Thursday, April 9, 2009

Dubai is officially pulling out of the recession

Or so the government says... even with minimal background knowledge, it's not too much of a reach to call BS.

Real estate prices in Dubai quadrupled over the past 5 years as foreigners rushed in to take advantage of the secondary flows into the Las Vegas of the MidEast. Unlike many of its neighbors, Dubai could not rely on a steady flow of oil and so resorted to heavy marketing, tourism investment and serious amounts of leverage. Now with tourism down due to depressed oil prices, a supremely bearish consumer outlook, and the prospect of a severely negative hit to the current account, they expect us to believe that the worst is over? 

First, they need to delever. Second, they need real estate prices to come back to a reasonable level. Third, they need demand to return (which implies oil needs to get back up to OPEC-smile-inducing levels). The first hasn't seemed to have happened yet, and the second two are not even close to reasonable levels. 

There are a lot of parallels to draw with the situation we face in the US and hopefully they are paying attention to what's going on here. Perversely, the only saving grace for Dubai may be the corruption and cronyism that has long plagued the MidEast. In short, someone needs to foot the bill in a time like this; in the US, it's the taxpayer and in Dubai, there's a high likelihood that it will be shared in some distribution among many of the ruling royal families.
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Max Leverage said...

Tweeted and posted here:

The dark side of Dubai.

Anonymous said...

in the US it's the buyers of long term treasury bonds who will suffer dilution as much as the taxpayers

Cornelius said...

Great article Max Leverage... do you write a blog?

Max Leverage said...

That's not my article...

Cornelius said...

Maybe I wrote that poorly but the two statements are not connected, nor do I think you personally wrote the article.

sheikh shithole said...

thanks for that article max, i think.

it just gave me a knot of sorrow in the pit of my stomach to go with my morning coffee.

perhaps mother earth will wash that place all away as quickly as it appeared.

i say, good riddance.

Max Leverage said...

Anyway, I'm flattered that a contributor at such a great blog would express interest in seeing MY blog. No, I don't have one, but thanks for asking.

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