“The government of Dubai is in major financial trouble.
The government late Wednesday said it would restructure Dubai World and announced a six-month “standstill” on repayments of the state-run wide-ranging conglomerate’s debt.
Government-owned Dubai World is a conglomerate with interests in real estate, ports and the leisure industry. The firm carries around $60 billion in liabilities. Credit agencies Moody’s Investors Service and Standard & Poor’s downgraded the debt of a range of government-related firms, including DP World, after the restructuring announcement.
The dollar amounts involved with Dubai are relatively small in this tranche (compared to the real estate debacle0, but this continues to indicate the shortage of dollars to support the current capital structure.
As one would expect, markets are reacting negatively. International stock markets are down across the board. The dollar is climbing.”
More at The Telegraph.
My Comment
We´ve been watching this story since we first read it via Peter Cooper, who has some other insightful comments on his blog, Arabian Money.net.
“The Private Equity World Middle East 2009 conference this week attracted a good crowd and many sponsors. However, the gloom and despondency among delegates and speakers is tangible. Why are these canny business operators so depressed?
Basically they do not believe in the recovery and see a double-dip in the global economy as stimulus packages are withdrawn. The current uptick has left businesses too highly priced and their owners overconfident in the opinion of private equity firms.”
Cooper has also noted that gold sales in Dubai have crashed, although with the increase in general investor interest, he thinks this won´t have a major impact on the world gold market. Cooper also thinks the China boom is driven mostly by government stimulus money and is very vulnerable to a collapse.
His opinion comes with regional expertise behind it, while mine is simply based on my sense that the 2008 crash was only a preview of coming attractions…but still, I´m wary of the move in gold. My sense is that speculative money is pushing up the price and it could go down fast short-term. Long-term fundamentals remain good, of course.
Now, this is Thanksgiving and trading is thinner that usual, so market fluctuations do get amplified. Also, the move down in gold shouldn´t be taken out of context. It´s only to be expected, given its strong performance recently. But nonetheless, the strengthening of the dollar and the sell-off in the markets is significant.
Also significant is the fact that the Dubai government made the announcement after the local stock market had closed and on the eve of the Eid holiday that runs upto December 6.
Here are the numbers:
[(Note: the Asian markets sold off on Thursday, the other figures are opening figures in Europe and America.]
Update: there was some recovery in the markets by the close of Friday.
[Note also: First set of figures is from AP, Friday, November 27, 5:34 AM.]
Figures in brackets are from IBNLive.
Japanese Nikkei 225 down 3.2% (2.28%)
Australia down 2.9%
Shanghai down 2.4% (1.82%)
(India´s Sensex down 2.67%, Nifty down 2.8%)
Hang Seng (Hong Kong) down 4.8% (3.45%)
Kospi in S. Korea down 4.7% (4.01%)
Europe, down over 3% on Thursday, slid further:
FTSE 100 (UK) (down 3.2% on Thursday) 0.3%
DAX (Germ) (down 3.25% on Thursday) 0.4%
CAC-40 (France) (down 3.4% on Thursday) 0.6%
The Canadia market (TSX) dropped over 200 points.
On Wall Street, the Dow is down this morning by 2% and the S&P by 2.5%
Oil down by $4.17 to $73. 79 a barrel in Europe ($72.39 in Asia).
The dollar climbed back up from a 14 yr low of 84.81 yen to 86.33 and moved above parity to the Swissie.
Gold fell from a high above $1192 on Thursday to as low as $1136 (a move of $52 $56, which isn´t that big a deal for it, but nonetheless could be an indication of future downside volatility)
Looks like in a market sell-off, as before, the dollar gains..
This is why price-chasing is a danger.