Three Reasons to Panic About Dubai. Not.

The world financial markets were shaken over the Thanksgiving holiday by news that the government of Dubai was taking over its largest corporate entity, the heavily indebted Dubai World. Dubai was parachuting in a team from Deloitte to help restructure the $59 billion the conglomerate owes-which could take the form of reduced principal payments or stretched out repayment periods-and in the meantime was asking

creditors to allow it to suspend interest payments for six months. The most immediate burden was a $3.5 billion loan to the real estate subsidiary Nakheel due next month. You'll find good summaries of the problem here at wsj.com and here at bloomberg.com.

As for what you should about it, the answer is...nothing. The reasons are pretty simple:

1. It's not clear yet what the implications are. While markets seem to have been caught off guard by the news that neither Dubai nor its rich sister state Abu Dhabi would bail out Dubai World, it's not clear that this is a replay of Lehman Sunday. The early reactions range from assurances that it's not so bad-the inevitable fallout to a Dubai real estate bubble that rivaled Las Vegas in its delirium-to concerns that Dubai's actions are the first of a wave of sovereign defaults that could rope in Greece, Italy, Ukraine and even Japan. Mohammed El-Erian of PIMCO is the former camp, while Arnab Das of Nouriel Roubini's RGE is, not surprisingly, taking a darker view. While the experts are floundering about trying to make sense of the situation, on what besides sheer panic would you base any action you might take today?
2. Any move you make out of panic is likely to be wrong. You're not a day trader, remember? Upending your long-term retirement strategy in reaction to what is, so far, a 1% move in the Dow isn't the sort of thing you're likely to feel good about a year from now.
3. You always knew that the course of the recovery was going to be choppy. In the best of times the market never advances in a straight line. When you decided to put whatever percentage of your money into stocks, you signed on for occasional air pockets like this. As always, when the market news turns scary, the question for you should not be whether Dubai World is the start of Armageddon but whether you have the right mix of stocks and safer investments in your portfolio. If the answer is no, you should adjust accordingly, regardless of euphoric the markets seem. If the answer is yes, rest assured that you've done all you need to do. Go back to watching football. Go Bearcats!

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