Counter Trade Dubai

I wrote a piece on Wednesday evening that discussed my own experiences with market volatility over Thanksgiving. It ended with:

The rates on your screen Friday morning will be meaningfully different than the ones you are looking at today.

I got the Vol. right. But I had no clue that the source of the hiccup would be Dubai. The reason is, as many have pointed out, this is “old news”. To be sure, there have been some new and important developments. But I doubt that Dubai is the issue that sinks the ship.

The talk is of $80-90 b of exposure. Say half of that is lost money. Of that, 70% is deep pockets in Abu Dhabi. That gets to an ‘outside the Gulf’ loss of only $15 b. A few European Banks will get hit. There is very little US exposure to this mess. The numbers do not look that big to me.

How big of a surprise was this? I suspect not so big for those who have big stakes in Dubai. These were WSJ headlines from 11/23. Three days before before the Tday blowup.

If you are a big bondholder you keep an eye on whether the contractors are getting paid. If there is no money for the vendors then it is just a matter of time before the creditors get stuck. This comment from a gulf paper Six months ago:

Nakheel, for example, has asked its suppliers to take discounts of between 25 per cent and 35 per cent.

There are dozens of examples of press reports that Dubai was in arrears for a long time. So I do not buy that this is a nexus for the market.

I think that by next week market focus will again return to those that were steering markets on Wednesday. A weak dollar, strong gold and busted monetary policy. Dubai is a side show that was aggravated by our holiday and an overreaction in Asian markets. We will revert back to the main event.

Note: In looking at this I saw these comments. Someone has to say things like this. It still strikes me funny:

November 24, 2009!!! US Consul General Justin Siberell to “Emirates Business”.

"We are certainly bullish on Dubai".