Thursday, October 09, 2008

Dubai: WSJ

In today's panic-stricken debt markets, the uncertainty means higher costs for big and prudent borrowers. The cost of insuring $10 million worth of Dubai debt for five years has risen to $247,500 a year, up more than fivefold from the beginning of the year, according to CMA DataVision, a price-discovery service.

CMA, which calculates a "cumulative probability of default" for sovereign borrowers, estimates the likelihood of Dubai defaulting over the next five years is just shy of 20%. That's up from 4.3% at the beginning of the year.

So... Someone besides Iceland might default on their Sovereign debt. Now, a 20% risk of default really isn't that bad. One has to look at it in order of magnitude (Factors of 3). That could be as low as a ~6% risk or it could be as high as a 60% risk.

Either way, it looks like a huge fraction of the world's cranes might suddenly become available... just as no one else wants them. :(

WSJ on Dubai

But wait... Dubai is among the most heavily indebted governments in the wealthy Persian Gulf. Standard & Poor's estimated at the end of last year that Dubai government debt represented 41.8% of gross domestic product, compared with 22% in Bahrain and 2.9% in Abu Dhabi.

Ok, this isn't Iceland's 1200% of GNP debt by any means. But one of the things that awoke me to the global nature of the bubble was a reader by the handle of SMF alerting me to look into the bubble in Dubai. Heck, I argued with him that Dubai wasn't really a bubble at the time. (Oops... Point SMF.) This credit crunch is brutal. To have have a nation with a large wealth fund in a cash crunch... is interesting...

Got Popcorn?


Westside Bubble said...

"Got Popcorn?" indeed, watching the economic drama of our lifetimes devolve daily, rather as foreshadowed.

The Anonymous said...

Amazingly, dubai is still trying to power through this thing. Just this week, another big project was announced - the biggest such and such in the world folks! Come to Dubai - invest in us!!! Its the last bubble in the world, and they keep trying to pump more air into it...

wannabuy said...

This is way too dramatic!

The Anonymous:
I'm not sure how Dubai is going to raise the funds to power through this. They have gone from a shortage to a surplus in housing and hotels.

Times are too interesting...

Got Popcorn?

johnsmith said...

The furor over efforts by an Arab company to buy U.S. port operations has focused attention on a little noticed economic fact of life: America increasingly is foreign-owned. From the ritzy Essex House hotel in Manhattan, owned by the Dubai Investment Group, to the nationwide chains of Caribou Coffee and Church's Chicken, owned by another company serving Arab investors, foreigners are buying bigger and bigger chunks of the country.


The Anonymous said...

Neil - in case you missed it, this report on CA from Jim the Realtor is interesting.

There is certainly some rosy projections and realtor shilling you need to weed through, but lots of data to play with. Enjoy!

wannabuy said...

Thanks The Anonymous.

The LA Times just printed a bunch of it today, lots of 'prices won't go down anymore...' Right before Winter?!?

Unfortunately, I know of three mass layoffs due to occur next April through June. :( Crap... The LA Times had another article today on the expected downturn in defense spending, in part due to the bailout. :(

Got Popcorn?

The Anonymous said...

Figured you would like that. The best part was the CAR projected downturn of like 4% vs the actual drop of 30 whatever percent!!!!

Incidentally, I dont think there will be any lack of defense spending. The media and the political pundits are all about "what will be cut"???. However, If youve been listening to Roubini & Paul Krugman, it seems like the "answer" is to cut nothing, spend like crazy (fight what might be deflation on our hands) and run a huge defecit until we get out of this (similar to what we did during the depression when our defecit was far far larger).

Long term, I think you are right we have to cut (or raise taxes), but short term, I think their answer is to fire up the printing presses.

In that regard, there have been a number of stories about DC being the new center of the universe. I then found this one - apparently the #1 place to survive a downturn isnt DC (DC is #1) #1 is Arlington

Will I ever catch a break?

The Anonymous said...

Sorry I meant to say DC is #2, Arlington is #1.

Also, really it isnt just surviving. We are projected to continue to grow jobs in the recession.