News from around the world

• From the Guardian.co.uk: The Abu Dhabi Securities Exchange has finished the trading day for Monday, and it was not pretty
  • The Exchange was down 83%, losing 241.92 to close at 2668.23.
  • Royal Bank of Scotland is already down 4% today on concerns about its loans to Dubai World
• The Washington Post reports that there are concerns in Europe beyond Dubai: the Greek government is suffering from a fiscal crisis and several Eastern European governments appear to be struggling, including Hungary, Poland and the Baltic States. Vietnam also devalued its currency by 5 percent last Wednesday.
• The Wall Street Journal noted the pledge by the United Arab Emirates to back banks in Dubai, but there is still concern that the crisis could lead to a flight to quality. “As in September 2008, when the failure of Lehman Brothers heightened worries about all financial institutions, they might pull back, regardless of the markets’ strength.” The WSJ also noted that the U.A.E. statement of support for banks did not include any support for Dubai itself.

What it means to us

First, this is in some ways just  continuation of the world-wide real estate crisis. Real Estate prices in Dubai have fallen 50% over the past year, and may have further to go. Second, we need to be alert to additional bubbles or “mini-bubbles” as the international banking system is already stressed beyond safe limits. In some ways, Dubai is the bubble to end all bubbles – build out of reclaimed sea, including the worlds tallest building, and certainly on of the most expensive places on the planet. Third, any bank failures or pullback on lending is sure to impact our own attempt to jump start our economy.