Dear rss free blog,
Dubai
is makhulah, to use a word that is probably not familiar to
those in its souk, and its stocks and bonds are worth bupkas.
(Souk is market in Hebrew and Arabic; makhulah is Hebrew-Yiddish for
bankrupt; bupkas is Yiddish for nothing.)
This
is probably a sandstorm in a teacup on the scale of the world
economy, but it serves to warn investors that there are still risks
around not covered by the huge increase in liquidity by central banks
which has sustained the extraordinary rise in global stock markets
since March. With institutional investors wanting to lock down gains
for annual reporting purposes, there may be a trend to profit-taking
over the remaining few weeks of the year.
Longer-terms,
until monetary tightening begins, I expect that the frothy stock
markets will froth some more. But there may be a switcheroo out of
high-risk bourses and currencies into lower risk ones in reaction to
the low-level life support the Emirates are giving to Dubai. Today’s
Financial Times draws a scary parallel with Greece, which the
paper says will not get the help it needs from the EU.
That
leads to other invidious comparisons. Will Ireland or Italy or Spain
be treated any better than Greece? As for the Balkans and the
Baltics, fageddaboutit.
With
both Swiss major banks on the watchlist the FT also published today,
along with its leading re-insurer, does Switzerland have what it
takes to keep afloat all these huge financial institutions (each
larger than the country’s GNP)? And if you worry about Swiss banks,
can you have confidence in Chinese ones? If you worry about Dubai
commercial and leisure real estate can you believe in British,
European, East European, Chinese, or American property?
Markets
worry. In fact, the magnitude of the worst Dubai case is a mere $120
bn, truly bupkas compared to the losses taken in the industrial world
to date. But we are not talking about numbers here. We are talking
about investor psychology. And the mood is suddenly rather somber.
Here
are some forecasts based on what the patient lying on Dr. Freud’s
couch says he is having nightmares about. The dollar will not
continue to sink irrevocably because it remains THE haven to the
world. Chances are it will recover some.
This
means the price of gold and the price of BRIC stocks is probably at a
peak. Dollar-linked commodity prices are peaking too. That applies to
everything from gold to iron ore.
A
cheaper euro and cheaper raw materials are actually good for growth
prospects in Europe and the USA, the real powerhouses of the world
economy. I am not predicting what will happen to the yen, because
this is a political rather than an exchange-rate issue and
because I have been so wrong before. But Japan too will have to be
part of the recovery in the real economy.
More
on our stocks along with, of all things, a Dubai play, follows for
paid subscribers.
