Dubai World
Nov 30, 2009
Posted by Jody Eisenman | Filed under Uncategorized
The market took a breather on Black Friday, with the Dow Jones falling 154 points on a slow trading day. The chief culprit was Dubai. Dubai is situated on the Persian Gulf, and has the largest population of the United Arab Emirates. The building boom in Dubai has been extraordinary, and it includes the most luxurious hotel in the world, the Burj Al-Arab. As the real estate recession took hold, many projects were put on hold, and prices have fallen dramatically. Under Dubai’s legal code, a debt default could lead to jail, so you have the curious phenomenon of hundreds of luxury cars being abandoned with the foreign born owners fleeing the country.
More importantly, Dubai World, the investment arm of Dubai, has announced that it needs at least a six month delay on repayment of their $60 billion debt. This has sent shudders through the financial markets, as many investors view Dubai as the jewel of the Persian Gulf. If Dubai is in trouble, the reasoning goes, can other Arab countries be far behind? In addition, this shows that the recession is far from over.
While any event could trigger a sell off ( and we have not had a significant one since March), I do not believe that this will be a major event. The reason is that Dubai’s neighbor, oil rich Abu Dhabi, will probably wind up bailing them out eventually. I also think that the abbreviated trading session on Friday probably exacerbated the situation. It should be an interesting trading session coming up.
