Sunday, November 29, 2009

Dubai crisis

Honestly, I don't understand why the Dubai crisis should effect any market anywhere. This country doesn't produce anything but oil. In fact, maybe if Dubai fell, Citibank, an American company, could come in an get some of the oil land as collateral and that would be a good thing for America.

Speaking of Citibank, since they own part of Dubai's debt, will Dubai be hit with their 29.9% penalty interest rate along with a $29 late payment fee?

The timing of the Dubai news was classic. Believe me when I tell you it is no coincidence that the announcement came during Thanksgiving afternoon when mostly everyone was involved in Thanksgiving festivities, except for us Twitter obsessed folks, and yes we need therapy! You can also bet, our government along with other governments were well aware of this development long before it was announced publicly. However, I have to give our government credit, it was a great job in management of the news release. If this news had hit during regular market hours, we would have seen a meltdown. Investors would have sold first and asked questions later. The baby would have been thrown out with the bath water (a smart move to make if you don't want to be left holding the bag -- you can always buy your stocks back).

Dubai is not a major contributor to the global markets. They have no economy, no exports except oil. Their main target is to become a major tourist attraction so when they do run out of oil, they aren't turned into a third world country. Their oil reserves are expected to run out in ten years. This is the reason there is this rush to turn the country into a major tourist attraction. Once the oil dries up, Dubai will struggle to avoid third world status.

"Many of the emirates have found that the development of a tourism industry is their best chance for diversification. Dubai, again, continues to be the leader in this field, punctuated by multibillion dollar projects such as the Burj al-Arab hotel, and offshore reclaimed land projects, including the Palm series and The World islands. It has also been the trailblazer in retail tourism, attracting millions of people for shopping festivals held several times throughout the year." --
The recent news is just blip on the radar screen. Banks with major interest in Dabai may suffer in the short term, but I doubt the UAE will allow any one of their countries to go insolvent at this time. I would be great embarrassment to them. However, if Citibank and other banks do to them like they have done to the American people by raising interest rates and penalties, we may see oil prices spike up so that Dubai can pay for these. So once again, the American people will be penalized again and have to pay for the excessive risks the banks have taken on by higher oil costs which is in essence just another tax!

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