CapitalistMarks

Dubai, a potential economic reality show.

Posted on 30. Nov, 2009 by scott in economic daydreaming, markets

Yet another bubble has dominated the world-wide financial news for the last week.  This time it is half a world away and no way can the Chinese and Russians point fingers at American financial  structure.

Thank heavens for that.  The news of pending default, or at least failure to meet interest payments, on around $80 billion of commercial debt centered in the desert coasts of Dubai first hit the wires last Wednesday.  CNBC was all over it then and gave it the attention it deserved . . . moderate to be frank.  Then, when U.S. markets were closed for the Thanksgiving holiday, Asian markets tanked and European markets followed suit as they worried while we partied.  Drops of 3% were the norm and when American markets opened on Friday further carnage was expected but did not happen (1% or so in typical in recent market swings).

Yet the news still resounds with talking heads and financial analysts who want to force markets down.

The truth of this story in Dubai is all about greed, pride and stupidity.  Sounds familiar but we really haven’t seen anything recently on the scale of witless investors in the desert.  Consider.   Dubai is soon to be home to the tallest building in the world (I caught a glimpse of it while watching my favorite reality show ‘Amazing Race’ recently . . . and it is awesome).  Dubai is already the home of shopping mall overkill with a mall that houses an entire indoor ski resort where the idle rich can ride a lift to the top of a man-made hill and ski down man-made snow in freezing temperatures while it is 120 degrees outside (also on the show).  Not far off shore are a number of man-made islands( ‘designer’  types) where lots are selling for multi-millions of $$ (the operative word here is selling not sold).

This pending default shows how stupid people can be.  Why would anyone want to even visit a place where the temperatures can be in the 120’s in the shade?  Let alone invest hundreds of billions of $$ to create a Disney Land environment that no masses will ever have any interest in let alone see?

Sure, oil was trading over $100 a barrel when much of this insanity took place, but that is no excuse.

The average Joe is gonna want to vacation somewhere they can breathe without having a heart attack . . . Hawaii sounds about right.  The rich folk couldn’t care less.  So who were the Dubai-ees (?) going to market all that insanity  to?  Iraqis wanting to escape a war zone?  Saudis wanting to get away from a dry (as in alcohol) place to wile away the summer hours?  Maybe but not even that makes sense in the world today.

So, in a month when the DOW and S&P were up over 5% the Dubai crisis proved to be a very localized and mostly uninteresting bubble.  A study in bubble economics that won’t burst to the harm of anyone with an ounce of brains on this side of the pond.

Rather than worry about how the sheiks are going to make their payments (the total potential default is less than 10% if America’s total debt service next year)  we should be focusing on black-weekend retail sales that were up nearly 1% and with on-line sales up over 10% for the same period.

Americans are starting to spend again and we should join each other in the fun of the next three weeks of Christmas shopping insanity.  If you really want to be cool you might think about helping those that are less fortunate (like the unemployed for example) and spend some money to help their families have a good season.

Sit back and relax.

The only thing to worry about right now is how President Obama will handle the Afghanistan strategy during his talk to the nation tomorrow.

Stay tuned.  This could be fun!

Thanks to flickr’s larsploughmann for the photo

Tags: afghanistan, bubble economics, credit defaults, Dubai, President Obama