Worries over a possible default on sovereign debt by Dubai has led to large declines around the globe on Thursday. The S&P futures are currently down -24.25 points and the dollar is rebounding as a safe haven play.
Friday is shaping up as a potential disaster in the U.S. markets but there is hope on the horizon. The big decline overseas was on Thursday and as those same markets are opening Thursday night we are seeing some buying. The S&P futures are poised to open slightly higher as in -22 points but there is a lot of night left before the U.S. markets open on Friday.
If the current futures drop holds then odds are very good we will be stopped out on all positions. Friday is normally a bullish day but debt defaults by oil rich countries are pretty rare. That would probably fall into the act of God category.
The country of Dubai said it was going to enact a "standstill" on debt repayments for Dubai World for the next six months. One of Dubai World's best known developments is the palm shaped islands. Another is the Burj Dubai, the 2,600 foot tall skyscraper and the tallest building in the world. At 2600 feet the Burj Dubai is right at twice the height of the World Trade Center towers destroyed on 9/11. Twice the height, I can't even comprehend it. Office space in Burj Dubai rents between $3,500 and $4,000 per square foot. That is an obscene display of wealth and pretty much symbolizes why Dubai World is in trouble. All of their projects are off the scale enormous or high priced.
The problem with the potential Dubai default is that it reminds everyone of the potential problems in the global banking system that have yet to surface. It is a sentiment spoiler of a very high magnitude. If an oil rich country surrounded by oil rich countries can default on $60 billion in debt then how many lesser entities around the world are struggling to stay afloat?
Let's hope that some sanity returns to the markets before the U.S. opens for trading on Friday. With volume expected to be the lowest of the year we could see some wild swings. Gold traded up to $1195 in Europe as a safe haven play. If we ever get a dip in gold prices I will open a couple positions in the sector but I can't justify it when the charts are going vertical.
Hope you had a happy Thanksgiving!