So Dubai took the center stage all of a sudden, but how should we treat it ? We all know the short term logic consequence some developers, private investors and banks will lose money. Probably are the banks the most hurt as they regarding all debt in Dubai as quasi sovereign supported, but it was not.

Apart from these very direct losses the Dubai problem shouldn’t affect the world in any particular way, unless the financial markets are in some sort of stress. But they are and that’s why the reactions are so negative. For me it shows that the upside momentum in the global equity markets is getting more and more heavy as all coming positive news already are priced in.

The Dubai meltdown also gives the markets a lead for next year, as next year will be a reality year and not a boom year. The markets have priced the swift turnaround in but if we are lucky growth will be flat in 2010 with a recovery in 2011. Next year will about coming through and survive in a credit strapped environment. This means that only corporations and banks with healthy balance sheets, some cash and a decent business will run ok in 2010. All banks globally have rebounded 300 – 400 % since the lows earlier this year and at the same time the bad debt continues to grow. It’s a bad cocktail and mainly it’s the same picture for all listed companies. Repayment of debt will become an issue in 2010 combined with zero or low growth.

The Dubai lesson in my view is to go through the stock portfolio is December and quit the stocks with a too high debt ratio compared to earnings and equity. They will be too risky next year.

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