Friday, December 4, 2009

Investors Fret Over Dubai Debts

Investors Fret Over Dubai Debts, But Stocks Fight Back
Steve Schaefer, 11.27.09

Wall Street halves huge opening losses sparked by worry over possible Dubai World default.

A day after Thanksgiving Wall Streeters were hardly thankful after waking up to news of a massive debt crisis in Dubai, but the major indexes managed to trim their sizable opening losses ahead of the 1 p.m. close in New York.

On Wednesday, the government of Dubai said it wanted to delay payment on billions in debt issued by the Dubai World conglomerate and by Friday fears reached a fever pitch over the potential exposure of global banks to the nation's outstanding $80 billion in debt.

The news fueled a major sell-off in various assets around the world, hardly the type of good-cheer investors were hoping for in a shortened session in New York the day after Thanksgiving. U.S. stocks started the day tremendously lower as the situation in Dubai echoed the overblown debt bubble that brought our own financial system to its knees and dragged the economy into recession.

Shortly after the opening bell the Dow Jones industrial average was down more than 200 points with all 30 of its components in the red, but the blue-chip index trimmed its loss to just 92 points, and was trading at 10,373 less than an hour before noon. The S&P 500 was down 12 points at 1,099, and the Nasdaq fell 21 points to 2,155.

Worries over Dubai's debt were hammering virtually all asset classes, but commodities were off their worst levels of the session nearing midday. Crude oil was still down nearly $3 a barrel at $75.02 and gold prices down $16.60 to $1,172 an ounce. Early on investors fled for the perceived safety of the dollar -- the euro was off morning lows but still down at $1.4986 from over $1.50 Thursday -- and U.S. Treasuries with prices inching higher and yields dipping.

The banking sector bears watching as investors debate which firms have the most exposure to Dubai World. U.S. banks were scuffling in early trading, but European banks trading here seemed to be getting the worst of it. Compared to losses of less than 2% for Goldman Sachs and JPMorgan Chase, Deutsche Bank shares traded in New York were down more than 5% and American depositary receipts of Barclays slumped 6.5%.

MGM Mirage was hurting, even after the casino operator said it does not expect Dubai World's restructuring will impact their partnership on CityCenter in Las Vegas. Even so, shares were down 5.2% Friday

The news out of Dubai drew virtually all the attention off the retail sector on Black Friday, in a year when many chains are putting just as much focus on "Cyber Monday." Sears Holdings and Kmart are among the companies allowing online layaway.

Thomson Reuters contributed to this report.

No comments: