Duh, Dubai!

First of all, before I even go anywhere with this, who didn't see this coming from a million miles away? Obviously not the geniuses who gave them $80 billion in capital to play with.

Secondly, I sincerely hope my friend @harperpm is no longer clenching his buttocks in anticipation of me writing this at last. Sorry, dude, it's a day off for me and I was trying to get out of writing anything at all. That'll teach me.

There is quite a bit of bizarre Dubai news and it is being blamed for everything from the stock market tanking to gold taking a dive. Gold! LOL, Reuters, what are you doing?

Gold tumbles as Dubai triggers stampede to dollars

Gold rallied from a one-week low on Friday, helped by the dollar cutting gains as world leaders played down the possibility of a Dubai debt default, with investors betting the metal's unique appeal would stay intact. Spot gold cut losses to around 1.5 percent and traded at $1,174.65 an ounce by 1627 GMT, after hitting a low of $1,136.80 a troy ounce, the lowest since November 20.

It was still down from 1,192.60 quoted late on Thursday, when the precious metal hit $1,194.90 -- a record high.

"We've dropped around $60 today, which has given the people who haven't been able to join the first rally a chance to enter the market," said Ole Hansen, senior manager at Saxo Bank.

"The rally for now could be a little bit subdued as we will run into profit taking as we go into December. But, the strong way it's coming back up today could bode fresh highs next week."

Dubai said on Wednesday two flagship firms planned to delay repaying billions of dollars in debt. State-backed Dubai World has $59 billion of liabilities -- a big chunk of the emirate's total debt of $80 billion.

That has raised the specter of default and triggered a sell-off of risky assets such as commodities and stocks.

(Reuters, seriously, where is the "stampede into dollars"? I'm still looking for it...)


Stocks slumped Friday as investors reacted to a debt crisis in Dubai, with more repercussions likely on tap the next few days as traders return from major holidays in both the U.S. and Middle East.

Crude oil touched a six-week low, gold tumbled, and the dollar climbed as worried investors sought safe havens.

The stock market's slide began in Europe, continued in Asia, and then through the U.S. trading session after Dubai said it would delay debt repayments from its investment company, Dubai World. The decision raised broader questions about the safety of emerging-market debt and the strength of the global recovery.

The Dow Jones Industrial Average, which sank 233 points at its morning low, fell 154.48 points, or 1.5%, to 10309.92 in shortened post-Thanksgiving trading. U.S. stock markets closed at 1 p.m.

The best part of this entire tale is that Citigroup will be hit hardest as it is the US institution most directly exposed to a potential Dubai World default. I will try to refrain from laughing diabolically here, but it goes back to my first point - who didn't see this coming from a million miles away? Well $C U Next Tuesday obviously!

CNN Money:

New York-based Citigroup has the most exposure to default risk at Dubai World, which a J.P. Morgan equity research note estimated at $1.9 billion.

While the other major banks in the United States are believed to have little direct exposure, the ripple effect could be more crippling, according to Richard Bove, a bank analyst with Rochdale Securities.


Ok so seriously, can someone explain to me why this would be bad news for gold? If anything it furthers my belief that the dollar is screwed (anyone smell a $60 billion Citi bailout?) and we're a bunch of idiots.

CNN Money continues:

And while UK banks, such as Standard Chartered, HSBC, Royal Bank of Scotland and Barclays are much more exposed to Dubai World, with a total of more than $30 billion in default risk according to J.P. Morgan's note, U.S. banks have extensive dealings with UK institutions. Those include trading and guaranteeing debt, which could translate into losses for U.S. banks.

There's also U.S. banks' interactions with their German counterparts. Dubai has loaned a lot of money to Eastern European nations, as has Germany. Any losses from defaults there could expose U.S. banks to some risk.

Finally, there's the impact of already reeling commercial real estate markets worldwide.

"Dubai may have to unload some very prestigious properties at distressed prices, and
this will drive the price of all commercial real estate lower," said Bove. "That would clearly be a problem for American banks."

Bove also posited that the problems at Dubai World could add weight to the growing sentiment that is already strong in the U.S. Congress about beefing up regulation.

Have you heard the UK recession is worse than "experts" believed? So this one might hurt a bit.

I resent Dubai being blamed for any drop in gold and am incredibly skeptical of any claims that this event would cause investors to pile back into the dollar. In what dimension?!

Dubai has the assets to cover this, why is this such a big deal? They can just sell the shit off. Anyone want a sailboat-shaped hotel or a bunch of islands that look like the Earth?

Update: "It seems Dubai is a special case" so stop using the "markets are seizing in response" excuse, it's not working. Like I said, Dubai's assets > liabilities so what's there to seize about?

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Paul H said...

Fnaaar ..

no longer straining this end ...

pun intended

W.C. Varones said...

Systemic risk!

Obama better give Dubai a bailout!