Sunday, November 29, 2009

The Dubai Debt Crisis: Undermining Investor Confidence?

As a more upscale version of the American subprime mortgage crisis that started in 2007, will the Dubai debt crisis not only undermine investor confidence but of the ongoing global economic recovery as well?

By: Ringo Bones

To all of us who still care about the overall health of our global economy, the Dubai debt crisis – like the US subprime mortgage crisis before it – unsurprisingly managed to go global by undermining overall investor confidence. Like the subprime mortgage crisis, the Dubai debt crisis can also trace its beginnings in the intervening years. Unfortunately, both had been already proven to readily spread to the world’s shares markets as fear and panic are the primary motivators of market speculators. Dubai’s decision to delay paying debts – i.e. refinancing – for 6 months not only made Moody’s downgrade Dubai’s credit rating but it also started to spook the global shares markets as soon as the press got word of it. Given the supposed financial risk involved, does the Dubai debt crisis create shares markets chaos largely disproportionate to the actual scale of the actual problem involved?

The Dubai debt crisis largely stems – according to financial experts – from its inflated portfolio of luxury properties plagued by cost overruns in their development that resulted in Dubai’s leading property developers to defer their debt obligations for 6 months. Thus making Moody’s – one of the world’s top credit rating agencies – to recently downgrade Dubai’s credit rating.

One of the surest investment options in Dubai is the property developer Nakheel. Famous for making the world’s largest man-made island – the Palm Jumeirah – a reality, Nakheel also boasts as the only property developer with its own in-house environmental assessment team. Nakheel’s apparent fiscal sensibility was shaken to its core after miscalculating the final cost by a significant margin of the development of the Palm Jumeirah island and its scores of 6-Star hotels. Delays in the return of investments / profits due to the still recovering global economy is the main reason why Dubai is currently experiencing their own version of the US subprime mortgage crisis.

Just over a year ago – back in November 20, 2008 – the lavish opening festivities / inauguration of Atlantis Hotel Dubai where the venerable global song and dance sensation Kylie Minogue got top billing would make it seem that Dubai’s current debt crisis seems like a fiscal and economic impossibility. State-owned Dubai World – the firm that made Hotel Atlantis Dubai and the lavish Palm Dubai inauguration party a reality was rumored to have spent 35 billion US dollars to make it possible. Ironically, a year or so later, the property development firm is asking for a government sponsored financial bailout.

The actual development cost oversight that led to the raising of additional capital which Nakheel has never commented publicly is probably one of the reasons why most of Dubai’s top businesses to elect debt payment deferment. Even at the cost of credit rating downgrade. Unfortunately, Dubai’s credit rating downgrade due to its debt obligation problems had resulted in a shares markets slowdown in the US and in Asia. Even Dubai's brother Emirate Abu Dhabi had even offered debt payment assistance to Dubai in order to minimize the chaos to the world’s shares markets Dubai’s debt crisis could create. With total debts at around 60 billion US dollars, Dubai’s current debt crisis is bound to create a significant chaos in the world’s shares markets. Let’s just hope that this is just a minor slump so that the world economy can fully recover soon, hopefully maybe in 2010.

Friday, November 20, 2009

Mutual Distrust: Very Good for the Global Economy?

From marital infidelity being the bread and butter of the private investigation industry to the Eurofighter selling like hotcakes at the recent 2009 Dubai Air Show, is mutual distrust very good for the global economy?

By: Ringo Bones

Pioneering game theorist John Von Neumann was smart enough to foresee that an all-out nuclear exchange between the US and the then Soviet Union would certainly wipe out the global economy as we know it. But did he also foresee that low-level mutual distrust – i.e. the so-called “Cold War” – eventually paid very good financial dividends? Maybe the movie Wall Street only got it half right, greed may be good, but mutual distrust is better - especially when it comes to money making.

Overall, the commercial civilian aviation side of the aerospace industry may be down thanks to the global credit crisis and might take another 6 months to fully recover. Not so with the defense side of the aerospace industry when the Eurofighter Typhoon is currently selling like hotcakes at the 2009 Dubai Air Show’s first two days. By the way, the 2009 Dubai Air Show was scheduled for November 15 to 19. With Saudi Arabia as the main customer of this “value-for-money” air defense weapons system, it does seem like the world’s crude oil industry is here to stay for yet another century.

On a more “grassroots level”, the private investigation industry is one of the few businesses that managed to buck the trend of the past few months’ worldwide recession. Corporate espionage may constitute the few “prestige cases” of a fortunate few private investigation agencies, but their main bread-and-butter is still the marital infidelity investigation and verification biz. To most of us working folks, paying our hard-earned money to hire a private investigator to make sure of our significant other’s marital fidelity is probably the closest thing we’ll ever manage of buying our very own squadrons of high-performance fighter jets. As part of the Reagan Doctrine, “trust but verify” is still the cornerstone of our post Cold War capitalist society.

The Nobel Prize for Economics: A Nobel Prize for Mathematics in Disguise?

Certainly it was not a part of Alfred Nobel’s original will, but is the Nobel Prize for Economic Sciences really just a thinly veiled attempt at a Nobel Prize for Mathematics?

By: Ringo Bones

To anyone who still cares about the annual Nobel Prize festivities, it is probably common knowledge to them that there is not – and probably will never will be – a Nobel Prize for Mathematics. But given that the Nobel Prize for Economics – also officially known as the Nobel Memorial Prize in Economic Sciences – is not part of Alfred Nobel's original will bequeathing his fortune for an annual prize for those deemed worthy enough by his estate. And given that economics is something of a mathematics intensive scientific endeavor, does this mean that the Nobel Prize for Economics is nothing more that a thinly veiled Nobel Prize for Mathematics established to appease those generations of “angry” mathematicians left out by Alfred Nobel’s prestigious will?

The Nobel Memorial Prize in Economic Sciences – commonly referred to as the Nobel Prize in Economics – is an award reserved for outstanding contributions to the science of economics and is generally considered as one of the most prestigious awards for that science. But as everyone knows by now, it is not part of the original set of awards in Alfred Nobel’s will – i.e. 1) Medicine and Physiology, 2) Literature, 3) Physics, 4) Chemistry and 5) Peace.

The Prize in Economics, as it is referred to by the Nobel Foundation, was established and endowed by Sveriges Riksbank – Sweden’s main bank – during 1968 on the bank’s 300th Anniversary in memory of Alfred Nobel’s 1895 will. Like the Nobel Laureates in Chemistry and Physics, the Royal Swedish Academy of Sciences does the selecting of the Laureates in Economics. It was first awarded during 1969 to Dutch and Norwegian economists Jan Tinbergen and Ragnar Frisch for having developed and applied dynamic models for the analysis of economic processes. Given how math intensive the science of economics is, rumors start to spread that the Nobel Committee finally caved in to the demands of mathematicians around the world to have their very own Nobel prize. But why is it that Alfred Nobel has such a miserly of praise to mathematicians everywhere?

If you check out the official sanctioned Alfred Nobel’s estate site or the Nobel Prize Committee sites on the Internet. The Nobel estate’s “official” explanation on why Alfred Nobel didn’t include mathematics as being worthy enough to receive any of his famed prizes is that “officially” Alfred Nobel thought that mathematicians hasn’t contributed enough progress to humanity to warrant being honored with one of his prizes. In other words, Alfred Nobel thinks that mathematics doesn’t contribute one iota to the betterment of humanity as a whole.

Unofficially – according to the “supposed rumors” being spread by Ivy League mathematics professors in America. The reason Alfred Nobel haven’t establish a Nobel Prize for mathematics is that during the brief period in his life when he managed to socialized the woman of his dreams – i.e. those rare times when Alfred Nobel wasn’t too engrossed with his work. He unfortunately lost the woman of his dreams to a more “romantically skilled” mathematician. Given that those were still “Victorian Times”, it wasn’t as tawdry as a contemporary Hollywood love story.

Given that most higher concepts of economics also use higher mathematics that were formerly the reserve of the “thorny task” of seamlessly unifying Albert Einstein’s General Relativity with quantum mechanics. It is somewhat easy to forgive anyone who thinks that the Nobel Prize for Economics is a thinly veiled version of a Nobel Prize for Mathematics. Unfortunately, Alfred Nobel passed away before the full impact of mathematics became self-evident. Alfred Nobel would have thought differently of mathematics if he only knew that this day and age, science and even national security has mathematics as its bulwark. Given what we knew of his resolve for mathematics, I even wonder if Alfred Nobel would give the green light in giving one of his prizes to the science of economics if he was still alive in 1968.

Friday, November 13, 2009

Gold: Still a Good Investment?

Spurred on by the recent purchase of India of 200 tons of IMF gold, does the current sky-high price still make gold a reliable long-term investment?

By: Ringo Bones

As the price of gold now teeters ever closer to the 1,200 US dollars per troy ounce mark, many investors are now probably wondering whether is it still feasible to join the bandwagon of investing in gold or whether this is an investment bubble that’s long overdue to burst? Fortunately for some, we are probably still a long way for such a bubble to reach critical mass for a number of reasons.

From most novice investors’ perspective, the recent purchase by India of 200 tons of gold worth about 6.7 billion US dollars from the International Monetary Fund may just seem as just a way for India to satisfy its somewhat large demand for gold jewelry. After all, it is a custom in India – even by the very poor – to purchase gold jewelry at least once a year - especially during auspicious occasions. But India is not just satisfying the needs of citizenry at the retail level given that it has been one of the world’s top ten leading gold jewelry retailers in her own domestic market for a long time now. The Indian government’s decision to bolster their gold reserves by buying the precious commodity from the IMF - even at these elevated price levels still makes sense to invest in gold for a number of reasons.

Even though the US economy is supposedly already “safely” out of the subprime credit crisis of its own creation, the “relatively high” jobless figures in America still make some seasoned investors cautious when it comes to using the US dollar as a long-term investment tool. And given its good track record as an investment asset to hedge against inflation, gold and related precious metals, still deserves its claim to fame as a prime safe haven investment tool. Not to mention every nation's monetary policy decisions in the immediate future.

At currently near the 1,200 US dollars per troy ounce mark, gold may have reached a record high in the 21st Century, but it still needs to be at least twice its current price taking account of inflation – to equal its all-time high back in January to February 1980. And given that it takes around 500 US dollars worth of energy to process a troy ounce of gold to 99.99% purity – i.e. bullion-grade purity – it is very unlikely for gold to return to its all-time low price of 200 US dollars per troy ounce back in 1999.

And a gold bubble is somewhat unlikely because due to the yearly rise in the demand of electronic goods, gold purchases for use in corrosion-resistant connectors will create a stable demand - unlike that of the seasonal demand of gold jewelry. Given that we will be more likely to be sending robotic spacecraft – as opposed to living and breathing astronauts – for space exploration in our immediate future, a steady and constant demand for gold in the aerospace sector will make the prospects of a gold bubble less likely to occur now compared back in 1980.