Dubai Effect, Financial Markets and Centipedes, is There Another Shoe?………..
“Two Kuwaiti banks are exposed to heavily indebted Dubai World and its Nakheel real estate arm with loans worth a total of 120 million dollars, the central bank governor said Monday. Ahli Bank is owed 20 million dollars of bonds to Nakheel while Gulf Bank has about 100 million dollars of non-liquid facilities to Dubai World which matures in June, Sheikh Salem Abdulaziz al-Sabah said as cited by the official KUNA news agency. Their exposure was based on a preliminary survey by the Kuwaiti central bank, said Sheikh Salem, adding that the Gulf state's remaining eight lenders were in the clear…..….”
“There is no doubt that Dubai is in a financial mess. Its many government enterprises will need restructuring, a process which has already begun. The Emir, Sheikh Muhammad bin Rashid al-Maktoum, is evidently taking things more firmly into his own hands. Three key men, closely associated with the city-state’s spectacular growth, have been relieved of their powerful jobs. They are Sultan Ahmed bin Sulayem, chairman of Dubai World, Mohammad Ali Alabbar, chairman of Emaar, the property giant, and Mohammed al-Gergawi, chairman of Dubai Holding……… One should not, however, be overly pessimistic. In my view at least, the world has been far too quick to suggest that the glossy city-state is about to go bankrupt. This is far too gloomy a prediction. Dubai will undoubtedly weather the storm. It has many assets in many parts of the world, some of which can be swiftly monetised……....”
The UAE markets declined sharply today, which tells us investors are nervous, jittery, confused, and perhaps even a little wiser. I have no doubt that the truth lies somewhere in between what these two gentlemen quoted above say and what the “most pessimistic” opinion claims. It is never wise to accept first reports and first impressions about anything or anyone. But in a financial crisis it is wise to err, if one must err, on the side of pessimism and caution. That is one lesson that is always forgotten, until a second shoe drops. It happened famously in 2008, in the 1980s, in 1920s, and it may happen again. I hope not, but it may, and not only in the Gulf region. A second shoe has already dropped in Dubai last Friday, but are there others around the Gulf? Maybe Erin Burnett can tell us.
Speaking of “the other shoe” some financial and economic crises drop several shoes before we understand their magnitudes. Maybe the term should be other “shoes”. Financial markets lie somewhere between humans and centipedes in terms of their eligible footwear.
Cheers
mhg
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