People are clearly overreacting, and that’s creating a good opportunity to
buy. Here’s why:
1. Dubai World’s debt of $60 billion compares to Lehman’s exposure of more
than $1 trillion when it collapsed. When Fannie Mae (FNM) and Freddie Mac (FRE)
were rescued, they were guaranteeing over $5 trillion in mortgages. When
American International Group Inc. (AIG) was rescued, it had over $200 billion in
credit default swap exposure. Similarly, Citigroup Inc. (C) and Bank of America
Corp. (BAC) had hundreds of billions in potential exposure.
Now, the U.S. stock market is higher than when all of those entities were
rescued. A $60 billion debt turning sour doesn’t (or shouldn’t) shock us
anymore, and the exposure of U.S. banks to this mess is minimal at best.
2. What in fact is the banking world’s exposure to Dubai? From a Goldman Sachs
report on Dubai issued Thursday: “We estimate the potential credit losses to
HSBC and STAN at US$611 million and US$177 million – or 4.6% and 3.9% of
2010E NPAT, 0.5% and 0.6% of 2010E equity.” In other words, nothing.
3. Plenty can happen between now and Monday. Dubai could come to agreements
with its creditors on the $10 billion, give or take, that is due in the next
month. Abu Dhabi, which has already agreed to lend Dubai $5 billion, has over
$650 billion in assets. Abu Dhabi will certainly negotiate agreements with the
creditors and buy debt for 60 to 70 cents on the dollar, avoiding the default of
its strategically placed neighbor. In return, Abu Dhabi will get massive
political concessions from Dubai.
This morning many stocks are falling. But this is not a repeat of last year’s
financial crisis. Many opportunities for snapbacks will appear. I’m going to be
keeping an eye, for the long side, on volatile stocks such as Citigroup; Apple
Inc. (AAPL); Dendreon Corp. (DNDN); Google Inc. (GOOG); STEC Inc. (STEC), which
I own; and heavily shorted stocks like Nutrisystem Inc. (NTRI), which should
benefit from post-Thanksgiving dieters, and priceline.com Inc. (PCLN).
http://blogs.wsj.com/financial-advis...-is-overblown/
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