Bill Bonner, resident Cassandra at The Daily Reckoning, UK, analyzes the potential impacts of last week’s announcement from Dubai World on the world’s economies.

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.