Thursday, 26 November 2009

Dubai

Three to four years ago I was having a conversation with a bunch of business analysts and financial investors. They were raving about Dubai and the money attached to it, and how happy they were that Marfin did a double take on Laiki using Dubai funds. I tried to point out to them that if one correlated the price of oil with GDP of Dubai (with a lag of one or two years), the correlation is very high - a first indication that Dubai's rise was all about oil. My father pointed the same in his newspaper articles in the Weekly but to no avail. You could see that Dubai was a huge bubble waiting to burst: at one point a quarter of all cranes were in Dubai, with one outladish project chasing another.

Now Dubai is not going to go away - a significant part of its growth was in construction which created capital (even if it devalued) and some of the assets bought across the globe are worthwhile. But people who invested in it will lose a substantial amount of money, and that is what my business analysts and financial investors worry most about.

Another friend of mine who is an investment analyst agreed with me about the bubble in Dubai. After all i was not the only one who saw the bubble coming and its link to the high price of oil. That friend is now in charge of a significant investment fund; his employers could not have picked a better man through these turbulent times.

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