Although you could have easily missed it with all the news about Tiger Woods and his auto accident, or the White House party crashers taking up the majority of the air time, there was some very interesting financial news the past week.
Dubai, the play city for the wealthy, has run into financial problems due to plunging real estate values and has asked its creditors for a delay in its debt repayment schedule. Okay, so the fact that Dubai is in danger of defaulting on their debt and facing
bankruptcy is just the first part of the interesting news.
The next part, which I find even more interesting, is the fact that none of the other United Arab Emirates (UAE) initially stepped up to "save the day" and even stated that they wouldn't be stepping in for any bailout. How about that? Forcing Dubai to take responsibility for their own debt problems - what a novel concept!
Could that be a lesson for how the US and Europe should regard corporate debt problems? It would seem it's a lesson they still aren't ready to learn as the financial markets responded by falling last Friday and the major complaint/question repeated over and over again by the talking heads on financial and news media was "why wasn't the UAE going to bail Dubai out?"
This type of mindset angers me to no end. How is it that banks and corporations feel they are entitled to special consideration and being bailed out for the "good of the markets", and yet these same banks show little to no mercy for their own individual customers like homeowners who fall behind on their debt payments. Their level of hypocrisy knows no bounds, and is a clear example that the harsh realities of accountability don't appear to apply to rich corporations. It disgusts me.
Meanwhile, the news media would rather keep you updated on fluff news like Tiger Woods, and White House parties instead of news that could actually have an impact in your life. This is why you should NEVER depend on the news for advance warning- by the time it's becomes "worthy" of their attention, it will be too late to do anything about it.
Here are some of the questions you should be asking about the Dubai situation since most news media isn't doing it:
1) How does this affect me or my investments?
Just because Dubai is half a world away is no guarantee that their actions have no global impact. The failure of US investment bank Lehman Brothers last year should make that very clear.
2) Could this crisis impact my country?
All investors in Dubai could be impacted - which includes many international banks and investment firms. How much have these corporations loaned to Dubai- which translates into how much of their capital is at risk?
3) What does this say about the remaining "systemic risk" out there?
Think Dubai is the only city-economy in dire straits? Think again. Could there be other cities or nations on financially shaky ground?
4) Why does the news ignore this story for the most part?
You can find news on Dubai if you're on the financial news network or online service, but good luck finding it on regular TV news, where they would rather compete with Entertainment Tonight or TMZ, rather than give you useful information.
5) How does this affect overall market risk in general and risk to my investments in particular?
By effectively gauging risk, you will be ahead of the curve in keeping your long term investments safe from severe market turmoil.
Comments (20)
Thank you for providing your insight. I would have appreciated responses to the questions you asked, particularly number 3.
well summarized :) though Dubai does look really pretty with their palm tree shaped island. I didn't think they bought that many bonds in building their infrastructure until it became a new rage when they were unable to pay their debt on time and asked for a 6 month wait.
btw. i need a bit of ur financial advice, which stocks do you suggest that i buy up? Most of them are doing so bad right now, so far i bought up two shares of stock and still have a total equity of $100,000. Yeah, this is the virtualstockexchange game that I'm playing for my economics society.
Is this the "country" of Dubai or the corporation Dubai World that is defaulting on debt?
People need to be more careful of their spending. When the money is there it like the water in a well that's plentiful. After a while with no rain the well runs empty.
It is in the long run to just let the banks die and new one that know what they are doing survive. Survive of the fittest, it's a harsh world we live. That's where the golden rule is the best thing to go by "do onto others as you would have them do onto you."
@SoHoian_NightOwl - Hello, I was reading your comment and was just thinking about what stocks you have in mind. You probably want to go with something safe, here are some of the companies I suggest and maybe look into buying: ph, mrx, mrk, csco, met and all the credit card companies are doing really well.
@U8myDimsum - credit card companies? But, didn't this financial mess we're in happen due to creditors? I was thinking more along the lines of eco friendly energy companies towards the long-run...
sure about that? Met didn't do that well, i checked their stocks.
@SoHoian_NightOwl - solar companies are not doing well, everything is way over priced. right now people can't afford any solar stuff due to the long return period. All the credit companies are doing well and the creditors are not completely to blame. Just don't deal with the banks, they loan to you a $300,000+ house with little down and if you get behind the bank takes everything. It's mostly to do with the greed and also the inexperience home owners buying more than they really can afford.
yeah you do got a point about met, its don't doing as great. That's why its a good time to buy in. Drug companies are doing really well, pfe is one I bought last week. Stay away from the banks, they not making money right now but I think when they start again their stocks with boom.
@U8myDimsum - Thanks for the advice :) I'll let you know how it goes.
*Sigh* Seems like some entities don't learn and don't have their priorities straight.
most of the banks are european, i own shares in standard chartered, which took a beating. i think hsbc/rbs also took a hit! :P
I love all the entries you write about the current financial status. The only problem is... I never know how much to trust your "predictions."
Not because your reasoning isn't valid (it is), but simply because the market seems so unpredictable nowadays. for example, why did we have another "up" day today? bleh~ I'm losing money with FAZ
@schallerbrandon - You're welcome. =) Adding detailed responses would have been counter to my main point of the need for individuals to research behind the lead stories to get to what really matters. It's unlikely that we'll ever get the direct truth from mainstream media in a timely manner, if ever.
@SoHoian_NightOwl - I know the answer I'd get if I asked my lenders to give me an extension on making any of my payments (car, home) (hint: not a positive one)
For investment advice, I never give out specific stock picks since I've seen other people get into trouble with that and I always encourage making one's own choices after the proper research. =) I suggest you can narrow the field by looking at what sectors are doing well. Commodities have been trending up for a while now. Also how long is the investment for? Long term investments favor fundamentals while short term can be much more volatile and subject to news or speculation.
@redhairedgrrl - Good question- it's the corporation, but the effects on the company, city, and country are interrelated. A default by the corporation would adversely impact the economics of the city, which in turn, would impact the country.
@U8myDimsum - Capitalism works best when outside forces (ie Govt) doesn't interfere with the process of failing insolvent corporations being replaced with stronger well managed ones.
@ladyofthesilk - I think in their minds their priorities are just fine- how to benefit themselves without regard for anyone else.
@TheKillerPotato - The banks may be primarily European, but counter-party risk could certainly involve many others. This could be another canary in a coalmine.
@lilniteanngel - Ahh, you have to read my other post about investing in a Bipolar Market. =) Here's a saying you can count on-
"Sound analysis can tell you what the end destination of the market will be, but not the path it takes to get there."
For short term moves, trend analysis is much more effective, especially in the current irrational market.
You get props though for being active in the market. =)
@SoullFire - yes, agreed. but until you're seriously a "buy and hold" type, knowing direction may not help you - knowing the path will.
thanks. i'm not sure i deserve props for losing money. but ok. :-p
50 days :) lol i'm in the econ society.
@lilniteanngel - Knowing the end destination is really the deciding difference between being a "buy and hold" or "short term" investor. If the ultimate move is up, then mid term pull backs are buying opportunities and buy and hold is okay. If the direction is down, then buy and hold hold much more risk and more market vigilance is needed for your long term investments.
Knowing the path is what short term trading is all about. =)
No, I didn't give you props for losing money, but rather taking your analysis to the next level to actually place trades in the market. Sometimes money is lost- it happens to the best of us....but the lessons learned are priceless. =) It's makes us better traders which increases our chances for success going forward.
@SoHoian_NightOwl - Just 50 days??? In that case, just go with the current trends, and set a limit to sell if/when the trend breaks. Look at the commodities, like oil, silver, gold, etc.., which should also be available to get through ETF's. Tech stocks have been doing well too....just follow the trends.
Do you think they are running out of oil over there?
@lilniteanngel - Im probably sell some of my lame stocks and get "L" you should see how well its doing
@U8myDimsum - They will eventually. Right now it's driven by increased demand and a weaker dollar which is driving it higher.
Great post. I needed this reminder. :)
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