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TFN eNews 11/27/2009: Red alert for these Dubai-exposed companies!

Published via e-mail broadcast on November 27, 2009

In today’s TFN eNews:

* The view from the 27th floor

* Dang goes that fully air-conditioned beach

* Red Alert for these companies

Dear TFN eNews reader,

From the 27th-floor balcony, Baltimore City sure is nothing to look at on a misty November afternoon.

There’s a cluster of crimped highrises overlooking the oily black inner harbor — mostly dated, seventies-style eyesores whose main purpose is to block the view of what’s left of the historic downtown. More modern ones have mushroomed to the right: Pretentious, mirror-coated shells for office cubicles, standardized hotel rooms, or equally nondescript “luxury” condominiums for people whose credit scores and IQ levels are converging at alarming rates.

Sprawling around them as far as the eye can see are low-quality 19th-century row homes — tiny, habitable shoe boxes that look like mildewed crates for upright refrigerators when seen from above.

Among them are vast patches of raw dirt. Space for more mirror-coated cubicles and abundant parling for Toyota Camrys and Priuses.

At the bottom of the highrise I’m in you can see motor boats and yacht anchored in the filthy water. All around them, “executive” condominiums have sprung up — popsicle-stick creations wrapped in Tyvek and fake brick. Originally priced “from the mid-$300,000’s”, they charged a million bucks for each of them during the boom.

Now, they’re trying again at $300k.

But only 20% of them have sold.

Forget Harbor View, I thought.

Call it Little Dubai.

*** Stocks took a drubbing during today’s foreshortened trading day as investors reacted to news that Dubai World, a state-owned “sovereign” investment fund, asked creditors for an extension on billions of dollars worth of debt payments due next month.

The Dow Jones industrial average lost 155 points. Hong Kong’s Hang Seng index closed down almost 5% for the day.

Among the biggest losers were bankers with exposure to Dubai:

Dutch banker ING Group (NYSE:ING) — down almost 20%, Woori Financial Holdings (NYSE:WF) — down 14%, Shinhan Financial Group Co., Ltd. (NYSE:SHG) was down 9%, and HSBC Holdings plc (NYSE:HBC) — Dubai World’s biggest loan arranger since January 2007– closed down almost 6%.

Dubai, one of seven emirates that make up the United Arab Emirates, had borrowed $80 billion to fuel a construction boom that created indoor skiing arenas, a kilometer-high skyscraper, the largest airport in the world, and residential developments built on artificial reefs and islands that look like palm trees from the vantage point of Google Earth.

Dang goes that fully air-conditioned, self-cleaning, lavender-flavored beach I’ve been dreaming about!

*** Compared to the new debt a reckless U.S. Congress has been taking on, Dubai World’s current $59 billion liability looks like chump change. Given the city state’s incestuous relations with other Arab sovereign wealth funds, I have no doubt the issue may be resolved, either by internecine loans or the sale of assets.

But this will have a domino effect on the company’s owned by Dubai Istithmar: The fund holds an undisclosed amount of Sony Corporation (NYSE:SNE) shares, owns Barneys department stores, has a 3.2% stake in troubled EU aircraft maker EADS, and owns 2.2% of Deutsche Bank AG (NYSE:DB).

It also committed $5 billion to MGM Mirage (NYSE:MGM) — an interesting choice for the government funds of an Islamic nation where all gambling and casinos are prohibited.

All those companies have shown significant declines in recent days. Because they’re potentially on the block.

Even more at risk are the creditors: UK banks such as Standard Chartered PLC (LON:STAN), Royal Bank of Scotland Group plc (NYSE:RBS), and Barclays PLC (NYSE:BCS) are exposed with a total of more than $30 billion in default risk.

All those companies are on our Red Alert List!

*** Dubai lacks oil and gas reserves. The plan behind taking on all that debt was to create a “sustainable” economy — independent of natural resources. This was to be achieved by making the emirate a world-class banking and tourism center at the nexus of the Western world and Asia.

For the last couple of years, this seemed to work out quite nicely. There’s barely single young German professional I know who didn’t think it necessary to do an internship in Dubai!

Dubai’s business and tax environment is extremely attractive to foreign corporations. They managed to lure Halliburton Company (NYSE:HAL) to move headquarters (and its global tax base) out of Houston.

If Dubai’s entrepreneurial spirit prevails, the emirs will use the crisis — and their boatloads of unoccupied commercial real estate — to aggressively court European and American businesses looking to escape predatory taxation of their neo-collectivist governments!

Dubai has already seen its commercial real estate prices collapse by 50% over their 2008 highs. Some prestige projects have been suspended due to financing problems. The sovereign wealth fund may have to unload considerable amounts of property at distressed prices.

In a globalized world, this will drive the price of all commercial real estate lower.

We’re adding CB Richard Ellis Group, Inc. (NYSE:CBG), Grubb & Ellis Company (NYSE:GBE), and Jones Lang LaSalle Incorporated (NYSE:JLL) to our Red Alert List.

*** 12 stocks with ”Moon Shot” potential:

Even in this market, it’s not really uncommon for some stocks to return 500%, 1000%, even close to 3,000% in just a few months.  Sometimes it only takes weeks. Or even days. What do they all have in common? We’ll tell you right here…

http://www.todaysfinancialnews.com/PSC/LAUNCH/WPSCKB07.html

*** Quote of the Day:

“The current economic downturn that has cost millions of people their jobs began with successive administrations of both parties pushing banks and other lenders to make mortgage loans to people whose incomes, credit history and inability or unwillingness to make a substantial down payment on a house made them bad risks. (…) No one pushed these reckless mortgage lending policies more than Congressman Barney Frank, who brushed aside warnings about risk, and said in 2003 that he wanted to ‘roll the dice’ even more in the housing markets. But it would very rash to bet against Congressman Frank’s getting re-elected in 2010.” — Thomas Sowell

Recommended Reading:

3 Penny Stocks With Winning Potential

Warning! Warning! This is not good news

Linn Energy (LINE) is one of HSC’s Top 3 Dividend Stocks

Today’s Top 3 Financial News Stories:

MoneyNews.com – Health, Climate Bills Seen to Stifle Hiring “While President Obama and congressional leaders say they would like to do more to spur job creation, economists and business executives warn that their plans to impose new health care and climate-change costs on corporations would have the opposite effect.”

Telegraph.co.uk — Dubai is just a harbinger of things to come for sovereign debt ” In the scale of things, the debt problems of Dubai are little more than a flea bite. Dubai’s sovereign debts total “just” $80bn, which counts for nothing against the trillions being raised by advanced economies to plug fiscal deficits.”

Bloomberg.com — Dubai Crisis May End in ‘Major’ Default, BofA Says “Dubai’s debt woes may worsen to become a ‘major sovereign default’ that roils developing nations and cuts off capital flows to emerging markets, Bank of America Corp. said.”

Cordially yours,

J. Christoph Amberger

Executive Publisher, TodaysFinancialNews.com


Next Article: Dubai credit crunch: Red alert for these companies!

Posted by J. Christoph Amberger · Filed Under TFN eNews 

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