The growth of new bubbles in different world economy sectors had scarcely stirred up the expert community as the old bubble at once rose to the surface. Dubai World state-owned corporation asked for restructuring of its debts and all the world considered it to be an actual declaration of default of not the corporation only but of the Dubai Emirate in whole.
No wonder this story goes as it does. It’s an open secret that the real estate market in Dubai has long been declined. Moreover, for everybody Dubai has become an ideal sample of bursting bubble. Thus, if anybody supposed that the money he had lent to Dubai and buried it in their ambitious projects would someday come back out of the blue to the creditors, he was surely a thoughtless and inadequate person.
But the problem is not only with Dubai. This spring IMF has estimated the world financial system toxic assets at $4 trillion. To our mind their estimate is understated but that’s not the point. The point is that today only $1.5-1.75 assets are written off whereas the rest is just waiting its turn and all the events concerning Dubai are just minor but quite remarkable episode of an impending drama. But in fact everybody has suddenly forgotten about toxic assets and changed for the green shoots which without fail have become full-grown bubbles promising a new series of toxic assets.
The first markets response was quite natural. They began fast coming out from risk assets (the fastest one – from oil). Dollar, considered the securest asset regardless, began strengthening. So, the expectations were very far from being optimistic. But then happens something that cannot be called natural. Dollar began dropping whereas oil prices – growing. Growing were all but American indexes though the latter remained unchanged due to the day-off. Russian indexes after huge decline caused by panic in the morning then somehow recovered and even rose to the end of the week. In addition to that the exchange bulletin published the information (surely supplied by insiders) about coming rally expected after 5 p.m., and exactly at the appointed time it did happen.
The trade-floor analysts literally had brain freeze. Nobody expected such developments. Nobody tried to explain, with usual formulae of grown risk appetite, what had happened. Dressed with Dubai default the dish looked like pig’s breakfast. But really how can one explain what’s happened? In the beginning the players get into a flat spin from nothing. Remember that real estate crisis in Dubai is no more news about accumulating problems. It has already been no news when the leaders of economic bloc in the emirate were totally replaced. But it was also evident that the federation, i.e. United Arabic Emirates, or, more exactly, Abu-Dhabi, has enough resources not to anticipate more catastrophic consequences.
And then, started from nothing, panic finished at nothing too. ‘Cause nothing has happened. It was only in days-off when it served office that UAE were going to support the Dubai creditors. And what should be analyzed here? That all trade-floor community are a herd of cattle who with no purpose and reason rush around?
The trading session left no grounds for doubts that the huge portions of dollars have been surfacing in the market from nowhere all day long and at last they got their critical mass and let turn the trading session around.
We do not actually know who give the market those escape dollar injections but we do know that in December, 3 of this year the US Senate must appoint Ben Bernanke to a second two-year term as a chairman of Federal Reserve System. And we understand that market meltdown before this important event would have put paid to his candidacy, more by token, his easy money policy is not that popular among the Senate. Let’s now pay our attention that on Friday he suggested that banks should return money lent by FRS as quickly as possible and we can see that his proposal evidently has connotation of pre-electioneering show.
If two these events (Bernanke’s statement and conciliation of stock markets) are really interconnected there are two conclusions. The first is neutral and Bernanke seems to hold his post again. The second one is utterly unfavourable. The stock jobbers clearly imagined that they had quite secure cover from any sequences of their adventures and their risk appetite, or, to be more accurate, greed appetite is not anyhow limited. And this means that both the extent of risk and the extent of greed can be endlessly raised.
Thus, now when the meltdown happens (for it is sure to happen), the losses rate and drastic consequences will severely impact on the world economy.
Thus, it inevitably comes to my mind that purchase of gold is the best solution at the present moment, and all above-mentioned ideas do convince me of it.
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