Thanksgiving may be our biggest secular holiday here in America (just ahead of Independence Day and the Super Bowl,) but for the rest of the world, it’s just Thursday. But, apparently, today’s not just another Thursday. From the it’s-probably-nothing-but department, Dubai has roiled markets with news it’s seeking a six-month “standstill” on debt payments for its Dubai World development. The Journal has the details:
DUBAI — This debt-laden city-state said Wednesday it would restructure its largest corporate entity, Dubai World, a conglomerate spanning real estate and ports, and announced a six-month standstill on the group’s debt.
The surprise move quickly sapped investor confidence in Dubai ’s ability to pay down its large debt load, sharply increasing the price of insuring against a default. It also represents the most significant fallout so far in the city-state’s yearlong economic crisis, triggered by a collapse in its once-booming real-estate sector late last year.
Now, there must be something wrong with me, because I turned off “The Godfather” (AMC’s running all three today) to check the headlines and see what Fox Business was running, and imagine my surprise to see the futures down sharply. The markets have a lot of time to digest the Dubai news before they open here tomorrow morning, but the Dubai surprise was a real blast to European markets, whose banks are far more exposed to Dubai World than their U.S. counterparts, and Asian markets.
It spurred a move into safe havens, even after the dollar slid to a 14-year low against the yen, and the dollar index hit another low. (I’m not in the office, so I’m not exactly sure, but it seems like the dollar index fell and then rose very sharply today.) It’s possible though that the news won’t have much effect on US markets, given that investors have time to figure things out and that US banks aren’t as heavily exposed to Dubai.
Of course, events like these are the kinds of things that may seem like a one-off when they first come to light, but prove to be the start of a landslide, especially when just about everybody’s crowded onto one side of a trade, kind of like the situation with the dollar. Yves Smith at naked capitalism cites a person who listened in on Dubai World’s conference call. “One could sense the panic in those asking questions…this could be the turning point in spreads and could be viewed similar to the Russian debt crisis in 1998 or the Bear situation in 2007.”
Like I said, it’s probably nothing. But it’s nothing worth keeping an eye on.
November 26, 2009
Rest assured the Fed, Goldman, et al will do all they can have the futures manipulated back up by tomorrow’s open. And after that’s happened, anyone thinks this market isn’t more rigged than Madoff’s ponzi scheme, needs to find a different line of work.