Lately, we've observed the number of countries in trouble and whose sovereign debt has been both under scrutiny and appears to be signalling a global domino effect (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html) and (http://markostake.blogspot.com/2010/03/more-euro-zone-problems-whos-next.html).
Greece and Portugal have been front-and center in the news, rattling investors on both sides of the pond, but now another country is now gotten in the mix - China (http://markostake.blogspot.com/2010/03/non-bull-in-china-shop.html). Clearly, China is now recognizing that the Euro-Zone problems could affect the tenuous Chinese economy.
Growing concerns about spreading sovereign debt issues got China's attention. Until recently, China had remained fairly mum on the issue. Yesterday, a senior Chinese central banker warned that the Greek crisis was just the beginning.
“We don’t see decisive actions telling the market we can solve this,” Zhu Min, a deputy governor of the People’s Bank of China, was reported as saying. One has to wonder, how China will react to this crisis.
His comments caused the Euro to dip to a new 10-month low versus the dollar, and encapsulated a growing worry among a growing group of investors that high levels of government indebtedness is one of the main risks facing the global economy.
Of immediate concern is the Euro-Zone. A two-day summit of European leaders convenes today and investors need to hear that they have been able to knit together a safety net for Greece, which has had trouble rolling over the €20bn of debt maturing over the next couple of months.
But there is a potentially a more important issue emerging.
The poor reception given to the auction of $42 billion of US 5-year notes on Wednesday points to reluctance among buyers of US government debt. If this continues, yields will rise, but not for the hope-for reason – economic recovery. Instead, it will signal a undigestable supply and lack of demand. This could jeopardize the apparent economic recovery and adversely affect asset markets - particularly equity markets hard.
Moody's investor service, on Monday said that the world's largest AAA rated issuers: the U.S., Great Britain, Germany and Spain, were all in danger of losing their blue chip status.
Meanwhile the Greek crisis continues in limbo and further raises the prospect that this situation will spread to a global financial crisis. Yet, no definitive solution appears imminent.
Disturbing is the lack of consensus of how to address the issue. All potentially affected countries agree as to the magnitude of the problem, but the proposed solutions have absolutely no consensus and have created divisions among the affected countries. In the case of Germany, domestic controversy and oppostion to jeopardizing Germany's solid financial status have led to heated internal politcal debate.
The only positive note is that troubled Dubai appears to be making progess on its debt issue thanks to commitments from Abu Dhabi
(http://www.ft.com/cms/s/0/d74e16b8-37e3-11df-9e8e-00144feabdc0.html).
Despite the good news from the Dubai situation, more cracks are appearing in the global dam than are being plugged.
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv. Our new piece on the legality of the personal income tax will posted within the next several days, followed every week or so by a series of new videos primarily covering more political issues and world events.
Showing posts with label Dubai. Show all posts
Showing posts with label Dubai. Show all posts
Thursday, March 25, 2010
Saturday, March 6, 2010
Dubai, Enough To Make You Cry!
The tiny middle-eastern country of Dubai is going through a crisis that would be considered much more high profile if it weren't for the panoply of problems the rest of world is wrestling. It's investment arm, Dubai World, borrowed BILLIONS in the development of the world's largest office complex and resort, in an attempt to rival Las Vegas and Atlantic City. Dubai, not oil-rich, is one of the seven states comprising the United Arab Emirates (UAE).
Dubai World is an investment company that manages and supervises a portfolio of businesses and projects for the Dubai government. Its projects reach across a wide variety of industry segments and projects that promote Dubai as a hub for commerce and trading.
Dubai World is the Emirate's flag bearer in global investments and has a central role in the direction of Dubai's economy. Assets include DP World, which caused a storm when trying to take over six US ports. Nakheel, its property arm built The Palm Islands, The World Developments and Istithmar World, its investment company. It is chaired by Sultan Ahmed bin Sulayem.
The country's ambitious plans went terribly wrong in late 2009. Dubai World proposed to delay repayment of its debt, which raised the risk of the largest government default since the Argentine debt restructuring in 2001. Dubai World, the investment vehicle for the Emirate, asked for a six month payment delay on $26 billion of debt. The extent of the debt rattled markets causing many indices to drop - including oil prices. Since then, estimates of the amounts owed have jumped markedly.
The genesis of the crisis is the country's bursting real-estate bubble, which has caused all development to come to a grinding halt and the worldwile economic problems, which also have reduced tourism. Half of all the UAE's construction projects, totalling $582 billion, have either been put on hold or cancelled, leaving a trail of half-built towers on the outskirts of the city stretching into the desert.
Among the casualties is the tower Donald Trump promised would be "the ultimate in luxury", a $100 billion resort complex by the beach, and four huge theme parks and an artificial island developed by the state company Nakheel.
Banks have stopped lending and the stock market has plunged 70%. Look beneath the surface of the fashion parades and VIP parties, and the evidence of economic slowdown are obvious. Luxury hotels are three-quarters empty. Shopkeepers in newly-built malls are reporting a drop in sales. In Dubai you expect to see a Ferrari parked beside a Rolls-Royce. But not, as is the case now, with "For Sale" signs taped to the windows.
Under Dubai's strict legal code, defaulting on debt or bouncing a check, is punishable with jail, also known as "debtor's prison". Any expatriate in financial difficulty knows the safest bet is to take the next outbound flight.
Dubai, which has barely a trickle of oil in comparison with neighbor Abu Dhabi, is projecting a 42% increase in public spending on infrastructure projects, to compensate for vanishing private investment. But it cannot go it alone. Abu Dhabi is increasingly expected to bail out its poorer neighbour, and the two ruling families are meeting regularly to decide how to transfer cash into Dubai's ailing economy.
But Abu Dhabi has its own problems. The Emirate's sovereign wealth fund – once said to be worth $1 trillion – has taken a hit in the global recession, while the lifeblood of the economy – the price of oil – is down more than 60%.
The amount of debt owed by Dubai to the rest of the world is unclear. Guestimates have it at more than $100 billion, which could place the tiny country as the largest sovereign debt defaulter in history!
With all the problems facing planet Earth, the Dubai problem is merely another straw in the desert country's "camel's back".
Comments or questions? TAKE ME ON!
Marko's Take
Our fourth installment of our new You Tube series will be posted shortly here: http://www.youtube.com/markostaketv. Episode 4 will cover the secret Federal Reserve. We will continue to add new episodes on a weekly basis.
Dubai World is an investment company that manages and supervises a portfolio of businesses and projects for the Dubai government. Its projects reach across a wide variety of industry segments and projects that promote Dubai as a hub for commerce and trading.
Dubai World is the Emirate's flag bearer in global investments and has a central role in the direction of Dubai's economy. Assets include DP World, which caused a storm when trying to take over six US ports. Nakheel, its property arm built The Palm Islands, The World Developments and Istithmar World, its investment company. It is chaired by Sultan Ahmed bin Sulayem.
The country's ambitious plans went terribly wrong in late 2009. Dubai World proposed to delay repayment of its debt, which raised the risk of the largest government default since the Argentine debt restructuring in 2001. Dubai World, the investment vehicle for the Emirate, asked for a six month payment delay on $26 billion of debt. The extent of the debt rattled markets causing many indices to drop - including oil prices. Since then, estimates of the amounts owed have jumped markedly.
The genesis of the crisis is the country's bursting real-estate bubble, which has caused all development to come to a grinding halt and the worldwile economic problems, which also have reduced tourism. Half of all the UAE's construction projects, totalling $582 billion, have either been put on hold or cancelled, leaving a trail of half-built towers on the outskirts of the city stretching into the desert.
Among the casualties is the tower Donald Trump promised would be "the ultimate in luxury", a $100 billion resort complex by the beach, and four huge theme parks and an artificial island developed by the state company Nakheel.
Banks have stopped lending and the stock market has plunged 70%. Look beneath the surface of the fashion parades and VIP parties, and the evidence of economic slowdown are obvious. Luxury hotels are three-quarters empty. Shopkeepers in newly-built malls are reporting a drop in sales. In Dubai you expect to see a Ferrari parked beside a Rolls-Royce. But not, as is the case now, with "For Sale" signs taped to the windows.
Under Dubai's strict legal code, defaulting on debt or bouncing a check, is punishable with jail, also known as "debtor's prison". Any expatriate in financial difficulty knows the safest bet is to take the next outbound flight.
Dubai, which has barely a trickle of oil in comparison with neighbor Abu Dhabi, is projecting a 42% increase in public spending on infrastructure projects, to compensate for vanishing private investment. But it cannot go it alone. Abu Dhabi is increasingly expected to bail out its poorer neighbour, and the two ruling families are meeting regularly to decide how to transfer cash into Dubai's ailing economy.
But Abu Dhabi has its own problems. The Emirate's sovereign wealth fund – once said to be worth $1 trillion – has taken a hit in the global recession, while the lifeblood of the economy – the price of oil – is down more than 60%.
The amount of debt owed by Dubai to the rest of the world is unclear. Guestimates have it at more than $100 billion, which could place the tiny country as the largest sovereign debt defaulter in history!
With all the problems facing planet Earth, the Dubai problem is merely another straw in the desert country's "camel's back".
Comments or questions? TAKE ME ON!
Marko's Take
Our fourth installment of our new You Tube series will be posted shortly here: http://www.youtube.com/markostaketv. Episode 4 will cover the secret Federal Reserve. We will continue to add new episodes on a weekly basis.
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