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.

Is Our Financial and Economic System a Joke?

After the high-profile feud between Jim Cramer and Jon Stewart made the problems faced by our global economy “interesting” to primetime TV viewers, is our financial system nothing but a joke?


By: Ringo Bones


This probably all started when Jon Stewart of The Daily Show with Jon Stewart made a joke about Rick Santelli. A Wall Street pundit and staunchest critic of President Obama’s plan to bailout ailing American companies, calling the president’s action as socialism. The joke was even enhanced to us in the know by Rick Santelli’s inability to delineate a proper line across the sand between socialism and capitalism (or unbridled greed?). From this perspective, Jon Stewart’s indictment of CNBC’s Mad Money with Jim Cramer seems incidental. Until when the TV ratings between the two got affected.

Even though an overwhelming majority of people around the world would consider Jon Stewart in criticizing CNBC’s financial-themed programs like Jim Cramer’s Mad Money because they didn’t do their part of disclaiming the true extent of the risks involved in investing in the stock market. The feud between the two even ballooned to cartoonish proportions when Jon Stewart’s ratings shoot up while the ratings of CNBC’s financial-themed shows slightly slipped down. Even Jim Cramer resorted to appearing to the TV show of securities fraud ex-convict Martha Stewart – i.e. Better Living with Martha Stewart to plead his case - Irony of ironies indeed.

Even though the feud between Jim Cramer and Jon Stewart were now diffused after Jim Cramer appeared in Jon Stewart’s show. Looking beyond the debacle in terms of TV ratings cost and benefit, looks like the feud between the two finally brought into the spotlight the eternal struggle faced in maintaining the overly complex organism that we call the global economy.

When compared to other investment companies that provide service for the novice investor, the CNBC focus groups deciscion to chose to use “In Cramer We Trust” as the de facto legal and risk disclaimer for Mad Money with Jim Cramer. The show for all intents and purposes undoubtedly opens itself to all manner of ridicule. As a marketing and promotional ploy to make Mad Money with Jim Cramer appeal to middle-school aged demographic, the idea seems dubious to me.

When Jim Cramer first promoted Mad Money on The Tonight Show with Jay Leno a few years ago, the idea of persuading novice investors to invest in high-yield but riskier funds as a component to diversify their own portfolio is somewhat suspect. Given that majority of older viewers who have enough money to indulge in Jim Cramer’s financial adventurism are somewhat squeamish to invest in something riskier than bond funds and equity income funds, the showmanship behind Mad Money should concentrate more on investment risk disclaimers. Rather than the novelty bells and whistles that are de rigeur of the show. Remember when Jim Cramer told everyone to invest in Bear Stearns back in 2008, and a few months later the company had major financial troubles?

For those of us who had benefited from our money funds during the 1990’s and had now diversified our investment portfolios into something higher-yielding – but a little riskier – bond funds and equity income funds, Mad Money with Jim Cramer will always be viewed somewhat of a joke from our perspective. Prudence will always be a guiding force every time we invest our hard-earned money. It will surely take more than a TV showman armed with oversized novelty bells and whistles and other props that belong in Pee Wee’s Playhouse to convince us that investing in aggressive growth but high-risk derivative funds and specialist funds is the best thing for us since free money. Our investment portfolios probably can’t afford such jokes during these times of a worldwide economic downturn.