Global credit crisis will gut Dubai property like 2008

Private equity and money center banks on Wall Street are in free fall even as the private credit market is in classic contagion mode, without a lender of the last resort for overleveraged shadow banks/hedge funds whose illiquid assets now disappear into Wall Street’s structured vehicles blackholes. Peekaboo Finance 101!

When Citigroup and Brent crude both fall 8% in a synchronized bearish death dive, I know that I am witnessing the death rattle of one of history’s most speculative and overvalued credit cycles.

Blackstone (BX) is the world’s preeminent alternative investment manager with a trillion dollars in AUM across private equity, buyouts, real estate, infrastructure, hedge fund of funds and structured credit. Its shares are hypersensitive to the slightest nuance in credit spreads, deal valuations and the volatility of interest rates. Blackstone shares have plunged from 189 on 18th Sept and is now trading at 160 on the NYSE. It is the same story with KKR, TPG, Carlyle, and Apollo.

The malign credit Frankenstein who gutted the netherworld of Wall Street’s shadow banking system in 2008 has once again risen from the grave like a vengeful Count Dracula on a moonlit night eager to win vampire brownie points in a boodsuckers rave party. The tragedy is that the macro wolf is here and the decibel count of his death rattle will trigger credit and property meltdowns across the GCC because when currencies cannot devalue due to a dollar peg, the burden of adjustment must be borne disproportionately by the local property market and stock exchange.

This simple macro linkage explains the trumatic boom-bust cycles in Dubai property since 2004 and the fact that GCC equities exhibit exceptionally high volatility metrics and cannot offer any risk protection products like liquid/listed options to hedge when Mr. Market goes psycho, as he has done now. Risk is a four letter word but then, sadly, so is ruin. So I have zero interest in any illiquid asset class. Notably, obscenely priced pieces of paper known as off plan project IOUs that trade at a 25-30% premium over newly constructed villas/apartments. Rational? No. Insane.

When a credit crisis coincides with stagflation in the world’s biggest economy and a deflation big chill in both Europe and China, it is evident that credit risk will be repriced and contagion ignited on an intercontinental scale as we saw in September 2008 or even last August. Fear, like greed, travels at the speed of light even as the Scottish poet Robert Burns put it – time and tide wait for no man while the best laid plans of mice and men aft go astray. Yellah!

This is the reason banks, private equity/alt asset managers, homebuilders and go-go data crunchers like Palantir have all been bit by Ursa Maxima in the past month. Once again, widows and orphans in the Gulf will learn the hard way that it is as dangerous to run with the bulls in Pamplona/Wall Street or bet with borrowed money on projects that will never get built by developers who are paying 8.5% for dollar financing on the eve of the biggest capital markets neutron bomb explosion since the autumn of Lehman, Citi, AIG, UBS, Merrill, Bear Stearns and Countrywide. 2008 was the year I thought the world’s ATMs would not work and houses gushed leprosy and not cash when the default danse macabre caused entire banking systems to disappear into money haven, as in Spain, Ireland, Iceland and Club Med.

There is so much money to be made in the dance of the Valkyries as they enter Valhalla and finally meet the soul of my hero Oberst Claus Graf von Stoffenberg. I visited Bamberg with my wife in his memory on a July 20th fifty years after a firing squad ended his life against a wall in Berlin’s Bendlerstrasse.

Money making idea? I will wait till Blackstone falls to 120 from its current 160 or TPG falls to 45 from its current 56. Scott Fitzgerald was so right. In the capital markets, as in the Manhattan/Riviera soirées of the jazz age – life is lived forward but only understood backwards.