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Why debt at Dubai World is shaking world financial markets

As conglomerate Dubai World delays debt payments, most analysts look for Arab Monetary Fund to step in to avert a crisis in financial markets. That's not likely, though, until Sunday.

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The Arab Monetary Fund, though, is likely to ask Dubai World for more restraint, says Gartman. Dubai World has been an aggressive real estate developer, investing in everything from Troon golf courses and the Turnberry golf courses in Scotland. It has interests in the Chris Evert Tennis Centres and the Snowmass resort in Colorado. It also owns P&O Maritime Services, the major Australian-based company that does defense contract work, and Drydocks World, which provides shipping services in places like Singapore as well as the Persian Gulf.

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Even after the crisis gets resolved, Mr. Gartman wonders if it will represent a turning point in the equity markets, which have been on a bull run all year.

“This changes psychology a lot,” he says. “What has driven share prices up is not a strong economy but excess liquidity. As share prices went up, people said, ‘I better get in.’ ”

He calls this crisis “reasonably pivotal.” However, he adds there have been plenty of times when what seems like pivotal points in the market proved to be ephemeral. “This one may not be [ephemeral],” he adds.

Indeed, some investors have begun to sound the alarm. David Kotok, chairman of Cumberland Advisors in Vineland, N.J., wrote on Thursday, “The Dubai World debt crisis has contagion risk.”

Even if Dubai is rescued by Abu Dhabi, he added, “insolvency cannot be permanently papered off by excess liquidity, not in the Middle East nor, for that matter, in America.”

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