Reacting To News: What To Make Of Dubai?

Here at “A Dash” we try to identify the best experts on any subject.  Since we are free to position our clients in any way, we are consumers of news and analysis.  So are you.

While I manage client portfolios in real time, my writing is after hours.  I am not trying to advise people with short-term trading horizons.  Our TCA-ETF approach (still bullish) has a three-week time horizon.  Our program for long-term investors has an even longer time frame.

When I write, it is an honest assessment of my own views and an attempt to find the real authorities.  It is not trading or investment advice.  It is just something you might want to consider.

The Issue

Each night I get the daily report from Charles Kirk, a valuable service for his subscribers.  Charles (who is currently neutral on the market in all time frames) always includes a quotation with his analysis, and today’s is especially apt:

“Look at market fluctuations as your
friend rather than your enemy; profit
from folly rather than participate in it.”
- Warren Buffett

This is a great statement of the issue.  Is the Dubai reaction the start of something bigger, or an opportunity to “buy a dip?”

The Analytical Viewpoint

At TheStreet.com’s Real Money site (subscription required)  Marc Chandler, a source for whom we have great respect, wrote as follows:

We stress again that the current troubles being seen in Dubai are a direct result of its efforts to tie its fortunes to global real estate, tourism and services, and are particularly unique to Dubai and should not have wider implications for sovereign EM risk. The property boom helped this strategy work in the good times, but the popping of the global real estate market has put severe strains on Dubai.

Developments in Dubai should thus be seen in the context of the entire country basically being geared toward real estate development and not in the context of EM sovereign risk and fundamentals. Thus, while the current period of risk-off trading could yet persist, longer-term investors should be looking for buying opportunities in EM during this correction.

We note the careful analysis of the nature of the problem, and how it might be connected to various markets.

The World Leadership Viewpoint

Other sources also provided perspective on this issue.

Banks, world leaders play down Dubai debt threat, from Reuters.  The article quotes leaders from the US, Britain, France and Japan.

The Bearish Viewpoint

Those who have been calling for a market correction see this as the start of something big.

Pimco, with a bearish viewpoint on stocks and now even seeking less risk in bonds, calls it the start of an “overdue correction.”

Others, whom we will not name, see this as the first step in the decline of commercial real estate.  Or they say that we should not believe anyone who sees this as “contained” because someone or other said that subprime would be “contained.”

The Trading Viewpoint

Barry Ritholtz, despite a continuing bearish tone from most articles, expected a rebound from the overnight bottom and was pretty accurate with his pre-opening call.

Our Take

There is a widespread acceptance that any warning of doom is correct, and every event is proof.  If so, the case against buying stocks is clear.  There will always be something to worry about.

Today’s bears did not make a very good case.

I watched the currency trading closely.  The dollar flight to quality ended rather quickly.  The trade-weighted dollar is about where it has been for the last week.  And I am still waiting for someone to show a good link between low treasury rates and the ability to speculate on US stocks.

There were plenty of buys in individual stocks that have nothing to do with Dubai, European banks with big exposure, or even the dollar carry trade.

I don’t know if Warren Buffett was buying today, but I was.