Moneymagpie

So finally reality has come to the sparkling mirage of Dubai, and the result of the effective default became a seismic ripple around the globe. This of course was not helped by certain markets either being closed, as in the Gulf and New York, or just not working – London! However, as the news is digested and the potential collateral damage considered, we have to measure the likely outcomes.

Certainly the debt from Dubai is spread like a broad web across the world from the UK’s Southampton Containers to the Emirates airline, as well as, of course, the huge property developments within the Emirate itself. However, the key point will be the effect on other emerging markets and especially those more closely related to Dubai.

The wisest move would be for the other Emirates (and especially Abu Dhabi) to step in swiftly and stabilise the situation if only to ensure that there is no further contagion for the near region. Any delay or vacillation could easily have a much broader impact and potentially lead to a wider emerging market correction.

However, what is clear is that Dubai is not a Hong Kong or Singapore. Its roots as a financial trading centre are still relatively shallow and certainly it does not have the benefit of being an entrepôt for an industrial hinterland – just dust and dunes. The big bet for the Emirate was to create a vibrant centre before the last of the oil ran out – it was a brave call – and one that may not be yet lost, but that will be dependent to a great extent upon the goodwill and largesse of others.

For the banks affected the damage has already been reflected in the share prices and, although the short term issue will be addressed, this news may just be the precursor of other sovereign defaults elsewhere in the world.

Related to this and closer to home in Europe the worst of the Eurozone “PIGS” has been behaving badly. Greece is financially strapped and has shown little or no interest in properly addressing its dire situation and has even been referred to as the “Iceland of the Aegean”. This reflects poorly on the confidence in the structures of the Euro and will no doubt have created much anger back in Germany, where the need for financial discipline is more fully appreciated and understood!

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Happy Thanksgiving – Phew the world made it!

Compared to this time last year when financial Armageddon was quite a considerable possibility we have been pulled back quite remarkably. That’s not to say that all is well – far from it – but at least we are not teetering on the brink of that banking crisis, although my previous paragraph may yet reverse the situation for some.

So we should all celebrate Thanksgiving as it could have been a lot worse.  After last Friday in the US (Black Friday, when US retailers hope to go into the black for the first time in the year with holiday shopping) the figures will be pored over the see if Joe Schmoe can still spend anything and if so what was sold at what margin.

The first indicators in the UK are that savvy retailers have already taken action to reduce stock, and some are even concerned about stock shortages. Sales figures seem to be holding up but we should note that some sales have already started. The divide will of course be clear between those with jobs and tracker mortgages who are still in a better position, and the rest – who are most definitely not.

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Sadly we are already being softened up for the charade that is likely to be the climate conference in Copenhagen this week. At least on this occasion we have the US and the Chinese being seen to make an effort to participate with various offers of collaboration, however I suspect we are all going to become bemused and confused with varying comparisons of proposed cuts and actions.

However as with many of the national promises and “binding” commitments to third world debt and donations, much is promised and often little delivered. I will be delighted to be proved wrong.

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And finally……..what can you do if you find that your economic growth figures aren’t quite what you were hoping for? Well we all know politicians have their own way of dealing with this, but I can but only admire the imagination of the South African government.

Their Statistics Agency released previously “non-observed” activities in its gross domestic product calculation for the first time – in line with international standards.

The new category includes many other activities like prostitution, abalone poaching and of course the growing and trading of drugs. As marijuana is seen as a cash crop in many rural areas then they could be missing out on some key economic growth data if this were not included.

On this basis perhaps we should re-evaluate the growth figures for the UK? Mr Darling could for example have some better economic news for us if he were to include the market turnover in say, Shepherd’s Market, and include some of the sales of the herbal remedies seemingly so easily traded in parts of West London. Perhaps then our own growth figures would not only look better, but enable our politicians to chill as well.

Have a good week.

Justin A. Urquhart Stewart
Director
Seven Investment Management Limited