Dubai: Crisis Averted?

Well, as far as crises go, that Dubai default crisis was pretty mild. It’s in talks to restructure $26 billion in debt. Of course, it will still have to pay up. And I expect Dubai will be feeling the pain of its real estate crash for some time.
Dubai’s ruler, Sheikh Mohammed bin Rashid al-Maktoum, said investors showed a “lack of understanding” by selling stocks after the near default. What I understand is that state-run Dubai World has $60 billion in debt and Dubai’s GDP is $40 billion. Maybe Dubai’s problems won’t spread, but for that country, it’s got problems that won’t soon be fixed.
*****Speaking of debt, AIG (NYSE:AIG) is actually paying back some of the $180 billion it owes the U.S. government. The company announced today it’s paying back $25 billion raised by selling two insurance subsidiaries.
That’s nice, but it’s hard to imagine AIG will ever make good on the balance. The Treasury owns $40 billion in preferred AIG stock. The company is currently worth about $6 billion. And selling off profitable business units is certain to lower income going forward.
*****Bloomberg reports that China’s manufacturing sector is growing at the fastest rate in five years. That’s helping to support economic recovery and stock prices around the world. Asia’s growth is being credited for a rise in European manufacturing and a drop in Germany’s unemployment rate.
As you know, I’ve been extremely bullish on China for most of 2009. And that bullishness is paying off for my SmallCapInvestor PRO members. We have several Chinese companies in the SmallCapInvestor PRO portfolio. We’ve got gains like 121% and 67%. And today’s news that China will grow at 10.5% this quarter makes me confident that there’s a lot of upside ahead for our Chinese stocks. For more about how you can profit from high-quality, undervalued Chinese stocks, click HERE.
*****The Dow Industrials has been locked in a tight range between 10,200 and 10,470 since November 9. As you know, I’ve had a 10,500 target for the Dow for months. So what happens now that the Dow has essentially met that target?
Well, hopefully nothing. Stocks have been consolidating for three weeks now. That’s good. But volume has gotten noticeably weaker, and that’s potentially bad.
It’s clear that stocks have achieved some pretty healthy valuations. I won’t call them overvalued, because we don’t know how earnings will be. Based on Third Quarter earnings, we can safely call stocks fairly valued. And that’s why mutual, hedge, and pension fund managers have slowed their purchases.  
In other words, institutional investors are skeptical. Not to the point of selling, but rather, they are on the fence. Skepticism is a good thing. We all know that once there’s a consensus, it’s almost certain to be wrong. So the fact that the big money seems to be saying that stocks are fairly valued is a good thing.
But if we don’t see good earnings numbers from the current quarter, the skeptics will start selling.   

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