Dear reader, the U.S. markets today are open after they were closed for Thanksgiving Holiday yesterday. The U.S. economy is suffering the blues of the economic recession that was a result of the sub-prime mortgage which spilled over into the world, negatively impacting major economies, and the news this week was around the new chapter of spillover into Dubai!
Lately, major sectors in the United States have been showing signs of slow recovery especially the housing sector that was a result of the downswing of the economy. The housing sector has been supported by buyers taking advantage of the government tax before it becomes no longer available.
During this month, President Barack Obama this month continued the $8,000 tax credit for first-time buyers until November 30th as way to stimulate activity in the housing sector. Also as borrowing rates remain low, is attracting buyers therefore reviving conditions as more homes are purchased.
Although there has been progress in the dominate sectors that fuel economic growth, which was a reason for the U.S. GDP to expand by 2.8% in the third quarter, yet the labor market remains fragile as unemployment rates climbed to a 26-year high to 10.2%. The weak labor market undermines growth prospects while negatively affecting the economic cycle.
Nevertheless, fears appeared back in the global markets as yesterday, Dubai World, one of the main government controled investment companies in Dubai, wants to postpone repaying its debt to creditors until six months, the company has total liabilities worth $59 billion.
The announcement triggered a massive wave of selloffs and rirsk aversion as investors thought Dubai will default on its debt which will trigger a new round of global defaults tightening again fragile financial markets, after they started to just stabilize and allocate lending once again.
Equities slumped, credit default swaps surged, treasuries advanced, and the dollar continued to shine but not against the Japanese currency that was massively bought back, especially with fears of intervention. With Americans out of the market yesterday, the market might open today with severe losses as they are behind the rest especially with the massive pending selling orders waiting for execution!
The worst credit crisis since the Great Depression continues to haunt major economies and continues to be a major obstacle weighing on the global economic recovery, and the longer that the banking systems take to stabilize; the longer it will be before we witness a full economic recovery.
