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Shrugging off the Dubai debt crisis
Dialog with the Alter Ego, drafted an published on Nov. 28, 2009

Question by Alter Ego of Noah denkt™ (AE): Does Noah denkt™ believe that the very recent debt problems of
Dubai’s sovereign wealth fund will stall or reverse the global recovery?
Answer by Noah denkt™ (Nd): In our opinion, this will have a temporary dampening effect on the financial
But it will not change our core bullish sentiment.

AE: What makes your believe that the world economy will basically shrug off this debt crisis?
Nd: In essence, it is our perception that the Dubai issue is largely an isolated case.

AE: How can anything in this interconnected world be an isolated case?
Nd: True, nothing in this interdependent world can truly be isolated. And that’s why we, in deed, did see a global
sell-off in the stock markets during the immediate aftermath of this news. But that’s just a passing issue.

AE: Are you sure about that? Don’t you think that the British banks, for instance, who are still reeling from the
earlier financial crisis will have a hard time to deal with the additional blow that Dubai has now levelled at them?
And if that’s enough, what about a potential knock-on effect that the Dubai issue might have on the building boom
in China? Don’t you see the possibility of a further spread of fear in the world markets?
Nd: Obviously, the banking industry, and
in particular RBS, will be impacted somewhat substantially by the DP
World issue. And if there is an open question at all as to the consequences of this new debt crisis, it will be in
respect to the Libor rate which we will see in the next couple of weeks. At this time though, we are not convinced
though that these Libor rates will go up considerably. After all, there are too many government forces still around
who are willing to step in, if a severe instability should occur.

AE: Okay! And what about a contagious effect from Dubai to Shanghai and other building boom markets in the
Nd: Well, the basic difference between Dubai and China is the fact that Dubai’s building boom is a lot wackier than
that in China. In other words, Dubai’s building boom was in large measure an attempt to create a unique
marketing profile, whereas China’s building spree is supported by a home-grown industrial base that actually
exists. And therefore China is a lot less vulnerable in this than it might appear at first glance.

AE: Still, even the China bubble will eventually have to come undone, won’t it?
Nd: Sure. But it doesn’t feel as if we’re there just yet.

AE: It could come soon though, couldn’t it?
Nd: It could come anytime. But again, our gut feeling at this point is that this isn’t the time when it will happen.

AE: So we are resorting again to an opaque superstitious feeling.
Nd. No, we are resorting again to
what we have said earlier about the Universe’s propensity  to create
unexpected, counter-cyclical challenges. And this Dubai crisis simply isn’t counter.cyclical enough to pose a
serious unexpected threat.

AE: Jees, what a twisted argument!
Nd: Yeah, it’s twisted,
but it has worked for us so far.

AE: So we leave it at that.
Nd: Yes, let’s leave it at that.
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