Bill Bonner (The Daily Reckoning, UK):

Well, the days are dwindling down. September. November. Tomorrow it will be December.

This bubbly bounce must not have much time left. And it is surrounded by 10,000 pins.

Last week, one of those pins looked as if it might pop it. While Americans enjoyed their turkey dinners, Dubai announced that it would ‘postpone’ payments on its debt. The world was left to wonder: what’s going on? Is Dubai broke?

Dubai was the great success story of the Near East. With nothing but rich sheiks behind it, it had set itself the goal of becoming a major financial and tourism centre.

And for a while, it looked like the sheiks might just pull it off. Skyscrapers soared into the air. Manmade islands rose up out of the sea. You could ski indoors – and then go swimming in the warm waters of the Sea of Araby. They were even planning to put up the world’s tallest building…

But the whole place was built on debt and sand. And as the debts mounted, the sands washed away.

On Friday, US markets reacted. The Dow lost 154 points. Gold lost $14. Oil slipped to $76.

Our crash flag is still flying. But that was not a crash. Just a bad day. And today’s news tells us that other Gulf states are rallying around Dubai, ready to extend a helping hand and lend a buck or two. Oil is rallying on the news.

Does that mean this bubbly trend is stronger than we thought? Is this a bubble made of Kevlar? Will it resist other pins?

We wouldn’t count on it. Remember, China is “ Dubai times 1,000”, as James Chanos put it. When China pops, we’ll see US stocks down a lot more than 154 points.

In fact, we expect to see the Dow in 5,000-ish territory when this bounce is over. And when that happens, emerging markets will probably be hit even harder.

Dubai was a “wake up call”, for investors in emerging markets, says the New York Times today.

But the pin that pricks recovery hopes won’t necessarily be imported. There are plenty of sharp objects in the homeland too. There is, for example, the growing realisation that the recovery is a fraud.

“Half a recovery,” says a New York Times columnist, may be all we get.

Well, the days are dwindling down. September. November. Tomorrow it will be December.

This bubbly bounce must not have much time left. And it is surrounded by 10,000 pins.

Last week, one of those pins looked as if it might pop it. While Americans enjoyed their turkey dinners, Dubai announced that it would ‘postpone’ payments on its debt. The world was left to wonder: what’s going on? Is Dubai broke?

Dubai was the great success story of the Near East. With nothing but rich sheiks behind it, it had set itself the goal of becoming a major financial and tourism centre.

And for a while, it looked like the sheiks might just pull it off. Skyscrapers soared into the air. Manmade islands rose up out of the sea. You could ski indoors – and then go swimming in the warm waters of the Sea of Araby. They were even planning to put up the world’s tallest building…

But the whole place was built on debt and sand. And as the debts mounted, the sands washed away.

On Friday, US markets reacted. The Dow lost 154 points. Gold lost $14. Oil slipped to $76.

Our crash flag is still flying. But that was not a crash. Just a bad day. And today’s news tells us that other Gulf states are rallying around Dubai, ready to extend a helping hand and lend a buck or two. Oil is rallying on the news.

Does that mean this bubbly trend is stronger than we thought? Is this a bubble made of Kevlar? Will it resist other pins?

We wouldn’t count on it. Remember, China is “ Dubai times 1,000”, as James Chanos put it. When China pops, we’ll see US stocks down a lot more than 154 points.

In fact, we expect to see the Dow in 5,000-ish territory when this bounce is over. And when that happens, emerging markets will probably be hit even harder.

Dubai was a “wake up call”, for investors in emerging markets, says the New York Times today.

But the pin that pricks recovery hopes won’t necessarily be imported. There are plenty of sharp objects in the homeland too. There is, for example, the growing realisation that the recovery is a fraud.

“Half a recovery,” says a New York Times columnist, may be all we get.

Click here for the rest of Mr. Bonner’s analysis at The Daily Reckoning, UK Edition.

Now, twelve months later, as W’s presidential twilight years draw to a close, another of the West’s leaders journeys to the Gulf region. Like Bush, England’s Gordon Brown is not particularly popular in the polls. But this captain from the west has more pressing issues to deal with than the restoration of his public image; he needs cash to rescue the world’s “emerged” nations from the brink of financial collapse. And so, hot on the trail of the dollars and pounds that have poured from the west into the Gulf ever since oil was first discovered here, Gordon Brown shot his cuffs, donned his best smile for the cameras…and went panhandling.

Making no bones about the goal of his mission, Brown has said that he wants “hundreds of billions” of extra dollars from the oil-rich Gulf States, to be pledged to the International Monetary Fund.

The IMF is already burning through its $250 billion reserves, providing around $30 billion in emergency loans to Iceland, Hungary and Ukraine in the past few weeks alone. Pakistan has also said it may call on the international body for a quick cash advance. Somewhere in the vicinity of $5 billion should do the job, they reckon.

“The Saudis will, I think, contribute like other countries so we can have a bigger fund worldwide,” said Brown after a three-hour meeting with Saudi Arabia’s King Abdullah late Saturday in Riyadh.

“The oil producing countries, who have generated over $1 trillion from higher oil prices in recent years, are in a position to contribute,” he continued, employing the kind of misguided logic that Karl Marx would be proud of. He might as well have gone the whole hog and recited the creed straight from the Critique of the Gotha Program: “From each according to his ability, to each according to his need.”

Usually, when a man finds himself in the unfortunate position of having to beg for alms, he does so with a sense of humility. He may even come to the realization that, but for the kindness of strangers, he might be infinitely worse off. The dire situation Mr. Brown finds himself in, and the crisis in the west that led to his fundraising mission, seems not to have dampened his sense of moral superiority.

Just two weeks ago Mr. Brown severely reprimanded OPEC for its decision to cut oil production in the face of falling prices. The OPEC nations say they needs to defend a floor for prices in order to fund and develop future energy projects; projects that may or may not end up fuelling engines in the countries Mr. Brown is here to represent. Whether or not OPEC is telling the truth, we must admit that we find Mr. Brown’s diplomatic stratagem a tad puzzling.

Brown described OPEC’s production cut as “wrong for the world economy,” arguing that such a measure was “absolutely scandalous” at a time when the world is suffering through an economic crisis.

Translation: “It is wrong that OUR economy must suffer through high oil prices…but we would still like you to use the money YOU made from high prices to solve our problems.”

Pleading for help from one side of the mouth while sharply criticized from the other is seldom an effective tactic. It must be said, of course, that your editor is not here to defend a monopolistic cartel. We’re simply suggesting that if Mr. Brown chooses to go brown-nosing for money, he might think about refining his tactics a little. Either that, or learn to speak Chinese or Japanese…they made (and saved) lots of money from the west too.

Beggars can’t always be choosers but, if they play their cards wrong, they can end up losers.

Source: Beggars Can Be Losers

Now with oil down more than 50% from near $150 a barrel in July, the Persian Gulf is beginning to suffer from its own credit squeeze.

The bottom line is that world credit markets could suffer, further crippling the economy and the banking industry.

Persian Gulf SWFs control huge amounts of money. The combined funds of the United Arab Emirates (UAE), Saudi Arabia, Kuwait, and Qatar account for more than half the $2.5 trillion total assets of global SWFs.

As of March 2007, the UAE and Saudi Arabia had, respectively, the first and third largest SWFs internationally, and Kuwait ranked sixth, according to Middle East Quarterly. Persian Gulf SWFs have become the favored investment vehicles of Kuwait, Qatar, and the United Arab Emirates. And they’ve been busy…

Last year, SWFs engaged in 173 corporate transactions representing $83 billion – twice that of 2006, according to mergers and acquisitions tracker Zepher.

But now, many Persian Gulf nations are staring at barrels of oil that could sell for $65 each versus near-$150 over the summer.

The Persian Gulf also had a rude awakening that despite its oil riches, it is not completely decoupled from the world’s stock markets. Across the Persian Gulf, stock markets are way down, as investors begin to panic.

Even the boomtown of Dubai, which may have the most high-profile real-estate market anywhere, has softened against tightened credit.

But a slowdown in the Persian Gulf might feel like a crash landing in places like Egypt, Jordan and Syria, where gulf money has helped prop up strained economies.

“I expect investments from the gulf to slow down or stop because they have to deal with their own problems before they invest in other countries,” Nabil Samman, an economist who runs the Damascus-based Center for Research and Documentation, told the New York Times recently.

But is it a slowdown or a crash?

The governments of Kuwait and Saudi Arabia are now in the throes of their national bank bailouts to the tune of tens of billions of dollars. And it’s not due to just low oil prices, but a mass exodus of foreign capital and unfavorable currency trades.

At this rate it’s bound to get worse as we approach 2009. Some experts are predicting oil prices of $50-$60 per barrel for next year.

If that turns out to be the case, world credit markets could wish oil were once again up to $150.00.

A US energy economist has a neat explanation as to why this is happening – and it fits exactly with my view of the world. It’s all about population growth leading to energy shortages – and he believes it’s hitting oil-producing nations hard.

Writing in the Financial Times, Ohio Northern University Energy Economist AF Alhajji, said that Opec’s vanishing excess capacity was now keeping the oil price above $100. He argued that Gulf States’ power crises were now a primary driver of the oil price.

Excess capacity too

Alhajji argued that when considering total oil stocks, you must include inventories in industrial nations PLUS excess capacity in producer states. We all seem to focus on US oil inventories – but we should be looking at capacity in producing nations too.

Despite rising inventories; vanishing capacity in Gulf nations makes total global oil stocks so small that this has been the main driver keeping the oil price above $100, he argued.

So, based on this analysis, when we are considering global oil stocks, oil EXPORTS from these countries are the most important factor – NOT total oil production.

Rising living standards, soaring populations and urbanisation is increasing demand in oil-rich nations. They are using their own oil to supply their soaring energy needs. This would also explain why Opec has been reluctant to increase production… it simply can’t because of its own power shortages.

In March, the Middle East Economic Digest warned of an imminent power and water crisis across the Gulf. It said there was a serious supply and demand imbalance caused by a lack of infrastructure investment earlier in the decade.

The GCC is currently building a Gulf power grid that will connect the six member states, paving the way for a regional electricity market. The grid will not come online until 2009, however.

So, a temporary change in the dollar’s fortunes has revealed that fundamentals are taking over as the main driver. Cheap oil really has gone forever.
Regards

For Garry Writes