Dubai Default: Let's Get Ready to Crumble

Dubai's Man-made Island "Sculpture"

UPDATE HERE: DUBAI AS COMMERCIAL RE CANARY IN THE COAL MINE

Dubai’s sovereign debt is the disaster du jour, Europe already took a 3% hit yesterday while we were ODing on tryptophan and cranberry relish.  We’re looking at a down 200+ open on the Dow as of this post (8am).

I’m still getting acquainted with the story, so I’ll post some headlines from the media below and comment later on today:

From Bloomberg:

Dubai World, the government investment company burdened by $59 billion of liabilities, sought this week to delay repayment on much of its debt.  Stocks fell around the world for a second day, commodities dropped the most since July, Treasuries rose and credit default swaps surged as Dubai’s attempt to delay debt repayments unnerved investors.

European banks like HSBC are most exposed, from the Wall Street Journal:

U.K. banks look the most exposed to Dubai debt worries says Credit Sights, and HSBC and Standard Chartered are estimated to hold half the U.K. total.  “Both HSBC and Standard Chartered had previously expressed concerns about weakness in United Arab Emirate economies and property markets, and both reported higher loan loss impairments in the region in 1H ‘09.”

The most interesting twist I’m seeing thus far is that investors are reacting by fleeing gold and reaching for US Dollars.  Bet ya didn’t see that one coming!  From Reuters:

Gold prices tumbled nearly 5 percent to a one-week low below $1,140 an ounce on Friday as investors fearing debt default in Dubai sought safety in dollars and cash.  “It’s mainly driven by this news out of Dubai (which) has had a large impact on risk appetite and resulted in a sharply stronger dollar,” said Daniel Major, a metals analyst at RBS Global Banking & Markets.

Never a dull moment.  Tune in later for more on the Dubai story as I get my arms around it.

Sources:

Commodities Drop, Emerging Markets Fall  (Bloomberg)

UK Banks Look Most Exposed  (WSJ)

Gold Tumbls as Dubai Triggers Stampede to Dollars  (Reuters)

What's been said:

Discussions found on the web
  1. Paul H commented on Nov 27

    The big thing about this story for me, is the knock on effects into other countries that are having issues, namely Greece, Spain & The Baltic Nations.
    Looking at the Emerging Market ETFs, EDC inparticular is being ravaged.
    For those of us that are sitting in cash, there will be some nice discounted offerings coming to a platter near you …

  2. Paul H commented on Nov 27

    The big thing about this story for me, is the knock on effects into other countries that are having issues, namely Greece, Spain & The Baltic Nations.
    Looking at the Emerging Market ETFs, EDC inparticular is being ravaged.
    For those of us that are sitting in cash, there will be some nice discounted offerings coming to a platter near you …

  3. Friday links: bursting bubbles Abnormal Returns commented on Nov 27

    […] World defaults.   Volatility returns.  (WSJ, Calculated Risk, Aleph Blog, Barron’s, The Reformed Broker, VIX and More, The Money Game, Felix Salmon, Curious […]

  4. Friday links: bursting bubbles Abnormal Returns commented on Nov 27

    […] World defaults.   Volatility returns.  (WSJ, Calculated Risk, Aleph Blog, Barron’s, The Reformed Broker, VIX and More, The Money Game, Felix Salmon, Curious […]