisis in Dubai. The downward momentum comes after Dubai World asked to postpone payment on some of its $60 billion in debt. Worries about a default by the city-state have raised significant concerns about the impact on banks.

The markets closed down roughly -1.5%.

Mark Minervini Comment on Dubai Sell Off

I view short term turmoil in countries and nations outside the U.S. as a long term positive for U.S. stock and bond markets. Similar to the Asia crisis in the late 1990′s, these foreign calamities highlight the relative safety of the U.S. and bolster U.S. credibility. I made this same comment during the Asian crisis, which turned out to have the same effect.

A Counterintuitive Scribe

I will leave you with one counterintuitive comment by James Hillman from his book, Kinds of Power: A Guide to Its Intelligent Uses:

“Wherever we see an increase we feel its weight. All the numbers going up no longer portray the optimistic spirit, but instead indicate monstrosities, epidemics, ugliness, future disaster, extinction. Growth has taken on a cancerous tinge. To use the word now sends a message of potential danger, whether the growth be in debt, the population, the underemployed, the homeless, the dimension of cities, the size of government, the particles in the air, the tax rate, the cost of living, the cholesterol count, even the rising numbers on the bathroom scale. Going up now means decline. What was before the measure of progress has become a sign of
problems.”

You might be thinking that this was written to describe the current economic challenges, however his book was written in 1995. Did the world recover, indeed. Will the U.S. and global growth recover this time around…indeed.

Yes, but shouldn’t we have been doing that anyway? ;)

I would be wary of jumping back into Japan. I don’t think the world is big enough to support both the US and Japanese current spending deficits. I am leaning towards one of them going into a borrowing crisis as the next stage of this ongoing debtism (as opposed to capitalism) crisis (the next significant Oct. ’08 type crisis, not these mini Dubai type crises). I’m guessing it may hit over the next couple years and I don’t see Japan going anywhere until it does hit. At least not anywhere safely

Mark ‘Enron Shorter’ Chanos would agree about China.

Also, it’s hardly secret that people are suspicious of the US Dollar and types like Mark Faber, Jim Rogers and particularly Peter Schiff and Ron Paul seem to have developed almost personality cults. I just can’t figure out why all they are so bearish on the US Dollar because of deficits but not the Yen or the Euro??

America’s far from the only country to have had a real estate bubble, bad loans, bank bailouts and a serious lapse of ethics, to put it mildly. Nearly every country seems to be pursing policies that benefit the so-called ‘ruling class’ over pretty much everybody else. See http://chinesepolitics.blogspot.com/

The whole world is a mess and while it’s comforting for those in the East to blame the ‘West’ for the current financial crisis, greed and corruption are thoroughly global phenomena. It’s part of the human condition, unfortunately, and the hunt for a quick buck and damn-the-consequences isn’t restricted to California house-flippers.

When people in the East talk to Westerners they do certainly like to play up those stereotypes of the East being more ‘spiritual’ or ‘less materialistic’ but as someone who’s married to someone from India and whose mother spent 10 years in Hong Kong and China, I can tell you that it’s utter nonsense. It’s a lot easier to blame ‘Western values’ for being a corrupting influence rather than look internally and I see plenty of people in the US decry the same lack of moral fiber in people who are supposed to be our leaders.

David says:

“Asian emerging markets are a terrific story. This is true both for the fledgling ones and for the largest one, China”.

1) Do you really think the Asian story is going (to continue to go) anywhere without the United States and Japan in Todays Global Economy.

2) Do you really a believe/trust the Rosy economic data coming out of some of these countries, especially China.

Personally, I think China is Full of Sh*t on the matter…