Sunday, November 30, 2008

Better late than never

I'm a little slow getting up a link to this article on Dubai from The Economist dated November 27. Some choice lines:
A few months ago, rich foreigners who had bought villas in Dubai were complaining about the quality of the sand on their artificial beaches or the difficulty of getting water to circulate around the twiddly fronds of the man-made island shaped like a palm.
...
While the stunning opacity of government economic data is increasing the air of uncertainty, Muhammad Alabbar, who heads Emaar, a giant state-controlled property developer, took the rare step of telling people how indebted the country is. Together, the government and state-owned enterprises owe $80 billion—148% of GDP. Dubai still has a far larger stock of assets, at least some of which are likely to be sold, to cover the debts, to Abu Dhabi or the federal sovereign-wealth fund of the seven-state United Arab Emirates, of which Dubai and Abu Dhabi are the two richest.
...
Since everyone else has been trying to copy Dubai, it is unclear how economic policy should be reshaped if the model has to be rescued.
For the reader looking for a good summary of recent development this article is a good one.

Just one small correction: I wouldn't call the "federal" sovereign wealth funds "federal." They are very much Abu Dhabis in name and in practice.

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Education reform in Qatar

The UAE should be doing this:
The boys at Omar Bin al-Khattab say they would never wish to revert to the old system, which they describe as having been “dreary and dull”.

Consultants say Qatar is trying to achieve some of the most radical reforms of any school system ever. The government has tried to take the best educational practices in Europe, the US, Australia and New Zealand, and shape them for Qatar. In this it has been advised by the Rand Corporation think-tank.

Half the 280 Arabic-language schools are to be given independent status, and in time all schools should become independent.

The inspiration for the reforms is the charter school movement in the US.

Three regulatory institutions have been created and authorities have invited independent operators, Arab and foreign, to come in and run the schools. The previously all-powerful ministry of education has been hollowed out, the curriculum reformed and rigorous testing introduced.

The result is that Qatar, which has a population of only 1m and per capita gross domestic product of more than $72,000, has one of the most transparent school systems in the world, according to observers.

But there is a catch. Initial results from testing in 2006, shortly after the beginning of the reform process, were dreadful.
...
A consultant who has watched the reforms from gestation, and who asked not to be named, says that between 60 and 70 per cent of the students tested showed “little or no skill”.

Rand says the students tested were products of the ministry system so the Pisa results are a baseline from which to measure progress. Students who were in independent secondary schools had limited exposure to the reforms at the time of the test, Rand says, and schools have made progress since.
You've got to start somewhere.

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OPEC "has no business model"

AP:
"There is total confusion" among OPEC's 13 members, said Fadel Gheit, managing director of oil and gas research at Oppenheimer & Co. in New York. "These people ... really have no business model. They basically thrive when oil prices go up, and now they are crying uncle when prices go down."

And, down they have gone, in a financial avalanche triggered by demand destruction, itself sped along by a world financial meltdown that also threatens to cut deeply into OPEC member states' government budgets.
WSJ:
The Organization of Petroleum Exporting Countries decided Saturday to put off any fresh action over whether to further cut its production until it meets again in mid-December, said Head of Libyan National Oil Co., Shokri Ghanem.
Times are tough. How does this play into OPEC agreements? Is it harder to agree? Is there more incentive to cheat on agreements? Is it even in OPEC's interest to cut output and possibly exacerbate the worldwide downturn?

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Saturday, November 29, 2008

Sentences to ponder

Roula Khalaf at FT:
So even those who usually thrive in times of crisis – and Dubai is used to benefiting from the Middle East’s political turbulence – are now having to face the ripple effects of the global mayhem.
...
The setting up of the advisory council, as it was described on Monday, was made public during a week in which it became clear the real estate sector’s rollercoaster ride was ending and the oil price nosedive was continuing. It also came amid a swirl of rumours about plans to sell companies to the richer emirate of Abu Dhabi and whispers outsiders were preparing multibillion-dollar funds to buy up Dubai assets (both Dubai and Abu Dhabi furiously deny the rumours).
...
Dubai is still too sensitive about admitting it might need a bigger bailout from the federal government of the United Arab Emirates, because this would essentially mean oil-rich Abu Dhabi, which funds the largest part of the federal budget, was rescuing its sister emirate.

But following the merger of mortgage lenders Tamweel and Amlak into two federally owned banks, similar consolidations under a federal umbrella could make perfect sense.
Consolidations like merging several of the "national" airlines?

I wonder how Boeing stock is doing.

Demand for lawyers remains strong in Dubai

NYT:
with Wall Street in tatters and London struggling as the credit crisis plays out, lawyers and analysts say that the most promising places for legal careers are such far-flung locales as Dubai, Abu Dhabi and Hong Kong. Even though Dubai’s booming economy has cooled sharply recently, lawyers say demand for their services remains strong there, and other overseas markets are still beckoning lawyers despite the global impact of the credit crisis — at least for now.

When work was plentiful at home, it was often a tough sell to get lawyers to move halfway around the world. But since the financial unraveling in September, that’s all changed. In the last two months, recruiters in Hong Kong and Dubai say they’ve seen a record number of New York résumés from candidates looking for law-firm or in-house legal work overseas.
...
In fact, Dubai has become so desirable that there is now a slight backlog of job applicants. Mark Anderson, a legal recruiter there, said that in the last month or so, he has been receiving a lot of résumés “from good-quality New York lawyers.”

“But to be completely honest,” he said, “we’re really struggling to get these guys jobs over here.”

AS applications pour into places like Dubai, American firms are stoking the attraction of overseas work by downsizing at home.

Friday, November 28, 2008

Greg Mankiw is not a hack

Paul Krugman continues his partisan ways. But objectively, this Bush economic team and the Obama team aren't different.

Greg Mankiw is a grownup, Paul. So are Ben Bernanke, Eddie Lazear, Glenn Hubbard, and Harvey Rosen. Please tell us, Paul, who is a hack?

Follow Dubai business news in The National for Abu Dhabi

New property law amendment would make off plan buyers worse off says The National:
An amendment to a property law in Dubai has brought together a group of angry off-plan buyers who are fearful of losing a third of their investment to developers they believe may not even proceed with construction.

According to the new amendment, off-plan buyers wishing to halt their payments have to cancel their contract and forfeit 30 per cent of the total value of the property, instead of only 30 per cent of the money they have paid.

The investors, who formed their group after an online forum on the issue, have yet to see evidence of construction on their projects and fear losing more of their money to developers in the current global slowdown if they continue their payments – but under the new amendment they could lose a third of their properties’ value if they do not.
Regarding Damac and other developers:
Tameer Holding, a Dubai-based property developer, is the latest company to cut costs, and has told more than half its staff they would be laid off, according to a source close to the company. A total of 180 employees out of a workforce of 350 were notified that they would lose their jobs by Dec 31, the source said yesterday.

Tameer is majority owned by the Al Rajhi Investment Group in Saudi Arabia. It has announced more than 30 projects in the region, including buildings on Reem Island in Abu Dhabi and towers in Dubai Marina and Business Bay in Dubai.

On Monday, Omniyat Holdings in Dubai cut 69 employees from its workforce of 350, it said.

Damac Properties has cut 200 jobs, or about 2.5 per cent of its 8,000-strong workforce, officials said. Damac, Dubai’s largest private property developer, has also frozen plans for projects in India, Pakistan and North Africa because of the global economic meltdown. The company will postpone the launch of all new projects until market conditions improve. The founder and chairman of Damac, Hussain Sajwani, said it was committed to delivering projects already launched in eight markets including Dubai, Abu Dhabi, Qatar, Bahrain, Jordan, Iraq, Egypt and Saudi Arabia.

“We have stopped growing outside of the eight markets where we have already launched projects,” he said, adding that he would review proposed projects in India, Pakistan, Algeria and Morocco in 2010.

Mr Sajwani said the company had almost Dh700 million (US$190m) worth of instalments in escrow accounts to fund the construction of its projects in Dubai, and the company’s total borrowing in the emirate stood at Dh420m.

He said that there had been “zero borrowing” from banks for the construction of projects beyond Dubai, which were being funded by sales.

“The majority of our customers are paying from their sources – yes, a few are having challenges, which we are dealing with.”
"Zero borrowing?" or "Zero lending?" The comments on lending here are informative.

Wednesday, November 26, 2008

Property Wire on Dubai

Dubai dominates property forums for the wrong reasons:
The Dubai property market is hot right now, but not because it is booming. It is exercising a great deal of space in the property forums this week for all the wrong reasons. It is going downhill fast. One particularly worrying aspect is the number of developers who are now admitting publicly that they do not have the finance to continue. The banks won't lend anymore to developers or buyers.
...
A second thread on the same forum gives the full text of a letter sent by London and Dubai-based property wealth manager MiNC, developer of Prodigy 1 in Jumeirah Village South to investors asking for extra payments for apartments to enable it to carry on with the project after two banks withdrew funding.

The letter states that if investors don't pay up then the project will stop. Despite rules to protect investors it would appear that if the investors don't agree to pay more for apartments they have already bought they could be regarded as cancelling their contract and the developer could be entitled to 30% of what has been paid so far.

Dubai - built on cheap credit that is now disappearing fast:
When Dubai developer Nakheel unveiled the world's tallest tower in a blaze of publicity and flashing lights at Cityscape on Monday October 6th everything looked great for the future of the emirate's property sector.
...
On the face of it Dubai was the one bright place, the real estate market that was immune to the economic crisis snaking its way around the globe. But behind the scenes there were very different conversations going on.

Although not known for their transparency and with a media that tends to tow the official line rather than ask probing questions, Dubai's rulers were anxious.

Newly formed government council in Dubai promises transparency:
Key decision makers involved in the real estate, finance, banking and equity markets in Dubai are ready to recommend government intervention in these sectors when it is needed due to the global credit crisis.

Putting the United in UAE

Will the financial crisis bring the UAE closer together, or reveal existing divides between the separate emirates? Or both?

Reuters:
In the space of a decade, Dubai propelled itself from a desert backwater into the global limelight, attracting millions of sun-seeking expatriates and tourists with ambitious projects and tax-free shopping and living.

Meanwhile few people outside the Middle East had heard of Abu Dhabi, the capital of the United Arab Emirates federation and home to most of its crude oil reserves.

But the federal government's move to rescue two Dubai-based Islamic mortgage lenders this week comes as the starkest sign yet that the heady boom years are over for the free-wheeling emirate widely dubbed as Dubai Inc -- at least for now.

"There may be some schadenfreude on the Abu Dhabi side on one hand but on the other hand they don't want to see Dubai fail," said Eckart Woertz, economist at Gulf Research Center.

"That it is the federal government not the Dubai government that is doing this tells you something about the economic capabilities of the two emirates ... There will be a redistribution so the overall importance of Abu Dhabi in the federation will increase even more."
...
Dubai executive council member Mohamed Alabbar strenuously denied on Monday that the emirate was in any talks to receive financial aid from the federal government and said it had received no offers for major Dubai government-owned assets such as Nakheel properties and Emirates airlines.

Yet unlike other Gulf Arab oil-exporters that built their infrastructure development projects on petrodollars from six years of soaring crude oil prices, Dubai is leveraged.

Alabbar said the government now owed $10 billion and state-affiliated firms $70 billion, which it could pay, but a tightening of mortgage lending, freezing of liquidity and real estate slowdown has made life harder for Dubai.

"There is a fine line whether we are discussing federal or local ... it's almost the same. It is difficult to separate," Alabbar told reporters in Dubai. "All this behavior indicates this is just one country."

And it is not just Dubai that could begin to move further into the federal fold. Analysts say that if Dubai is suffering, smaller UAE emirates -- Ras al-Khaimah, Ajman, Umm al-Quwain, Sharjah and Fujairah -- may also benefit from a collective effort to weather the crisis.


There's something to be said for healthy competition between Abu Dhabi and Dubai. A stronger federal role -- the UAE becoming less of a confederation -- is not unambiguously good for the country.

Tuesday, November 25, 2008

$800 billion more

CNNMoney:
Together, the programs from the Federal Reserve and the New York Fed aim to dump $800 billion in additional funds into the struggling U.S. economy, more than Congress approved in October for a bailout of the nation's banks and Wall Street firms.

By putting that money in the hands of holders of consumer and mortgage loan securities, the government hopes more money will flow to consumers than has occured so far in previous bailout plans.
...
That $200 billion aimed at spurring consumer borrowing will come from the Federal Reserve Bank of New York, which will lend that money to holders of securities backed by consumer debt, such as credit card debt.

The statement from Treasury said that while roughly $240 billion of those kinds of securities were issued by the nation's financial institutions in 2007, the issuance of those securities essentially came to a halt in October.
...
But the $200 billion under this program, and an additional $600 billion being made available to increase mortgage lending, will come from an increase in reserves by the Fed. Essentially, the central bank is creating more money to cover that lending.

The Treasury, which oversees the $700 billion approved by Congress last month to help financial institutions, has been reluctant to make a major commitment of those funds to this new effort. Thus it allocated only $20 billion, or the same amount it invested in troubled banking giant Citigroup (C, Fortune 500) in a move announced Sunday.

So it was left to the Federal Reserve of New York, which is headed by Timothy Geithner, the man nominated by President-elect Obama to take Paulson's place, to come up with the funds to try to restart consumer lending.
Summers last month said "There are a lot of different ways of saying it, but the way I heard it said best was by President Zedillo about six months into the Mexican financial crisis. He said: Markets overreact — and that means policy has to overreact. You don’t want to come up late — and you don’t want to come up short. ... It’s a lot easier to correct the errors of overreaction than the errors of underreaction.” ... since markets overreact, policy has to overreact as well. And that means strong action.”

So much for simply "temporary, targeted, and timely." How about overreactive, outsized, and opportunistic?

Whizzinator marketers plead guilty

For Annals of Markets in Everything the BBC reports:
The makers of a prosthetic penis to help men cheat on drugs tests have pleaded guilty to two charges of conspiracy in a US federal court.
...
The men ran an internet company known as Puck Technology, which between 2005 and 2008 sold the Whizzinator and a similar device, known as Number One.

"The Whizzinator is the ultimate solution for a drug testing device," says a statement on the website of the California-based company, which calls itself the "undisputed leader in synthetic urine."
...
The device was sold with a heating element and fake urine to help people test negative for illegal substances.
In related news, Russian urine is imported to the US.

In 2004 a South Carolinian spent time in jail for selling his own urine.

In 2008 a Sacramento drug test administrator entered the business.

I was unsuccessful in locating a news article I recall of a Texas church which entered the business. They emphasized quality, because the members were supposedly drug free.

The "markets in everything" is catchphrase taken from Marginal Revolution.

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What about unemployment?

The American radio program, Morning Edition, wonders:
With some projects facing delays or even cancellation because of the current credit crunch, new questions are being raised. Are Gulf states prepared, for instance, to deal with mass layoffs and huge numbers of unemployed expatriate workers?
...
Analyst Mustapha Alani at the Gulf Research Center says he doesn't think people in the oil-producing states of the the Gulf Cooperation Council, or GCC, are prepared for a sharp downturn in development activity — neither the developers, the investors nor the migrant workers who could be hit first and hardest.

"We're talking about 6 million Indian workers employed in the GCC," Alani says. "Possibly 50 percent of this workforce — they're going to lose their jobs in the region. And either they have to stay as illegal immigrants or they have to go back to their country to seek employment."
...
Many economists argue that Gulf states have the cash and the incentive to soften the regional impact of the financial crisis, and they doubt that governments here would allow the streets to be flooded with unemployed South Asians if there is a sharp downturn.

But that raises another troubling question: Is Pakistan, already struggling with political unrest and terrorist attacks, ready to absorb millions of unemployed young men back into its population?
Listen or read it all.

From the UAE's point of view, the problem may not be as big as it seems; how much of any reduction in force would be achieved by simply letting contracts expire while slowing the stream of expat laborers into the country?

Laborers come to the UAE on a fixed term contract. I presume their expectation is that the contract is good for the full term. Whether they could enforce the contract is another matter. But it would not be good for the UAE's reputation to abrogate contracts.

It's worth noting the irony here: These workers are better off in the UAE, than back home. They would prefer to stay here. Yet the UAE takes criticism for the low pay and poor working conditions they receive.

The same is true in the US for the low wage workers (legal and otherwise) who come to the US, primarily from Mexico and southward. They are better off in the US even though they are doing jobs Americans will not do. The difference is they are not under contract, and as their jobs go away or pay falls, they are going back to their home countries voluntarily.

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Monday, November 24, 2008

Obama picks solid economic team

1. Council of Economic Advisers: Christina Romer. Endorsed by Tyler Cowen (Marginal Revolution) and Greg Mankiw. Megan McArdle breathes a sigh of relief.

2. Treasury Secretary: Timothy Geithner. Endorsed by Cowen. And The Economist [link NSFW?].

3. National Economic Council: Lawrence Summers. Endorsed, though with some head scratching by Cowen and especially Mankiw. (I wasn't even sure what the NEC is -- it's not a prominent place.) But this could be positioning Summers for replacing Ben Bernanke as Fed chairman in a few years. Not that there's anything wrong with Bernanke.

If I'd known these would be Obama's choices, who to vote for would have been a no brainer. He's showing good tendencies. I also liked the appreciation Obama showed for the market economy in his interview with 60 Minutes.

Compared to Bill Clinton's economic team, Obama's is much stronger -- and Clinton's wasn't half bad.

Christina Romer is a quality pick, not just a diversity pick. Harvard's female president Drew Faust must be kicking herself for turning her down for a tenured appointment (scroll to fifth paragraph).

Addendum. Other economists call it a dream team: "The similarities between Ms. Romer and Mr. Bernanke (she and her husband also took over the NBER post he vacated) have some wondering whether she – and not Mr. Summers – is being groomed as a future chairman of the Federal Reserve." And check out David Leonhardt on The Return of Larry Summers: "Over the last two years, Mr. Summers has carved out a role unlike anyone else’s in the Democratic Party."

Towers mothballed

Building:
The 600m Russia Tower in Moscow designed by Foster + Partners has reportedly been scrapped as a result of the credit crunch.

Work on the skyscraper has stopped more than a year after the first stone was laid, according to the Reuters news agency and others. A spokesperson for the practice has denied that the scheme has been cancelled.
...
The Russia Tower is the second Foster skyscraper to have fallen victim to the financial crisis, after the U2 Tower in Dublin was mothballed earlier this month.

The National: Burj Dubai rents drop 50%

Residential prices for Emaar Properties’s signature Downtown Burj Dubai development have fallen by at least 22 per cent, with reductions of up to 50 per cent within the Burj Dubai tower itself, according to property brokers.

Some high-end developments in Abu Dhabi are also recording significant price declines in the secondary market, where properties change hands after being sold by the developer.

The price corrections underscore how the credit crunch and prospects of a global recession are affecting the property market, particularly high-end developments.
According to statistics from the international estate agents Hamptons, which is owned by Emaar, prices in the Downtown Burj Dubai area rose 88 per cent in the year to September. Other brokers said some prices more than doubled.
Read it all.

More:
Hotel room rates in Dubai are beginning to dip as the economic crisis bites into spending in the leisure and business sectors, industry insiders say.

Four- and five-star properties in the emirate have cut room rates between 10 per cent and 30 per cent, Aloke Dey, the manager of Sharaf Travel Holidays, one of the largest Dubai-based tour operators, said yesterday. “Right now, we are finding that there is a lot of availability and hotel prices are so much lower than last year.”
...
Avtar Singh, the director of operations at Lama Tours, also based in Dubai, ... said many Dubai hotels had removed their surcharges.

“This is basically an extra fee that hotels charge guests for air conditioning, Wi-Fi and other room facilities and it’s a hidden charge that many guests don’t know about,” said Mr Singh. “But once you remove it, the room rate drops by about 10 per cent, which is what is happening now.”
A hidden surcharge for air conditioning? That's low.

The National is "owned by Mubadala Development Company of Abu Dhabi, an investment and venture capital arm of the government which is led by the crown prince, Mohammed bin Zayed al-Nahyan."

For news on Dubai, I suggest reading The National.

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Sunday, November 23, 2008

Sheik Mohammed blesses takeover of Tameel, Amlak

Bloomberg:
Amlak Finance PJSC and Tamweel PJSC, Dubai’s two-largest mortgage lenders, will be taken over by a government-owned bank as the global financial crisis squeezed their access to credit and slowed the regional property market.

Amlak and Tamweel, whose stocks have fallen more than 80 percent this year, will “merge under” Abu Dhabi’s state-owned Real Estate Bank, the United Arab Emirates’ Ministry of Finance said late yesterday in a statement. The transaction has the “blessing” of Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum. No terms were disclosed, though the deal will be based on “international best practices,” the statement said.

“It seems to be a direct federal intervention to support the struggling entities,” said Dubai-based Raj Madha, senior banking analyst at EFG-Hermes Holding SAE, the largest Arab investment bank by market value.
Read it all.

Saturday, November 22, 2008

Al-Qaida Seeks to Capitalize

Voice of America:
Analysts say al-Qaida appears to be trying to capitalize on the global economic crisis. They say traffic on al-Qaida-linked Web sites indicates terrorist sympathizers see the financial turmoil as punishment for al-Qaida's enemies. VOA's Michael Lipin has this report from Washington.
...
Groups that monitor terrorist Internet traffic have seen a flurry of messages on al-Qaida-linked Web sites that gloat over the West's economic difficulties, and urge militants to take advantage.

On one Web site monitored by the U.S.-based SITE Intelligence Group, a user says, "now is a golden opportunity. If America is hit now, it will never survive, unless God permits it."
Has America gone soft since the Great Depression and World War II?

On the subject of decline and Al-Qaida, the New York Times reports:
A new study of the global future by American intelligence agencies suggests that Al Qaeda could soon be on the decline, having alienated Muslim supporters with indiscriminate killing and inattention to the practical problems of poverty, unemployment and education.
But that, the agencies say does not mean the U.S. will remain dominant:
The predicted decline of Al Qaeda is one of the few bright spots in the generally gloomy report, which describes a decline in the United States’ world dominance as China, India and other powers assert themselves.

“Although the United States is likely to remain the single most powerful actor, the United States’ relative strength — even in the military realm — will decline and U.S. leverage will become more constrained,” the report said.

By 2025, it predicted, “the U.S. will find itself as one of a number of important actors on the world stage,” playing “a prominent role in global events” but not a decisive one as in the past.

The report said the global shift from West to East in terms of wealth and economic power “is without precedent in modern history.” Of a projected population increase of 1.2 billion worldwide by 2025, Western countries would account for only 3 percent, it said.

“We’re projecting a multipolar world,” C. Thomas Fingar, chairman of the National Intelligence Council and the government’s top intelligence analyst, said Thursday at a briefing on the report. “The unipolar moment is over, or certainly will be over by 2025.”
I'm not sure what's so gloomy about the rest of the world catching up to the U.S. economically, and the U.S. sharing the stage politically.

Friday, November 21, 2008

Party on...

...like there's no tomorrow?

Bloomberg:
Dubai defied the economic crisis last night as stars flocked to South African billionaire Sol Kerzner's Atlantis resort for a $20 million party that included the world's largest fireworks display dazzling enough to be seen from space and a performance by pop singer Kylie Minogue.
...
``We're very aware of the fact that the economy is not great,'' Kerzner, 73, said in a Bloomberg Television interview on Nov. 18. ``Nevertheless, compare that to the $1.5 billion investment and the importance of the return and the coverage that one needs to achieve it, one believes we've built something that's quite unique, on a grand scale, and that deserves and will grab the attention of world media, that's the best way of marketing and launching the product.''

Kerzner is splitting the cost of the party with Dubai government-owned Nakheel PJSC, developer of the Palm.
...
Sultan bin Sulayem, Nakheel's chairman, declined to discuss the weakening of the real-estate market, responding only, ``I don't think it will get worse.''

Thursday, November 20, 2008

Citigroup

Forbes: "Citigroup couldn't get a break Thursday morning, even after Saudi Prince Alwaleed bin Talal gave the bank a vote of confidence. Before the bell, Alwaleed, Citigroup's largest individual investor, announced his plans to increase his stake to 5.0%. Alwaleed said he believes the shares are "dramatically undervalued" following a nearly 90.0% plunge since late 2006." Abu Dhabi Investment Authority had been Citigroup's largest investor with a 4.9% stake a year ago.

Dubai housing: famine or feast

Are high housing prices so last year?

Reuters:
"There is a sizeable increase in the number of property owners in an urgent state to sell," Robert Macnair, sales director of Dubai-based Elysian Real Estate, told Reuters on Thursday.
...
Global Property Guide cut its long-term investment rating on Dubai residential property on Wednesday from neutral to negative due to the drop in gross rental yields from last year.

"Gross yields are now an average of 5.5 percent, significantly down from an average of 7.5 percent a year ago ... At these levels, Dubai is less attractive than it was previously as an investment property," it said in a research note.

Global Property Guide said Dubai has "an enormous" amount of new supply and expects prices to fall over the next 2-3 years.

To compound matters, Dubai Islamic mortgage lender Amlak AMLK.DU said on Wednesday it suspended new loans.
Reuters analysis:
"It's gotten pretty ugly out there," analysts at Nomura Investment Banking wrote in a note this week, describing Dubai's property market as "a full-scale frenzy in which speculation went largely unchecked until it was very late."

The result may be a new business model for the emirate, one based less on debt and speculation.

Dubai's response is now being hammered out by a committee of business and government leaders charged with steering the emirate through the crisis and perhaps throwing its high-debt business model out the window.
...
"Lenders blinded by rising oil prices and borrowers spellbound by easy returns have helped build a mountain of private sector debt in parts of the region that has generated an illusion of excess and abundance," Nomura said.

The beautiful blonde and the beautiful mind

You may remember the bar scene in the Beautiful Mind, the movie based on Sylvia Nasar's biography of John Nash. You may not know that the equilibrium for the beautiful blonde game from the bar scene has been studied Simon Anderson and Maxim Engers in a paper that appeared in the Journal of Economic Behavior and Organization in 2007. Here's an ungated version.

It's immediately obvious that the proposed equilibrium in the movie isn't the equilibrium -- if the proposal was successful in convincing his buddies to go for the brunettes the fictional Nash could have moved in on the blonde. Anderson and Engers answer the question: so what is the equilibrium (actually, what are the set of equilibria)?

Anderson and Engers also remind us of a point made by Hal Varian who is now chief economist at google:
In the movie, the fictional John Nash described a strategy for his male drinking buddies, but didn't look at the game from the woman's perspective, a mistake no game theorist would ever make. A female economist I know once told me that when men tried to pick her up, the first question she asked was: ''Are you a turkey?'' She usually got one of three answers: ''Yes,'' ''No,'' and ''Gobble-gobble.'' She said the last group was the most interesting by far.
But now that that is known, is it still an effective way to screen for interesting men? Ask a game theorist.

Our future discounting rate is phenotypically plastic

Scientific Blogging:
The results were fairly clear: men are indeed, as the title of the paper puts it, “inspired to discount the future” when presented with mildly arousing pictures of attractive women, but they were not so inclined when the women in the photos were not attractive. Women also showed a mild tendency to respond in the same way, but the difference between the two treatments was actually not statistically significant, meaning that it is clearly men who do most of the future discounting (or, in lay terms, are more likely to lose their minds in the presence of an attractive member of the opposite sex).

The results with the cars, however, were reversed: a “hot” car did not have any effect on the men’s propensity for future discounting, but it did influence women, whose discounting rate was much higher when a hot car was pictured in comparison to a boring looking one. Clearly, the old idea that a good way to attract women’s attention is to drive around in an attractive (and expensive) looking car does have scientific foundation…
We're not in denial says Dubai.

Wednesday, November 19, 2008

Dubai in talks with Abu Dhabi

Just don't call it a bailout.

FT:
Dubai is in talks with the United Arab Emirates government over a loan facility that would make state funds available to companies as international sources of capital dry up.

The plan, one of several options under discussion by the authorities, would draw on support from the cash-rich federal government, bankrolled by Abu Dhabi, the capital that also owns 90 per cent of UAE oil wealth.
...
According to officials in Dubai, the terms of the facility have yet to be defined but it would be likely to lend to companies that need help refinancing existing debt.

The economic crisis has highlighted the inter-dependence of the seven emirates that make up the UAE, and the crucial role of the federal government, which has at times been overshadowed by the rivalry between the trade and commerce hub of Dubai and Abu Dhabi, the oil town that now has its own ambitions to diversify its economy away from oil.
What strings would be attached? Would Abu Dhabi get an equity stake in Dubai, Inc.?

Citigroup report on Dubai

The National:
The global economic crisis could sharply reduce the massive cash surpluses that GCC countries have produced in recent years and temper plans to diversify economic growth beyond the oil sector, a report released by Citigroup says.

The UAE and especially the emirate of Dubai could be most vulnerable to the downturn, said Mushtaq Khan, a regional economist at Citigroup, although he predicted Dubai would be able to engineer a soft landing for its economy and an orderly restructuring of its finances.

“We see a much-needed correction in the property market and an equally necessary consolidation of Dubai Inc,” he said in the report. “Global conditions are likely to slow Dubai’s economic growth, but not knock it out.”
...
Mr Khan said “strategic mergers”, combining heavily indebted firms with better capitalised ones, could be used to reduce debt and generate cash, and the Federal Government – and even Abu Dhabi – could be relied on to provide funds in a pinch.
Citigroup has experience with getting in over your head. Nearly a year ago Abu Dhabi took a sizeable stake in Citigroup which was in a pinch of its own.

Citigroup on Monday announced it would cut it workforce by 52,000. A year ago it employed 375,000 worldwide. By the end of the next quarter it expects to have a workforce of 300,000.

Monday, November 17, 2008

2020: UAE will need to double jobs for nationals

Gulf News:
Currently, the Emirati workforce is about 250,000 workers but more than 38 per cent of the UAE national population is below the age of 15, according to data.

Some 15,000 Emiratis are graduating every year, according to The National Human and Resource Development and Employment authority (Tanmia) statistics.

"Our economy needs to create more job opportunities in the next eleven years than it created collectively in the last four decades," said Gobash.

Another challenge which Gobash highlighted is the concentration of the national workforce in the public sector and the concentration of new opportunities in non-productive sectors.
...
Saqr Gobash said at the inauguration of the third annual Human Assets Expansion Congress Mid-East, that a main challenge is to create job opportunities for UAE nationals especially for those below 30.
For data on the age distribution of the native population see UAE in Numbers 2007. Fortunately, birthrates are falling.

For some additional context follow this link:
Marcus Noland and Howard Pack argue in their book The Arab Economies in a Changing World that the principal challenge facing the Middle East, defined as stretching from Morocco to Iraq, over the next decade or two is job creation. The demographics of the region are such that labor force growth is on the order of 3.5 percent a year. This growth does not include increases in female labor force participation, which in fact has also been rising. Given plausible assumptions about productivity and deepening investment capital, the authors calculate that the region as a whole will have to grow at a steady rate of 5.5–6.0 percent a year over the next decade or so to create the jobs necessary to absorb this significant labor increase.
The link takes you to a slide presentation and audio lecture.

For earlier posts at The Emirates Economist click the Emiratization label below.

UAE banks squeeze Iranian goodies

Strategy Page
In the United Arab Emirates (UAE), where much of Iran's foreign trade is handled, local banks are refusing to do business with the 10,000 Iranian trading firms based there. This has caused delays and cancellations of Iranian imports (over $9 billion worth from the UAE last year) and exports. This is being felt by the rule elite in Iran. There, the large extended families of the clerical leadership live the good life, and the goodies come in via the UAE. The sudden shortages of iPods, flat screen TVs, automobiles and bling in general, has been noticed in Iran, and is not appreciated.

The falling price of oil is producing another problem, national bankruptcy.
The problems would seem to be directly connected. If the UAE banks fear that the Iranian traders will be unable to repay loans due to a high risk of national Iranian bankruptcy, that gives them good reason to cut off the Iranian trading companies.

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Thursday, November 13, 2008

Christopher Davidson interview

From here:
Christopher Davidson, a professor at Durham University in the U.K., talks with Bloomberg's Tom Keene about his book, ``Dubai: The Vulnerability of Success'' and the ban on the book in Dubai, the history of the emirate and possible impact of the global financial crisis on Dubai's economy.
Follow link to reach a link to the 26 minute audio interview.

I remain agnostic about whether the book was banned -- that appears to me unproved -- but Davidson does say the book still is not on the shelves in late October although he anticipates that it will be in time.

From the interview it's clear why Davidson is being relied upon by the press for good insight into the UAE. He's a sharp observer and gets to point quickly.

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$55

That's the price of oil today.

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Dubai house prices fall 19% in October

In one month. ONE month.

Wall Street Journal:
DUBAI -- This city's six-year property boom appears finally to be over, with asking prices for some homes here falling as much as 19% in October from the previous month, according to a closely followed survey.
...
Analysts at HSBC Holdings PLC said Wednesday that average asking prices for homes in Dubai fell 4% in October from September. Advertised prices for upscale Dubai "villas"--typically stand-alone homes in a master development--fell by 19% month-on-month, the bank found. In next-door emirate Abu Dhabi, average home prices fell 5%. (See full HSBC report.)

The report included only prices for the so-called secondary market. That includes second-hand homes. But it also includes unfinished property that investors bought from developers in the hope of selling again quickly for a profit.
...
Shares in Emaar Properties PJSC, a partly government-owned developer that is building the world's tallest skyscraper here, finished down almost 79% from its 52-week high in January.

The government and developers have scrambled to reassure investors. On Wednesday, Emaar said in a statement it would relax payment plans for customers in a bid to attract new buyers. Emaar's chairman, who is also part of the Dubai government, said earlier this week the emirate had established a committee to study ways to bolster confidence in the market.

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Wednesday, November 12, 2008

National identity crisis: Dude, where's my culture?

The global financial crisis is seen as having benefit for Emirati culture. Seems like a stretch to me.

IHT:
Emiratis have fretted for years over the loss of their culture, as social norms became more a product of the newcomers than of the nationals. Now, some are pinning their desires for a cultural salvation on the global economic downturn, which they hope will reduce the numbers of foreigners pouring into their country and give them a chance to reassert their customs and way of life.

"This is a blessing; we needed it," Abdul Khaleq Abdullah, a political science professor at United Arab Emirates University, said of the fiscal crisis. "The city needs to slow down and relax. It's good for the identity of our country.

"The city reached the summit, but we knew every time we got closer to the top, we got closer to the edge too," he added. "That's the feeling inside each Emirati. When we felt like we had it all, we also felt like we will lose it all."
...
In an odd case of role reversal, the minority of nationals fear they are becoming like colonial lords in their own country.

"I'm not just concerned about my future, I'm concerned about the future of my country," said Rashid Ali, 24. He and his friend Fahd Muhammad, 25, were the only two Emiratis seated in a crowded city mall last week. "I'm concerned about our national identity," Ali said.
...
The local population has largely been pacified by the largess of a gilded welfare state. For Ali and Muhammad, that meant free tuition and expenses for their university studies in Britain, including a monthly stipend of $1,258 while abroad.

Returning from school this year, they were given government jobs that pay $3,600 a month, which like all income here is tax free. When they plan to marry, they said, the government will give them each a free piece of land and about $200,000 to build a house, plus access to a 10- or 20-year interest-free loan.

That generosity is a problem now, as the government faces the prospect of having to control spending, raise revenue and encourage its own citizens to move into industries like finance and banking, which are now controlled by foreigners. Locals make up only 3 percent of the private work force, experts here said, with Emiratis opting for the shorter workday and higher pay of guaranteed government jobs.

The problem is that many like Ali and Muhammad say they enjoy what they get from the growth — the luxury villas and fancy cars — but not the costs in terms of social change. If the economy slows too much, however, the fear is that the costs may ultimately outweigh the benefits.

"Most people worry now, where is the welfare government?" said Salah Al Halyan, a financial consultant in Dubai, who explained the concerns of Emiratis. "Where is all the comfort? Where is my country? Who are all these people coming? The problem is the attitude of the nationals. They want to live on food stamps."

As the two men walked amid a sea of foreigners in the mall, they alternated between pride in the development and anger about what they called a loss of control of their national identity.

"We are Bedouins, developed Bedouins, but we still have our traditions," Ali said. "It's all changing and disappearing."

And then with deep sarcasm, he said, "What's up dude?" a phrase as alien to his culture as blue jeans and, now, as common in his city as blue jeans.
There's more.

Click on the "demographic imbalance" label at the end of this post for past coverage in The Emirates Economist.

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Dubai property news

Two items, both from today's Financial Times:
Dubai business leader in cash probe. A government financial audit department report identifies Mohammed Khalfan bin Kharbash, former chairman of Dubai Islamic Bank and its real-estate affiliate Deyaar, in connection with allegations of financial wrongdoing at Deyaar.

Zack Shahin, Deyaar’s former chief executive, and John D’Cunha, former operations director, are among a handful of ex-employees who could face trial as early as this month as the public prosecution finalises its case.

The official report sheds light on the year-long corruption investigation that has led to the detention of dozens of executives in state-backed companies linked to the Gulf business hub’s booming property sector.

The continuing inquiry, the most sweeping anti-corruption exercise in the emirate’s history, highlights the ruler’s determination to clean up the excesses of the seven-year property boom. ...


Major Dubai developer cuts 200 jobs. One of the largest private real estate developers in the Gulf on Tuesday said it would cut 200 jobs due to the worsening global outlook, news which is likely to deepen concerns over the region’s property market, especially in Dubai.

Dubai-based Damac Group, which owns Damac Properties, said in a statement that it would cut 2.5 per cent of its work force, the first time a Gulf developer admitted to laying off staff due to market conditions.

“This continuing global slowdown will inevitably lead all companies to review their staffing levels and recruitment requirements,” Peter Riddoch, Damac’s chief executive, said in a statement.

There are mounting signs that Dubai’s real estate market is heading for a correction. ...

Tuesday, November 11, 2008

Lloyds cuts back on UAE mortgages

Bloomberg:
Lloyds TSB Group Plc, the London-based bank that entered the U.A.E. market in 1977, stopped offering mortgage loans for apartments in Dubai and reduced the amount it will lend to 50 percent of the price of a villa from 80 percent, it said in a statement today. HSBC Holdings Plc, Europe's largest bank, will require customers in the emirate to earn at least 20,000 dirhams ($5,445) to get a personal loan, HSBC spokeswoman Andrea Jaishankar said in an interview.

The lending restrictions come after house prices in Dubai quadrupled in the last five years, fueling concerns that a slump is imminent. The government said this week it has set up a committee to restore confidence in the real estate market.

Emaar Properties PJSC, the Middle East's biggest publicly traded developer, dropped to the lowest in four years, and the Dubai Financial Market General Index fell 7.3 percent today.
...
Abu Dhabi won't allow Dubai's state- owned companies default on debt payments as the global banking crisis limits their access to funds, Abu Dhabi Commercial Bank Chief Executive Officer Eirvin Knox said.

``Dubai and Abu Dhabi are interdependent and one can't be isolated from the other,'' said Knox, who presides over Abu Dhabi's second-largest lender by assets.
...
``The leadership of Abu Dhabi recognize the federation and believe in it, and that involves all of the emirates,'' Knox said.

Default Swaps

The cost of protecting against a default by Dubai Holding Commercial Operations Group LLC, the emirate ruler's investment company, increased more than fivefold between July and October, according to traders in credit default swaps. The five-year contracts were priced at 900 basis points today, soaring from 241 in July, according to CMA Datavision.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality.

Dubai Holding's 6 percent bond due in 2017 has declined 28 percent since Oct. 1, raising the yield to 14.1 percent.

``Dubai's spreads are far greater than risk assessment warrants,'' said Knox. ``I don't think there's going to be a default among a Dubai government entity.''

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Investors reevaluate Gulf projects

CNNMoney:
...the credit crunch challenges all three pillars of Dubai's boom. The capital flow has reversed direction. Banks are pulling back from financing Dubai's glossy sand-into-dollars tricks, leaving dunes of debt to deal with: $50 billion, Moody's estimates, more than the emirate's 2006 gross domestic product. Almost half has to be refinanced within the next two years, according to J.P. Morgan Securities.

Dubai is not likely to face financial collapse, thanks to its oil-rich neighbors. The Central Bank of the United Arab Emirates has already made billions available in loans and lines of credit whose purpose was not clearly explained. Now that the price of oil has plunged, Dubai will have to finance more of its own growth.

With credit in short supply, some ambitious projects will fail, and skilled foreign workers could head home.
Wall Street Journal:
Gulf rulers are braced for lower revenue due to falling oil prices. At the same time, outside financing amid today's credit crunch is suddenly much tougher to pull off.

Financing for billions of dollars in planned water and utilities projects could also be threatened by difficult financing markets, industry executives say. Despite huge oil-fueled budget surpluses, many governments have sought to spread the financing burden for large projects to international partners, who have rushed to the region to take advantage of the boom. Some big power and water projects can be as much as 60% to 70% debt-financed.

"Banks at the moment are like rabbits in the headlights," Ranald Spiers, Mideast executive director at International Power Group Ltd., the region's largest power developer, told Zawya Dow Jones earlier this week.

Monday, November 10, 2008

US politics: It pays to be analytical

Washington Post:
...campaign contributions may actually play an overlooked -- and salutary -- role in politics. Kevin Esterling of the University of California at Riverside matched the size of political contributions to 203 members of Congress with how the lawmakers operated in the House. He found that money systematically flowed away from those who grandstanded before cameras and constituents, and toward "workhorses," the lawmakers who immersed themselves in the minutiae of policy.

Esterling evaluated a large number of congressional committee hearings. He coded each sentence that lawmakers spoke to see if it reflected analytical ability -- statements that probed the antecedents and consequences of policy, in contrast to statements designed to make good sound bites. Esterling quickly established a clear pattern: Lawmakers who were the most analytical at hearings received the largest campaign contributions. In turn, they were more likely to be elected.

Effectively, Esterling argued, campaign contributions increase the number of workhorses in Congress and reduce the number of "show horses."

The relationship between analytical ability and campaign contributions was significant: If all the lawmakers are put on a single line going from the least analytical to the most analytical, each jump in analytical ability -- as measured by what statisticians call a standard deviation -- resulted in about $435,000 more in campaign contributions.

In last week's elections, Esterling found that campaign contributions appeared to mediate a clear relationship between analytical ability and the odds of reelection: Both Republicans and Democrats with above-average analytical capability received significantly more in campaign contributions than their show-horse colleagues. In turn, lawmakers who were below average in analytical ability received 7 percent fewer votes on average than those who had above-average analytical skills. In the 2006 elections, reduced analytical ability lowered a lawmaker's vote share by nearly 10 percent. The same patterns held true in the 2004 elections as well.

"If you have competing arguments, the better argument tends to prevail," Esterling said, explaining why he thought it was good that campaign contributions appeared to help lawmakers with analytical minds. Thomas Jefferson "said truth prevails if you engage in give-and-take behavior."

Dubai to create central management system for its government and state-owned entities

Khaleej Times:
Dubai is comfortable with payments due on its debt for the next couple of years because the value of its assets far outstrips obligations, Mohammed Alabbar, Member of the Dubai Executive Council and Chairman of Emaar Properties told the closing session of the World Economic Forum’s first-ever Global Agenda Summit on Sunday.

Alabbar, who was also the co-chairman of the summit held in Dubai, said the emirate was planning to create a central debt management system for the government and state-owned entities to manage the debt.

“The Government of Dubai is fully covered to service its debt for the next seven quarters,” he said.
...
“For several analysts, the Dubai Inc. story is tied in to its real estate sector. They miss the mountain for the hill. True, the real estate and construction sectors are key growth drivers. But let us not forget the big picture. The Dubai economy is driven by traditional sectors such as re-exports and trading; tourism and retail; transportation and logistics; manufacturing; the free zones and the business hubs for IT, media, financial services, education and healthcare. These are the sectors that drive real demand.”

He said demand for real estate continues to outstrip supply, and that will be the case for several years to come because of the region’s economic resilience.

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Saturday, November 08, 2008

Obama chooses former IDF member as chief of staff

ynet:
Israel may earn more White House representation than it bargained for, in the event that Democratic presidential candidate Barack Obama emerges victorious from the November 4 elections.

Congressman Rahm Emanuel, who has served in the Israel Defense Forces and even speaks a little Hebrew, could be appointed the White House's next chief of staff.
By now you know Obama did win. And he has chosen Emanuel as his chief-of-staff. It was his first appointment as president-elect.

Emanuel's father had this to say: "Obviously he will influence the president to be pro-Israel." ... "Why wouldn't he be? What is he, an Arab? He's not going to clean the floors of the White House."

A report on government schools in UAE

Gulf News
She examined eight government secondary schools in the Northern Emirates, four of them girls' and four boys' schools. Each school was observed over a six-month period.

The research assessed performance using six quality indicators derived from school quality research, such as outcomes, learner characteristics, teacher characteristics, resources, leadership and safety/ethos.

According to the research findings, the percentage of girls passing examinations was higher or comparable to boys across subjects and grades.

Drop-out rates in Grade 10, however, rose sharply by 25 per cent for boys, compared with around 4 per cent for girls.

Male teachers had on average twice the years of experience as female teachers, she said. "This was interesting considering that despite all their experience their students were performing much worse than those of the female teachers."

It was also revealed that girls' classrooms were more interactive and made use of more group activities than boys' classrooms.

"Boys on the other hand had schools that were cold and in which teachers taught predominantly through lectures. Boys were more likely to be hit, to fail or to drop-out as a result. All of this points to a need to look much more closely at the quality of education for boys. It is important to note that there are external factors affecting in particular the decision of boys to drop out, such as high salaries in public sector jobs that require minimum education."
...
"There is a widespread perception of the Middle East as a place in which girls are disadvantaged; but in recent reports from the World Bank and Unesco, statistics are showing that boys in the Middle East region are having significant difficulties," she said.

"In the UAE, girls are also outperforming boys across all subjects in national examinations and anecdotally this is the same in many countries in the region. However, we continue to read about the problems and difficulties faced by girls despite evidence which shows that, in terms of schooling, boys are not doing as strongly as girls," said Ridge who submitted her research findings to the Dubai School of Government, where she is a research fellow.
...
Educational policies are by no means gender-specific but the study indicates that factors like a less stimulating school environment, lack of support from teachers for boys unable to cope with their workload, and a general perception that school life has no bearing on success in life or career prospects have flawed the focus of school-going boys.
These findings strongly echo those of Elya Zureik in 2006.

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When did choice turn into a requirement?

From the president-elect's website:
"When you choose to serve -- whether it's your nation, your community or simply your neighborhood -- you are connected to that fundamental American ideal that we want life, liberty and the pursuit of happiness not just for ourselves, but for all Americans. That's why it's called the American dream." [Who is being quoted? Not stated on website.]
...
Obama will call on citizens of all ages to serve America, by developing a plan to require 50 hours of community service in middle school and high school and 100 hours of community service in college every year.
Let's see if Obama changes his mind. His pattern has been to blame overzealous staffers for such mistakes in judgment.

As Mankiw says, this isn't volunteering this is a draft. Or involuntary servitude. There's a difference between leading a movement, and leading a nation.

Update. Lesson learned, but without explanation: the website language has been changed. The word "require" is out, replaced by work towards the goal.

Friday, November 07, 2008

Fear market bubble bursts

Thursday, November 06, 2008

Up, and down

Dubai's villa prices increase by 50% in past two years
Vista Dubai, UK - Oct 23, 2008
"The villa segment – which contains sub-categories such as townhouses, independent villas and signature villas – has seen an escalation in selling price by ...

Property prices on Palm Jebel Ali fall by up to 40%
ArabianBusiness.com, United Arab Emirates - 4 hours ago
The price of five and six bedroom signature villas, the most expensive properties on Palm Jebel Ali, have dropped from around 16 million dirhams ($4.35 ...
Addendum. TIME: Doubting Dubai.

Wednesday, November 05, 2008

Market says there is 34% chance Dubai will default

Others disagree with the market's assessment.

Zawya:
Dubai's total external debt obligations, estimated at $60.6 billion, are well within the parameters set by international agencies, investment bank EFG-Hermes said.

Seeking to allay "significantly overblown concerns" about Dubai's credit position, the bank said in a research report that as a ratio to the emirate's fiscal revenues, it saw little to suggest that the debt level was either unmanageable or unsustainable.
...
The bank said since Dubai's debt obligations are well within the parameters set by international agencies, the significant widening in Credit Default Swaps (CDS) spreads for Dubai-based institutions (which effectively imply a 34 per cent probability of sovereign default) was unwarranted and "current concerns over Dubai's level of indebtedness to be significantly overblown. Most importantly, perhaps, the bearish market perceptions on Dubai's indebtedness appear to ignore that the vast bulk of debt is held by profit generating commercial enterprises."

The bank said the widening CDS spreads was due to high risk aversion, poor transparency and disclosure, and relatively low liquidity. "While we see a low risk of a credit event related to the Dubai government, we believe it is worth reminding investors the scale of federal assistance that is potentially available to the emirate: the overall debt obligations for Dubai are slightly below our projected federal government budget surplus in 2008 alone.
Emphasis added.

Tuesday, November 04, 2008

UAE central bank does the unexpected

Khaleej Times:
The UAE central bank surprised markets last week by not reducing interest rates following the 50 basis points reduction by the US Federal Reserve.
...
In a research note “The United Arab Emirates: An Unexpected Decision,” Morgan Stanley commented that the decision not to lower rates may have been partly based on several factors.These include concerns over potential excess liquidity, reversal of speculative pressures on the dirham in forward markets and continuing concerns about inflation.
...
The report also questioned the need for any monetary tightening, “It is not clear why additional monetary tightening would be needed to combat inflation considering that: (i) rental pressures are expected to stabilise over the next two years; (ii) international food prices have started to decline; (iii) the US dollar has appreciated significantly over the past 3 months; and (iv) credit growth is expected to slow down substantially over the coming year as the banks’ access to foreign funding is reduced.”
Other reports:
- The National
- Emirates Business 24|7

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Monday, November 03, 2008

The economics profession and the current crisis

1. Tyler Cowen answers a reader's question: "What will be the impacts of the current situation for economics and economists. It seems clear that we have screwed up. We don't even have the excuse that we understood what was going on but no one listened to us...."

2. Greg Mankiw points to an interview with Galbraith the Younger (who said in the interview "It’s [failure to predict the crisis is] an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless." Mankiw goes on to observe "If [an Obama administration] is filled with prominent members of both [mainstream and heterodox economists], the internal battles over the heart and soul of the new administration's economic policy should prove fascinating to watch."

Perhaps the question that should be asked is will the crisis fuel an increase in the demand for heterodox economists? My kneejerk answer is no. From what I have seen, in the immediate wake of the crisis is a turning towards mainstream economists. There is not so much a desire to understanding why the crisis in all its details was not foreseen, but a desire to understand what happened, what emergency action makes the most sense, and how the economy will respond going forward.

That said, the crisis will be very fertile ground for economic research.

I also sense that the demand for amusing microeconomic puzzles (to which I am drawn) will wane. Thus demand for freakonomics and other variants will slow if not fall during an economic slowdown much like the demand for fashion apparel.

Addendum. Arnold Kling: Future Scenarios for Economics

Assorted Links

Sunday, November 02, 2008

Prediction: $200 oil

Globe and Mail:
Oil's immediate future looks so gloomy, at least from an investor's standpoint, that raging bull T. Boone Pickens is packing in his energy hedge fund. That's probably a wise decision, considering that the fund has racked up $2-billion in losses and is down 60 per cent so far this year.
...
Some analysts, ever eager to get in front of a trend, even started talking up $200 oil.

Too bad they weren't paying attention to a veteran energy economist named Philip Verleger Jr., who insists oil never should have gone much above $70 a barrel; that it did so only because of "a perfect storm" of U.S. policy mistakes, European economic developments and currency shifts; and that it could well end up back in the low $20s before the global economy gets back on its feet.

"I think it will go a good deal lower, particularly next spring [when oil markets are traditionally weakest]," Mr. Verleger said in an interview. "If this thing follows a natural cycle, I think we'll see something as low as $20 to $25."
...
Mr. Verleger was at Yale when energy expert Daniel Yergin declared that the second oil shock of 1979 had triggered a permanent change in the characteristics of the market and prices would be heading higher. In 1981, oil was at $35; five years later, it was down to $10.
Thanks for the link goes to Carpe Diem.

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Saturday, November 01, 2008

Sovereign wealth will continue to slosh around the world

NYT:
The message from the sheiks: no need for bluster and starlets; Abu Dhabi’s money ... speaks for itself.
...
Sheikh Mansour, who [besides being the 32-year-old director of Abu Dhabi’s high-profile development fund, Mubadala, and chairman of the British football club Manchester City] is also chairman of the International Petroleum Investment Company, invested almost £3.5 billion ($5.77 billion) in Barclays, one of Britain’s largest banks — for a stake that could reach 16 percent of the bank.

Qatari investors will hold up to another 15.5 percent.

With markets in turmoil and some big sovereign wealth funds losing billions on Western bets, one of the questions hanging over the new world economic disorder has been whether sovereign wealth and other state funds will continue to slosh around the world. The new Barclay’s investment offered a resounding yes.

“We are not going to be running away when the market is down,” Mr. Mubarak said in a brief interview last month. “There are a lot of interesting opportunities out there.”

There are also calls for greater regulation of state-run funds, fears of a global recession, and oil’s fall from $145.29 a barrel to just $67.81 on Friday. But Abu Dhabi sits atop about 9 percent of the world’s oil reserves and still has the cash to spare.

Unlike its larger-than-life neighbor Dubai, it has been until recently hyperdiscreet about how it deploys its windfall. But now that it is emerging from the shadows, it is looking for attention — but not the kind of flash-and-dash that Dubai is known for.
Grape Shisha provides commentary worth reading.