Michael Pascoe writes:

Almost unremarked on by the western media, the
Gulf stock markets have been suffering a very wild ride over the past month,
crashing over a confidence wobble and presently trying to stabilise with some
official help.

Meanwhile, the US home
market – the real estate boom that has underpinned the Consumer of Last Resort
for the past two years – is having a smaller but perhaps more serious wobble of
its own.

The question for investors is whether
either of these issues is internationally serious. The answer is that the first is more
fascinating but the second is the one that counts.

It’s been a very important week for the
Gulf stock markets themselves as attempts are being made to build a floor under
the bursting bubble
. Aside from the Saudi Royal family
promising to kick in a few billion of its own in support – reminiscent
of some of Wall Street’s kings pledging to buy in late 1929 – the Saudis have
allowed foreigners to buy stocks there for the first time, although they’re
still excluded from the IPO casino.

The Gulf States’
markets have been riding the oil price bubble to enormous excess, so that the
falls of 20%, 30% and even 50% around the region up to the middle of the
month are actually not unreasonable. The worry is that, in these feudal states, citizen
speculators aren’t used to having their bets go wrong and are likely to blame
their rulers who are supposed to control just about everything.

Meanwhile, interest rates for US home
loans are creeping up in the wake of the Fed’s latest increase,
just when markets are still digesting figures that suggest the housing boom
might not be in for an Australian-style soft landing after all.

Macquarie Bank’s economists see the fall in US new home sales data released last week as highlighting there is an important
downside. New home sales in February dived a surprisingly large 10.5%.

That, in turn, helped blow out the stock of new
homes for sale – an amazing 6.3 months worth of sales are sitting empty across
the US. With the Fed still talking
hawkishly about rate rises, that sort of market overhang combined with any
wobble in consumer confidence could spark the sort of crash that would
seriously whack the US economy overall.