Financial Asset Management

Dubai is one of seven emirates that make up the United Arab Emirates. Dubai has very few energy resources and raises little money via income tax due to its competitive tax policies. The city-state has consistently run deficits and its growth has therefore been funded via the money markets. Abu Dhabi, with its huge oil reserves, is the wealthiest of the emirates, and its banks are major creditors of Dubai and many of Dubai’s companies.

Dubai World, the most indebted of Dubai’s state-sponsored companies, owes $60 billion, of which $22 billion must be refinanced by 2011.

The news on November 25, 2009, that Abu Dhabi was no longer willing to keep buying or refinancing the debt of Dubai’s major companies shocked the world’s stock markets.

A huge property-led boom saw money pile into infrastructure and construction projects in Dubai. The end of the story is similar to that of the U.S. property-led boom. Boom leads to bust. Throughout history, in the financial asset management industry, these cycles are often repeated.

An interesting analogy is the curse of being on the cover of Sports Illustrated: traditionally, that athlete’s performance the following year falls off dramatically to that of the “cover” year. Many people in the construction industry have a similar curse; building the world’s tallest building has always been viewed by investors as a sign that a local economy is about to head south.

The U.S. stock market opened sharply lower (down roughly 3%) on Friday, November 27, 2009, in a reaction to the financial crisis in Dubai. The downward momentum comes after Dubai World asked to postpone payment on some of its $60 billion in debt. Worries about a default by the city-state have raised significant concerns about the impact on banks.

The markets closed at the end of the day down roughly 1.5%. This is why professional financial asset management remains critical.

I will leave you with one counterintuitive comment by James Hillman from his book Kinds of Power: A Guide to Its Intelligent Uses:

“Wherever we see an increase we feel its weight. All the numbers going up no longer portray the optimistic spirit, but instead indicate monstrosities, epidemics, ugliness, future disaster, extinction. Growth has taken on a cancerous tinge. To use the word now sends a message of potential danger, whether the growth be in debt, the population, the underemployed, the homeless, the dimension of cities, the size of government, the particles in the air, the tax rate, the

cost of living, the cholesterol count, even the rising numbers on the bathroom scale. Going up now means decline. What was before the measure of progress has become a sign of problems.”

You might be thinking that this was written to describe the current economic challenges, however this book was written in 1995.  Did the world recover, indeed.

Working with a professional financial asset management firm helps prevent you from making emotional investment decisions that, over the long term, might come back to hurt you.