Market Talk

Hey, we had to look it up too.

Today’s supposed to be a day where the few bored reporters who get stuck in the newsroom spend the day eating everybody else’s leftovers, dutifully repeating the hyberbolic and inflated estimates of holiday sales from various retail trade groups and tidying up our cluttered desks.

We’re supposed to interview the lunatics who showed up outside Best Buy 24 hours before the doors opened, film the mobs as they crash the gates, and grumble that we’re already sick of Christmas songs.

But “Black Friday,” the concocted retail sales “event,” has been usurped today by an actual event, the unfolding crisis in Dubai over the debt of state-owned Dubai World. Everybody’s still reacting to the news that Dubai asked for a “standstill” on its debt payments, so it’s far too early to say exactly how big a deal this is. Still, it bears careful scrutiny. This could turn out to be something that’s mainly contained to the Middle East — and apparently some UK banks — or it could be the loose end of the ball of string that represents this global reflation trade.

At the least, as the Journal’s Richard Barley writes, Dubai has put investors on notice.

Dubai has delivered investors a wake-up call. The Gulf State’s decision to seek a six-month standstill on debt of conglomerate Dubai World isn’t only a reminder of the deep problems in Dubai itself but highlights the biggest risk for markets in 2010: less-predictable actions by governments. With sovereign finances stretched, investors need to remember that governments can and will change the rules when necessary. Asset prices, buoyed by a faith in policy support, may need to adjust to that.

And here, in no particular order, are some other comments we’ve published this morning on the wire:

- US banks have only $9.9B United Arab Emirates loan exposure compared $49.5B for UK banks, Royal Bank of Scotland estimates. That could assuage some of today’s jitters in US markets. But the lack of official data leaves investors wondering. For total UAE loan exposure, the US share looks small. RBS estimates that the UK has more than half Europe’s total. France and Germany are next, with $11B and $10B, respectively. The tally doesn’t include bonds.

- “The Dubai World debt crisis has contagion risk. Insolvency cannot be permanently papered over by excess liquidity, not in the Middle East nor, for that matter, in America,” Cumberland’s chief investment officer David Kotok writes at The Big Picture. “At Cumberland, we want to see the market make the adjustment for this risk before we resume a fully invested posture.”

- The Dubai crisis represents just another overdue consequence of the global property bubble busrting, Capital Economics says, rather than a new financial crisis. “Nonetheless, they are a timely reminder that the legacy of past excesses in heavily indebted economies will linger for many years to come.” Firm thinks the tensions will ease as the prospects for Dubai World become clearer over the next week or so. And while the crisis isn’t likely to have a long term effect on the outlook for emerging markets, it does “add to the growing catalogue of stresses in various countries and therefore increase the chances of a pause in the rally in riskier assets, notably commodities, over the next few months.”

(Brendan Conway contributed to this post.)
(Image: Wikipedia commons)