The chief investment strategist for a major Wall street firm termed Dubai's 53% collapse "an adjustment phase" and told a Dubai daily newspaper, "We believe that Dubai is the Shanghai and Hong Kong of the Middle East." He'd better hope not. The Shaghai Stock Index remains down 42% from its bull market peak nearly five years ago, while Hong Kong's Hang Seng index is still down 13% from a peak in March 2000. Tuesday's Wall street Journal reports, "Analysts say the selloff in the Gulf shows few signs of spilling over broadly." It's a global "What, me worry?" in a mad world.

In an effort to prop their markets up, powerful interests appear to be borrowing their talking points from 1929. On Oct 29, 1929, as the firt wave of selling was crushing stock prices, John D Rockefeller issued the following statement: "Believing that fundamental conditions of the country are sound and that there is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges, my son and I have for some days been purchasing sound common stocks." On March 15, 2006, Prince Alwaleed bin Talal issued a statement that implies even higher authorities are on the side of rising Saudi stock prices in 2006: "His Highness said that the Saudi economy is strong and fruitful and is backed by the Custodian of the Two Holy Mosques who supports the small investor. Buy and participate in companies that are respectable."

Like Rockefeller in 1929, Alwaleed bin Talal said he is getting in with a $2.7 billion investment in the Saudi market. Should investors take this as a bullish sign? In April and May 2000, after the initial fall in dot-com stocks, the same prince made the same bold $2 billion play - on internet stocks!...

...A quick outbreak of palpitations is already giving many investors heartache. A Saudi newspaper headline, "Hospitals on Bull Run as Markets go Down," hints at the hidden vulnerability behind many investors' confident exteriors. "A horde of Saudi investors have ended up in hospital with high blood pressure and acute stress after being unable to digest their losses," says the dispatch.

EWI, Mar 2006 (sorry, no link to subscription service)

It appears that investors may be on the verge of taking a bath in emerging markets, including the Middle East, as a series of bubbles peak and burst. I would expect the contagion to spread like the Asian Flu in the nineties, only more widely this time.