Why You Need to Learn More About Dubai

I think the best way to look at crises (both big and small) is to think of them as learning opportunities. In the last year or so, many investors whose investing universe was narrowly bound by stocks have now become conversant in credit default swaps, the TED spread, the dollar, the carry trade, bank capital ratios and a whole host of concepts and statistics that they didn’t know existed in 2007.

So should the Dubai situation also be a learning trigger. Not familiar with the political structure of the United Arab Emirates? the history of sovereign default? the principles of Islamic banking? Now is an excellent time to learn – and perhaps profit – from becoming better informed about these issues.

I also see the events in Dubai as an opportunity to identify some sharp thinkers who are on top of the situation and whose work I was not previously aware of. One such instance is Bill Mitchell’s Billy Blog, where I encountered Dubai Is Not a Case of Sovereign Debt Default, one of the best articles I have yet read on the Dubai situation. As for the author, how can you not like someone who provides a handy (Political Compass) plot of his ideology, an email address and a cell phone number on his blog? Mitchell describes himself as a professional musician who also just happens to be a Research Professor in Economics and Director of the Centre of Full Employment and Equity at the University of Newcastle, NSW Australia.

One of my mantras is that where there is panic, there is opportunity. Whether you made directional bets on prices or volatility today, I hope at the very least you expanded you knowledge base and sources of information in order to give you a better perspective on events as they unfold next week and going forward.

Comments

[bob adamson]

Thank you very much Mr. Luby for so many helpful links to great background information on topics of importance but not part of the usual fare of most North Americans, myself included.

2009 Nov 27 04:20 PM

[Tekatl]

Surprise events are fueling these most interesting times, without surprise events, there would be less opportunities and markets would not show their inefficiencies which creates even more opportunities. All simply depends on what side of the fence you decide to play on.

2009 Nov 27 04:25 PM

[Gtarras]

seriously, what is Dubai if nothing but a 5-year long fad? i personally do not know anybody who would want to go back after satisfying their curiosity of a first visit (and these were very few people to start with). why go to Dubai, if you are European? there is enough affordable resort space in France, Spain, Portugal, Egipt and Turkey. there are even fewer reasons for Americans to fly there (the distance to start with). Dubai started as a sand desert, and will probably end as one. What a monstrous lie and black hole that was.

2009 Nov 27 06:52 PM

[Talavera]

Not a big deal huge rally next week. Keep buying dips.
The market unfold next week and go foward...

2009 Nov 28 12:24 AM

[Uppai Mappla]

I always get an uncomfortable feeling when I contemplate Dubai's future. It is too artificial to be sustainable in the long term.

2009 Nov 28 08:18 AM

[riotsmurph]

"and perhaps profit"
owh yeah.
anyone concerned about the line "and perhaps aquire beauty" in the last sixty years? you all deserve to frie and there is no one who profits more then artists.
because they laugh and enjoy more so then anyone could by any profit. The joke of seeing someone in a swimming pool looking so smug will always be greater then owning a swimming pool.

2009 Nov 28 09:23 AM

[isaac the terrible]

Dubai and Las Vegas.
Is this why we are here on earth?
Crumble back to sand and rock.
Take you money,
and your debt.
And the stain of oil,
forever shall taint the waters.

2009 Nov 28 09:40 AM

[Djvu]

so you were not aware of sukuk / islamic banking shariah where any interest payment is forbidden ?
how about this new version of islamic banking . where even principal payment is postponed if not forbidden
" hey i was supposed to pay you 4 bn by 14th dec `09 but now you gotta wait till at least 30th May 2010 ?" lol

2009 Nov 28 10:43 AM

[Alan Young]

Amidst all the pontificating I've seen about Dubai, this article is the most sensible. Learn more, rant less, and look for trading opportunities. Good advice!

2009 Nov 28 03:06 PM

[Mad Hedge Fund Trader]

asi Who did Dubai’s emir, Mohammed bin Rashid Al Maktoum, think he was kidding? He launched one of the biggest construction booms in history, erecting the Burj Dubai, which at 161 stories is the world’s tallest building. He built artificial islands in the Persian Gulf with lofty names like “The World” that are so big they are visible from space. He bought the legendary Queen Elizabeth II, a ship that holds many fond memories of transatlantic crossings for me, to convert into a floating hotel at unimaginable expense. The spending didn’t stop there. His spending binge went global, taking a partnership role in the Las Vegas City Center, which became the worst commercial real estate project since the Tower of Babel. The problem is that all of these acquisitions were done on credit, with only a fig leaf of equity, and the wind is now blowing with hurricane force. Dubai property values have slid 50% in a year, and the plunge shows no sign of abating. No surprise then that development arm Dubai World has defaulted on $59 billion in debt. The spendthrift emir spent way too much time on horse racing and not enough on research. Sure, turning Dubai into the next Hong Kong was a laudable goal, but did anyone think this through? While the former crown colony is backed by the sweating masses of China, tiny Emirate is surrounded on two sides by 2,000 miles of sand and on the other two by the not so friendly maritime neighbors of Iran and Iraq. Oil, you may ask? My Caesar salad has more oil than Dubai. Haven’t they heard of peak oil? I always thought Dubai would revert to a ghost town once the neighborhood ran out of Texas tea. Now that Dubai’s debt has been correctly marked down to junk the big question is who else this hubris gone wild is going to take down. The shareholders of the UK’s Standard Chartered Bank and HKSB, the lead lenders, are going to take a body blow, and a rash of hickies will spread among the many syndicate members. Greece and Ireland could be next, as the premiums for their credit default swaps have skyrocketed. Things could get ugly in Dubai when the country’s 360,000 migrant Indian workers find out they aren’t going to get paid. How do you say “domino theory” in Arabic?

2009 Dec 03 10:23 AM

[RitaLin]

"I always thought Dubai would revert to a ghost town once the neighborhood ran out of Texas tea" - couldn't agree more with this sentence. It describes exactly what's going on there.
BTW, I think you should turn this comment into an Instablog post of it's own - it's so well written, easy to read and thought through (unlike Dubai's economy ;-)


On Dec 03 10:23 AM Mad Hedge Fund Trader wrote:

> asi Who did Dubai’s emir, Mohammed bin Rashid Al Maktoum, think he
> was kidding? He launched one of the biggest construction booms in
> history, erecting the Burj Dubai, which at 161 stories is the world’s
> tallest building. He built artificial islands in the Persian Gulf
> with lofty names like “The World” that are so big they are visible
> from space. He bought the legendary Queen Elizabeth II, a ship that
> holds many fond memories of transatlantic crossings for me, to convert
> into a floating hotel at unimaginable expense. The spending didn’t
> stop there. His spending binge went global, taking a partnership
> role in the Las Vegas City Center, which became the worst commercial
> real estate project since the Tower of Babel. The problem is that
> all of these acquisitions were done on credit, with only a fig leaf
> of equity, and the wind is now blowing with hurricane force. Dubai
> property values have slid 50% in a year, and the plunge shows no
> sign of abating. No surprise then that development arm Dubai World
> has defaulted on $59 billion in debt. The spendthrift emir spent
> way too much time on horse racing and not enough on research. Sure,
> turning Dubai into the next Hong Kong was a laudable goal, but did
> anyone think this through? While the former crown colony is backed
> by the sweating masses of China, tiny Emirate is surrounded on two
> sides by 2,000 miles of sand and on the other two by the not so friendly
> maritime neighbors of Iran and Iraq. Oil, you may ask? My Caesar
> salad has more oil than Dubai. Haven’t they heard of peak oil? I
> always thought Dubai would revert to a ghost town once the neighborhood
> ran out of Texas tea. Now that Dubai’s debt has been correctly marked
> down to junk the big question is who else this hubris gone wild is
> going to take down. The shareholders of the UK’s Standard Chartered
> Bank and HKSB, the lead lenders, are going to take a body blow, and
> a rash of hickies will spread among the many syndicate members. Greece
> and Ireland could be next, as the premiums for their credit default
> swaps have skyrocketed. Things could get ugly in Dubai when the country’s
> 360,000 migrant Indian workers find out they aren’t going to get
> paid. How do you say “domino theory” in Arabic?

2009 Dec 15 02:11 AM