ÿþ<html> <head> <meta http-equiv="content-type" content="text/html;charset=iso-8859-1"> <title>OnlineColumnist®.com: Putin Punishes Georgia</title> <meta name="generator" content="Adobe GoLive 4"> <style type="text/css"> .style2 { font-size: large; font-weight: bold; font-family: Arial; } .style3 { height: 69px; } .MsoNormal {} h1 {margin-bottom:.0001pt; page-break-after:avoid; font-size:12.0pt; font-family:"Times New Roman"; font-weight:normal; text-decoration:underline; text-underline:single; margin-left: 0in; margin-right: 0in; margin-top: 0in; } .style4 { font-size: x-large; font-weight: bold; } </style> </head> <body bgcolor="white" vlink="black"> <center> <table cool width="624" height="2719" border="0" cellpadding="0" cellspacing="0" gridx="16" showgridx gridy="16" showgridy> <tr height="79"> <td width="133" height="118" rowspan="2" valign="top" align="left" xpos="0"><a href="aboutdiscobolos.html"><img height="110" width="62" src="images/discobolos.logo.transp.gif" border="0"></a></td> <td width="7" height="118" rowspan="2"></td> <td width="482" height="79" colspan="2" valign="top" align="left" xpos="140"><img height="75" width="450" src="images/banner.GIF"></td> <td width="1" height="118" rowspan="2"></td> <td width="1" height="79"><spacer type="block" width="1" height="79"></td> </tr> <tr height="39"> <td width="182" height="39"></td> <td width="300" height="39" valign="top" align="left" xpos="322"><a href="aboutdiscobolos.html"><img height="14" width="267" src="images/divisionofNEW.GIF" border="0"></a></td> <td width="1" height="39"><spacer type="block" width="1" height="39"></td> </tr> <tr> <td width="624" colspan="6" valign="top" align="left" xpos="0" class="style3"> <table border="0" width="100%" bgcolor="black" cellspacing="0"> <tr> <td> <table border="0" width="100%" bgcolor="#99ffcc" cellspacing="0" cellpadding="4"> <tr> <td align="center"> <div align="left"> <a href="index.html"><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> HOME</strong></font></a><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> &#8226; <a href="articlesindex.html">ARTICLES</a> &#8226; <a href="books.html">BOOKS</a> &#8226; <a href="teflon.html"> THE </a><a href="teflon.html">TEFLON</a><a href="teflon.html"> REPORT</a> &#8226; <a href="mailto:letters@onlinecolumnist.com"> REACTIONS</a> &#8226; <a href="aboutdiscobolos.html">ABOUT DISCOBOLOS</a></strong></font></div> </td> </tr> </table> </td> </tr> </table> </td> </tr> <tr height="2"> <td width="133" height="2">&nbsp;</td> <td width="489" height="2576" colspan="3" rowspan="2" align="left" xpos="133" content valign="top" csheight="2573"> <p class="style2">Dubai&#39;s Global Headache</p> <p><b><font face="Arial,Geneva,Helvetica">by John M. Curtis</font></b><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b><a href="books.html"><br> </a></b></font><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b> (310) 204-8700</b></font></p> <p><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><i>Copyright Nov. 27, 2009<br>All Rights Reserved. </i></font>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p> <p class="MsoNormal"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<span class="style4">&nbsp;S</span>hocking world financial markets, the extravagant independent Middle Eastern city-state of Dubai announced it would ask creditors for a six-month reprieve on roughly $60 billion in debt.<span style="mso-spacerun: yes">&nbsp; </span>Dubai s Finance Minister Sheikh Mohammed bin Rashid al-Makoum asked for a  standstill on about $59 billion in state-owned Dubai World debt, uable to meet obligations, especially $3.52 billion in Islamic bonds from its property unit Nakheel PJSC due Dec. 14.<span style="mso-spacerun: yes">&nbsp; </span>Dubai already tapped out its more conservative oil-rich capital of the United Arab Emirate Abu Dhabi, borrowing $10 billion last February.<span style="mso-spacerun: yes">&nbsp; </span>Signaling problems ahead, al-Makhoum told skeptics to  shut up over a perceived rift with Abu Dhabi, owner of the world s biggest sovereign wealth fund.<span style="mso-spacerun: yes">&nbsp;&nbsp; </span>Al-Makhoum s request for patience fell on deaf ears, prompting Standard &amp; Poors and Moody s Investors Service to down grade Dubai s bonds to junk.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span><span style="mso-spacerun: yes">&nbsp; </span>Caught in the global financial meltdown, Abu Dhabi expanded development at breakneck speed, primarily soliciting investment from Europe and Asia.<span style="mso-spacerun: yes">&nbsp; </span>Dubai World hoped to turn Dubai into a Las Vegas-like financial Mecca, building the world s largest skyscraper, largely sitting un-leased together with other grossly overdeveloped commercial real estate ventures.<span style="mso-spacerun: yes">&nbsp; </span>While U.S. banks have some exposure, especially Citibank, U.S. stock markets dropped only modestly Friday, processing damage to European and Asian markets.<span style="mso-spacerun: yes">&nbsp; </span>Debt  restructuring may be considered a default under our default criteria, said S&amp;P in a statement, downgrading Dubai s bond rating to junk status.<span style="mso-spacerun: yes">&nbsp; </span> There is no clarity about what exactly is happening, said Emad Mostaque,<span style="mso-spacerun: yes">&nbsp; </span>London-based Middle East, $100-billion equity-fund manager for Pictet Asset Management Ltd.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Dubai s Thanksgiving Day default rattled markets globally, hoping for a global economic recovery.<span style="mso-spacerun: yes">&nbsp; </span>Running out of cash mirrored a disastrous real estate market in Dubai, where equity values for both residential and commercial real fell by over 50%.<span style="mso-spacerun: yes">&nbsp; </span>Despite assurances from Sheikh al-Makhoum about repaying debt, Abu Dhabi s leading government-controlled banks, National Bank of Abu Dhabi, PJSC and Islamic lender Al Hillal Bank, already bought $5 billion in government bonds.<span style="mso-spacerun: yes">&nbsp; </span>Now that the bonds are downgraded to junk, Abu Dhabi stands to lose billions.<span style="mso-spacerun: yes">&nbsp; </span>Dubai World s credit default swaps, those abstract securities that broke American International Group, jumped 163%, anticipating added risk of insuring Dubai debt.<span style="mso-spacerun: yes">&nbsp; </span>Dubai World s bond prices took a hit, dropping 86 cents.<span style="mso-spacerun: yes">&nbsp; </span>Rapidly escalating credit default swap prices indicate greater risk to Dubai s investments.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Wall Street took Dubai s default in stride, losing only 1.5% or 155 point on the Dow Jones Industrial Average.<span style="mso-spacerun: yes">&nbsp; </span>Kingmakers on Wall Street aren t ready for another wholesale sell-off, realizing most U.S. banks weren t as exposed to Dubai s financial woes.<span style="mso-spacerun: yes">&nbsp; </span>Switzerland s UBS and Germany s Deutsche Bank expect Dubai to lose another 30% in real estate value before the crisis bottoms out.<span style="mso-spacerun: yes">&nbsp; </span> I don t think the collateral damage is going to be that great, said Jeffrey Sauat, chief investment strategist at Raymond James.<span style="mso-spacerun: yes">&nbsp; </span> People will dig into this over the weekend, but I think balance sheets have healed enough to withstand a shock like this, referring to the renewed liquidity of U.S. banks.<span style="mso-spacerun: yes">&nbsp; </span>Dubai s extravagant real estate expansion, including the Gulf s palm tree-shaped islands and world s tallest skyscraper, anticipated an eventual contraction in real estate prices and development.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Dubai s problems prompted a rally in the U.S. dollar and corresponding sell-off in gold futures.<span style="mso-spacerun: yes">&nbsp; </span>With Dubai teetering, you d expect a flight into government-backed bonds and precious metals.<span style="mso-spacerun: yes">&nbsp; </span>While no one expects a widespread sell off in gold, markets anticipate possible liquidation of gold inventories, pushing down prices.<span style="mso-spacerun: yes">&nbsp; </span> British banks, including London-based HSBC Holdings and Standard Chartered, face loses in the hundreds of millions, not billions, appeared most exposed to Dubai s default, causing a decline in the Pound Sterling.<span style="mso-spacerun: yes">&nbsp; </span>In the U.S. Citibank and JPMorgan Chase showed the most exposure in the U.A.E., perhaps as high a $3 billion.<span style="mso-spacerun: yes">&nbsp; </span>European exposure was far greater, in excess of $86 billion.<span style="mso-spacerun: yes">&nbsp; </span> It touched investors sensitive nerves, said Cai Junyi, an analyst a Singapore Securities, fearing that Dubai World s problems represent the tip of the iceberg.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Dubai s problems mirror the popped global real estate bubble, fueled by cheap petro-dollars from Abu Dhabi.<span style="mso-spacerun: yes">&nbsp; </span> Now that the world s in recession, it s more difficult for Dubai to maintain the same level of extravagance.<span style="mso-spacerun: yes">&nbsp; </span> The world is watching whether that will have any substantial impact . . . Dubai World is just like a small window that might reflect another financial tsunami, said Junyi, fearing that Dubai s default could trigger a worldwide slide in global equities and sovereign wealth funds.<span style="mso-spacerun: yes">&nbsp; </span>Unlike Abu Dhabi s oil wealth, Dubai has no other source of income other than entertainment and real estate.<span style="mso-spacerun: yes">&nbsp; </span> Without a booming world economy, it was just a matter of time before Sheikh Mohammed s fantasy blew up.<span style="mso-spacerun: yes">&nbsp; </span>Whether things recover in the long-term says little about Dubai s crash, whose dried up cash flow makes it impossible to repay investors and bond holders waiting for their cash.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><bAbout the Author</u><b>John M. Curtis</b> writes politically neutral commentary analyzing spin in national and global news.&nbsp; He's editor of OnlineColumnist.com and author of <i><a href="books.html">Dodging The Bullet</a> </i>and <i><a href="books.html"> Operation Charisma</a></i>.</p> </td> <td width="1" height="2576" rowspan="2"></td> <td width="1" height="2"><spacer type="block" width="1" height="2"></td> </tr> <tr height="2574"> <td width="133" height="2574" valign="top" align="left" xpos="0"><img height="172" width="111" src="images/johninframe3.jpg"></td> <td width="1" height="2574"><spacer type="block" width="1" height="2574"></td> </tr> <tr height="1" cntrlrow> <td width="133" height="1"><spacer type="block" width="133" height="1"></td> <td width="7" height="1"><spacer type="block" width="7" height="1"></td> <td width="182" height="1"><spacer type="block" width="182" height="1"></td> <td width="300" height="1"><spacer type="block" width="300" height="1"></td> <td width="1" height="1"><spacer type="block" width="1" height="1"></td> <td width="1" height="1"></td> </tr> </table> <table border="0" cellpadding="0" cellspacing="2" width="597"> <tr> <td><font size="1" face="Arial,Geneva,Helvetica"> <hr noshade size="1"> </font><a href="index.html"><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> Home</strong></font></a><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> || <a href="articlesindex.html">Articles</a> || <a href="books.html">Books</a> || <a href="teflon.html">The Teflon Report</a> || <a href="mailto:letters@onlinecolumnist.com"> Reactions</a> || <a href="aboutdiscobolos.html">About Discobolos</a></strong></font> <div align="left"> <p><font size="1" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">This site designed, developed and hosted by the experts at</font><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"> <a href="http://www.cmeonline.net" target="_blank"><img height="30" width="138" src="images/cmelogoANIM.gif" border="0" align="absmiddle"></a></font></p> </div> <p><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">©1999-2005 <a href="aboutdiscobolos.html"> Discobolos Consulting Services, Inc.</a><br> (310) 204-8300<br> All Rights Reserved. </font></td> </tr> </table> </center> </body> </html>