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-- Posted Monday, 30 November 2009 | Digg This Article | | Source: GoldSeek.com
The UAE Central Bank is making fresh liquidity available to its banking system today to meet an expected rush to the door by holders of local equities, bonds and cash by investors worried about Dubai World’s debt moratorium. Investors do not usually wait to hear the details and just react on the bad news. This will be their first opportunity to sell their stocks and bonds since the long Eid holiday began last week. Cashing out Those exiting equities and bonds will receive UAE dirhams in exchange. This currency is dollar pegged but already pays 3.5-4 per cent on deposit accounts, way above anything available on US dollars. Indeed, if last autumn’s financial crisis is a guide then the UAE banks may well raise rates higher. Depositors got six per cent then to encourage them not to cash out into US dollars. Backed by 10 per cent of the world’s oil reserves the UAE is arguably the richest nation on earth. Its black gold ought to make the dirham a super safe bet. Investors who want to stay in liquid assets have the choice of US bonds, or they could be really brave and buy Dubai government related debt which is bound to be squeezed just as hard as local equities today in an across the board sell-off. Bond options The question then is whether you want to hold either US or local government bonds. Is the problem with the Dubai World debt not showing the danger of government debt in general? There is a limit to how much that can be created, and bond markets are like any other capital market and can fall as well as rise. It is more complex than that for UAE investors. If the global financial markets also decide to correct then the position is far more difficult to judge than if the problem remains isolated in the UAE. As this website has discussed since mid-August the global rally from the lows of March has been very strong and unprecedented, particularly in the circumstances of a very weak recovery and the permanent loss of output sustained by the global economy. Big sell-off A strong correction in financial markets would therefore seem unavoidable as the liquidity shock of the stimulus shots wears off. Last Friday the global markets showed a microcosm of what to expect in a big sell-off. The dollar rallied, bonds rose sharply and oil and gold sold off. But it took only a matter of a couple of hours for a sharp fall in the gold price to attract new buyers and almost restore the price. It seems equity sellers took their dollars and immediately bought gold. In that case investors cashing out of equities might be well advised to follow this new trend. For in a world where the ability of governments to repay debt starts to be called into question, or actually stalls in the case of Dubai World, then holding wealth in any currency is an issue, and the ultimate safe haven is gold. As the illustration below from gold bug Jim Sinclair’s website shows the pull towards higher gold prices looks irresistible as the global economic crisis unravels.
-- Posted Monday, 30 November 2009 | Digg This Article | Source: GoldSeek.com
Previous Articles by Peter Cooper
About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in
1999 to complete his first book, a history of the Bovis construction group.
Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.
 Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.
He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.
Order my book online from this link
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