In Counter Trade Dubai, Bruce Krasting posts some Wall Street Journal headlines from Monday, November 23, about the Dubai debt problem. He goes on to comment:
There are dozens of examples of press reports that Dubai was in arrears for a long time. So I do not buy that this is a nexus for the market.Dubai isn't a sideshow, it's a window onto the main event, the social mood.
I think that by next week market focus will again return to those that were steering markets on Wednesday. A weak dollar, strong gold and busted monetary policy. Dubai is a side show that was aggravated by our holiday and an overreaction in Asian markets. We will revert back to the main event.
Robert Prechter moved to 200% short on Monday, November 23. When one goes 200% short, there is no room for error, so Prechter must have had a very, very strong belief that markets were about to turn.
The changing attitude towards Dubai is a result of the shift in social mood. The Dubai story didn't change, the social mood changed.
Elliott Wave International asks whether Dubai will cause similar effects as Lehman Brothers (I'd lean more towards Bear Stearns at the moment). That will also depend on the social mood.
Bear Stearns bankruptcy was followed by a rally into May. Fannie and Freddie's major problems sparked a small market sell-off in July 2008 (though prices started moving lower in June) and Barron's warned that bigger problems were ahead, but the market didn't crash until September.
Whether the reaction to Dubai is a short-term overreaction or a sign of a greater turn in social mood will be evident in the coming days and weeks.