Margareta Pagano: No one should feel sorry for the Dubai speculators
The celebrities broke the first principle of investing
Sunday 29 November 2009
It's hard to feel sympathy for David Beckham or Brad Pitt or the speculators who may lose their shirts in Dubai. Creating a Disneyesque castle in the sand with eternal sunshine was always a disaster waiting to happen.
The financiers and celebrities who piled in with their millions over the past decade all broke the first principle of investment – know where you are investing, and what you are investing in.
On both counts, the property speculators, backed with cheap money, got it spectacularly wrong. The suddenness of Dubai World's request for debt standstill on its Islamic bond covering its $80bn (£50bn) debt – also shows that you never know what a government will do in a crisis, particularly if it is controlled by a small ruling elite like the one which runs the tiny emirate as though it were a private fiefdom.
That's why the outburst of dismay over this crisis is disingenuous. The signs were there for all to see. Sheikh Mohammed bin Rashid Al Maktoum has allowed the most extraordinary fantasy landscape to develop – the Palm Jumeirah luxury complex and Sol Kerzner's Atlantis – among the most ostentatious. In many ways, his ambition was commendable, an attempt to use the emirate's fabulous wealth to create long-term revenue rather than wasting it on ephemeral trinkets. But it was too much, too fast – now more than 400 projects worth more than $300bn, including the Burj Dubai, the world's tallest tower, have been stopped.
Dubai has also been splashing out overseas, buying stakes in companies like the one which owns the London Eye and Madame Tussauds, as well as in Citibank and Daimler. It's no surprise, then, that the global crash was felt deep in the Dubai sands, sending property prices spiralling down by more than 50 per cent in the past few months.
While investors should know better than complain about the paucity of information, it's clear that the lack of detail coming out of the emirate is spooking the markets. Investors are terrified that the Dubai disease will spread, not just to the nearby emirates – which have already bailed out their neighbour – but around the world. British companies alone are thought to be owed more than $300m. But it's the banks' exposure which is perhaps the most worrying. European banks are thought to hold up to $40bn debt issued by Dubai state-owned entities. Standard Chartered is one of the most exposed with loans worth $8bn in the UAE, which includes Dubai, while Barclays and RBS also have big exposure which is why their shares were so badly hit last week. HSBC is by far the biggest lender, with UAE loans of $17bn, but it's a robust bank and will take this in its stride.
There are other casualties. The flow of capital pouring into the West, particularly into banks, will slow. The Gulf states, in turn, may be forced to sell-off their western assets, thus depressing prices.
Does the Sheikh have the maturity to match his ambition? He needs to show his state has come of age by being frank as he renegotiates these loans. It would be unfortunate if his legacy was the image of 1.7 tons of lobster and Kylie Minogue being flown (for $2m) into Dubai for the $20m opening of the Atlantis, exactly a year ago.
Experts: Put Van Dam's beginners' trading tome on your Christmas list
The magnificently named Lex Van Dam is the hedge-fund trader who gave £500,000 to eight people to trade for the BBC2's Million Dollar Traders series to prove that amateurs are as good, if not superior, to the experts. They lost about 2 per cent of his capital – not great, but better than the professionals, who lost 4 per cent. Now Van Dam has published a book – How To Make Money Trading – to show us how we can all do better than both lots. It's not designed to teach you how to make a million dollars – even the Dutchman wouldn't be so ambitious – but to teach us ordinary mortals how we can beat the experts.
What's attractive about Van Dam's thesis is its honesty. Small shareholders, he says, should have some expertise of the field before choosing a stock in which to invest, and the company should fit into the overall portfolio. And they should trust the management. But the killer app is Van Dam's view that new investors should never expect something for nothing without doing any work – an approach which most of the UK's fund managers and pensions funds have, sadly, been following for the past few decades.
It's this question of stewardship which was at the heart of Sir David Walker's review on corporate governance, published last week, and which the Financial Reporting Council will address next week with its Combined Code. Getting these institutional shareholders to behave as owners again, by challenging, questioning and talking to management, is absolutely essential.
Van Dam intended his book for novices but it wouldn't go amiss if a few experts put it on their Christmas wish-list to remind them what their business is really all about.
For the record, Van Dam tells me his hot tips right now are food retailers, gold, and residential property shares. But stay clear of the banks – they are still only paper money.
Master of the reveal: Deadpan King floors MPs, again
How does Mervyn King, the Governor of the Bank of England, drop those deadly bombshells on to the Treasury Select Committee with such delicious, deadpan precision? Does he practise them in front of the mirror, while shaving perhaps, seeing how straight a face he can keep?
Or does he rehearse them under his breath, drowned out by the crowds roaring as he watches Aston Villa? King used his talent to devastating effect again last week with his revelation that the Bank lent Lloyds and Royal Bank of Scotland £62bn in October 2008 to stop the system closing down. But there was another, more frightening message, hidden away right at the end of his speech. King warned that the UK might face another massive fiscal burden unless it can persuade overseas investors – who buy our debt – that it is tackling its huge banking sector debt which is still five times GDP.
It seems to me that King is doing the job of government and opposition rather better than either at the moment.
Stand by for another DECADE of wet summers, say Met Office meteorologists
Serena Williams apologises after comment that rape victim 'shouldn't have put herself in that position'
Bankers could face jail after report urges the Government to introduce new criminal offence for reckless management
Feat of engineering: Incredible photographs show construction beneath New York's Second Avenue
World news in pictures
- 1 Serena Williams apologises after comment that rape victim 'shouldn't have put herself in that position'
- 2 Disability campaigners celebrate 'victory' after government rethink over plans to make it more difficult to claim disability benefits
- 3 Bankers could face jail after report urges the Government to introduce new criminal offence for reckless management
- 4 Breaking the Silence: In the reality of occupation, there are no Palestinian civilians – only potential terrorists
- 5 We never knew Nigella Lawson - and we still don’t
iJobs Money & Business
£500 - £600 per day: Orgtel: FX Options Front Office Java / C# Developer - Ba...
£600 - £700 per day: Orgtel: Project Manager - Front Office - Regulatory IT C...
£600 - £750 per day: Orgtel: FATCA Project Manager - Banking - London - £600-...
£550 - £600 per day: Orgtel: Fidessa Analyst / PM - Banking - London - Up to £...