Surprise, Surprise, Surprise!!

It seems that Dubai World seeking to restructure its $59 billion in debt came as a big surprise, especially to those at Barclays Capital who just a few weeks ago recommended investing long in Dubai sovereign credit. If one were a cynic one might think this was somehow tied to the heavy exposure Barclays had to Dubai. Naah, that would never influence their recommendations.

http://www.calculatedriskblog.com/2009/11/dubai-default.html

Now I am not sure what about this outfit would ever make one suspect it was in financial problems. After all, it only built the biggest skyscraper in the world, created palm tree shaped man-made islands and had the most construction cranes going anywhere in the world, all built on tens of billions of debt. Add to that the current financial squeeze during the worst economic recession since the Great Depression and I can see where everyone seems surprised at their financial situation. Frankly, I am only surprised that others are surprised that Dubai World is in economically tough straights. Remember 2+2=4.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aklYbga4yU9E&pos=2

Now I know this is a government investment company for a wealthy government closely tied to other wealthy sovereigns, but stupidity knows no sovereign bounds, and their spending spree on building the most decadent place on earth was stupid. They get what they deserve and hopefully will serve as a lesson to deter similar excesses in the future. Housing prices have dropped 50% there and are expected to bottom around 70% from peak as the investment frenzie blows over. Couldn't happen to a nicer bunch.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aX1vnWP7gBVM&pos=10

Now the markets are reacting quite poorly to this news - at least those that are open - and there are some whispers that a default by Dubai could spell major problems for some European banks. It is being likened to the Russian debt crisis in 1998 and the Argentina default situation in 2001 and so forth and so on. And everyone seems surprised, treating it almost as a black swan event. Well if it is, plenty of folks had their heads buried in the Middle East sand.

http://www.nakedcapitalism.com/2009/11/dubai-world-restructuring-sovereign-risk-shock-or-no-big-deal.html

CREamated

Here is another bright spot. Commercial real estate is down over 40% - no shocker there. The real news is that a significant number of loans are coming due over the next few years. Defaults thus far have been tempered by a lot of interest only loans that are currently at low interest rates but absent significant restructuring some forecast $430 billion in losses. Ouch!

http://www.calculatedriskblog.com/2009/11/430-billion-in-cre-losses.html

Consumers Will (not) Save The Day!!

Not to worry as with past recessions certainly consumers will sweep in to save the day. Never mind the 10.2% unemployment rate (even with bogus government numbers), the record number of houses under water, the tightening of credit and crazy things credit card companies are doing to screw their client base, all is nonetheless well in consumer land - right? Well, perhaps not. According to the following link to Financial Armaggedon, consumers are being a bit frugal this holiday season. Go figure.

http://www.financialarmageddon.com/2009/11/roundup-of-holiday-spending-surveys-reports.html

Disclosure: None.