ultranomics

The new Great Depression – agent of Karma

17th November 2008, TK (co-editor)


One thing is for sure, always expect the unexpected. For the past decade the buoyant global economy has been lulling us into a false sense of security. We started to actually believe that this time it was different. Forget the dotcom crash, real estate really could always go up in value. Heck you know what they say, “buy land, they’re not making any more of it” (personally we don’t consider Dubai’s new islands to be an exception! – see jq’s reference to Atlantis below) so with increasing populations, increasing economic migration, low unemployment etc etc how could the property market possibly crash. No, no, no – this time it really is different. That’s what most of the experts were saying.

But you know what we say, don’t you readers? Nature in the end gives you what you deserve – the Indians call it karma. Here’s the rub though – for all our technology, all our analytics, all our models, most of us never see that sucker punch coming! Or if we do see it its usually far too late. The American Subprime meltdown is of course the elephant that caught our great world leaders completely by surprise.

Now those same great leaders were found to be having a jolly back-patting get-together at our expense this weekend in Washington, where they convened the G20 summit. Did you see the pics? Mr Bush looked the most jolly of all – like the kid who made a mess in the nursery but was about to leave without having to tidy the toys back into the box.

George W. Bush at the G20 summit

Bush and the others, from both developed and developing nations promised to take “whatever further actions are necessary to stabilise the financial system” and vowed to “use fiscal measures to stimulate domestic demand to rapid effect, as appropriate to each particular country”. Whenever we hear the words, “Whatever necessary” and “use measures as appropriate” we get that feeling of being in a boat without a map. These are the guys who never noticed that elephant going berserk, who allowed our crops to be devoured and our shacks trampled in plain view of incompetent herders (the banks), who put all their trust in the zoo’s gatekeepers (the central banks) and who never bothered to understand what dangerous tricks the elephant trainers (the hedge funds and derivative dealers) were teaching to the elephant. Now these same world leaders expect us to believe that they know what they are doing and can handle the crisis that they let occur.

We will wait and see what their efforts will achieve. Yet we fear that for all the promises of co-operation and anti-protectionism policy objectives, for all the cash injections and new regulatory “colleges of supervisors”, the way this new Great Depression will play out will have precious little to do with what governments decide to implement. It will simply take its own course. The greedy will be cut down. The non competitive enterprises will be decimated. Jobs will be lost. The weak will perish. Those who didn’t save for the future will find that the future won’t save them. Those who thought that something for nothing was possible, will find their somethings have become nothing. Sure, a lot of innocents will be hurt along the way. The Great Depression will not care. Finally though, our economies and the world in general will emerge a healthier, more grounded place. New enterprises will take the place of the obsolete, and bring with them new jobs and new prosperity. Of course, our politicians will take credit for it all. Until the next Depression which probably won’t be in our lifetimes. That unfortunately means that as individuals our lessons learned may not be needed by us again, although those lessons may make us into boring penny pinching old folk. Perhaps our kids will listen to our advice – somehow though I don’t think so.

Meanwhile in TK’s living room………

I was just watching the U.K.’s PM Gordon Brown and his shadow counterpart David Cameron at each others throats on the BBC as they duelled over the current standoff about tax. After the G20 meeting at the weekend, Gordon is keen to spend his way out of recession next year by giving us in the UK lots of marvelous tax breaks.

Cameron though was having none of it, throwing back in Gordon’s face his old promises of prudence and pointing out that £15bn in cuts was tantamount to ‘fiscal incontinence’ (what a great turn of phrase). He points out that such out of control public spending risks plunging sterling even further down in the world markets. This would put off potential investors bringing their money into the UK. Also the massive increase in borrowing necessary to fund these tax cuts would inevitably lead to tax rises for future generations.

Gordon however is as keen as ever to pull the wool over our eyes. He’s been a silly boy pretending he was the maestro of finance all those years. Now its come back to bite him he won’t even answer a question straight. That’s the bit about politicians that is hardest to tolerate, we’re sure you will agree.

jq has dubai on his mind……

The Dubai Factor – Atlantis, the sequel

17th November 2008, JQ (co-editor)

I have worked for four years in the Emirates in various managerial roles from 1997 to 2001 and have had such a rich experience which in itself calls for writing a book. I was probably subconsciously impressed by a very famous 70’s comedy from Pakistan television [PTV] called Dubai Chalo; it reflected the Dubai fever throughout the Pakistani nation at the time, and in which most of them were literally taken for a ride in a boat and dropped at Karachi’s Hawks Bay after two days perilous sea voyage. [To set the record straight I flew and did reach Dubai first time].

Unfortunately Dubai is no laughing matter now, especially not for the property investors from all over the world who now stand to lose a great deal. A friend currently working in Dubai sent his woes in an email. This one line sums it up “sh*t has started to hit the fan over here in Dubai”. News is that one major Dubai property developer has begun laying off staff, and another is reviewing its recruiting needs as the available global finance becomes thin. The case in point is Emaar who is considering job cuts in the wake of the tumbling market. To keep you in perspective Emmar is the Gulf region’s largest property developer by market value, 32% owned by the Dubai government and is the developer behind the world’s tallest tower, the Burj Dubai.

Emaar shares are down nearly 80% this year to 3.19 AED a share. Realtors have now begun to identify worrying trends of rapidly declining house prices, a stagnant resale market, the inability of off-plan property investors to keep up with their payment schedules, a marked decline in hotel occupancy rates and wage and hiring freezes in property companies. To make matters worse, they have highlighted the government’s indebtedness [Yes Dubai is not as rich as you thought - it's Abu Dhabi which still has oil]. Dubai has borrowed heavily in recent years to finance all of the physical infrastructure needed to support its construction trend. So much is the fear of a Dubai Doom that the UAE President, His Highness Shaikh Khalifa Bin Zayed Al Nahyan had to reassure the people of the UAE that their economy is supported by a healthy and robust national banking system [do you believe in a healthy bank these days?! Lol and chuckle]. A royal effort indeed to save the Dubai Dream.

The Palm Jumeirah in Dubai

Still phenomenal projects are being announced in the Dubai heartland similar to existing ones such as Burj Al Arab and the Indoor Skiing Resort in the Emirates Shopping Mall, but I don’t see anyone buying these new projects. Local Urdu and Hindi channels in the UK are saturated with Dubai Exhibitions and to be honest they sound somewhat desperate. I know someone who bought property two years back in Dubailand and though on paper the value has gone up he has no buyers interested in taking it off his hands. There is virtually no resale market at all for these new apartments. Once you buy one, you are stuck with it.

There has to be a clear difference between bravery and sheer stupidity because if you jump from a skyscraper it better be a suicide attempt or you should be Lois Lane sure to be saved by Superman. The only hope for Dubai is in its cash rich Capital Abu Dhabi which can save the day (Abu Dhabi’s Sheikh Mansour recently played Clark Kent with the UK’s Barclays Bank taking the role of Lois Lane) – but the question is will they? If you ask me my money is not on Dubai, at least not for now. I don’t plan to go down with the new Atlantis.