Nov.27, 2009
October and November 2009 are difficult months for skittish superstitious investors. After all the great crash of 1929 took place eighty years ago this fall and many investors have not forgotten. Nor have they forgotten the calamitous events of fall 2008 which are still very fresh in their memory. In recent months many analysts have been warning that the boomlet in stock prices that has dominated market sentiments since the market reached its nadir last spring was due for a major correction. Recent events in the Gulf city state of Dubai appear to be the trigger. Dubai and its real estate development corporation, Dubai World has been engaged in a much touted real estate development project, the Palm, which has involved land reclamation, luxury hotels and condos and construction of one of the world's tallest structures. The project has made a spectacular mark on the gulf landscape that has been widely admired. But this week some of the lustre has come off the jewel.The project depended upon the backing of the neighbouring Abu Dhabi government which is extremely rich in oil reserves.
But this week Dubai announced that it wanted a standstill on servicing the more than 80 billion dollars of debt associated with the project. This sent shock waves around the globe, particularly in the London financial markets which are much more exposed to the gulf than New York. Markets lost between 2 and 5 % in the day's trading.The bonds issued by Nakheel, Dubai's real estate development arm
fell substantially in price as risk aversion more than doubled.It is quite possible this will be a one time weekend wonder with the markets absorbing the shock and moving on. But we won't know this until Monday.
In the meantime the need for better oversight and regulation has never been clearer.Real estate speculation is a classic area that is vulnerable to bubbles and irrational exhuberance. Globalization that is unrestrained and unregulated is unsustainable.
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