No Reason to Panic: What We Can Learn from the Dubai "Crisis"

By Ashish Advani

Panic! Calm Down! Panic! Calm Down…..

Even after two decades in the markets, I am still beginning to get a whiplash keeping up with the gyrations of the stock markets these days.

We have seen the markets go through bouts of doubt, then optimism, then anxiety attacks…and back to optimism again.

Just look at the Dubai debt debacle that happened just a short week ago. While the whole world was panicking, I was busy buying gold over the Thanksgiving weekend (as my colleagues and I have been recommending repeatedly over the last few weeks).

And did I strike a bargain! I am up 8% of my latest purchase in less than a week.

So why was I buying up gold? It wasn’t because I thought the rumblings in Dubai would spark a market crisis. It was the exact opposite: I was absolutely confident that everything would be back to business as usual by Monday.

In other words, I saw this so-called “crisis” in Dubai as a short-term phenomenon…

Why Dubai Was Just a Lesson in Humility

You see I have lived for several years in the region and have managed a very large commercial real estate firm in the region. I have visited Dubai several times so I have a more intimate perspective of this region than someone looking in from the outside.

First, the city of Dubai has been a crown jewel in the Middle East region. It is a beacon of prosperity that the Middle East has helped to develop over the past 20 years. Dubai has been vying for the place of the financial hub of the Arab world. And it has barely made it there.

Second, the price of oil has now firmly settled above $60 – 70 per barrel. Last year’s spike, and then the resurrection of oil prices this year has been a huge windfall for the Arab World. Over that time we have seen an immense amount of liquid cash flow into these countries.

With all this liquid oil cash, they could easily afford to bailout Dubai without letting the world even know about it.

So why didn’t they? In my opinion, publically broadcasting a sovereign default in Dubai was an exercise in humiliating Dubai. They were warning Dubai’s leaders not to grow beyond their means.

For Pete’s sake, the Arab Sovereign Funds has lost over $100 billion on Citibank alone. If you tally all the cash that the Arab Sovereign Funds have lost in American banks, we would have nearly over $250 Billion.

So the real debt default of $26 Billion would have been chicken feed for them to cover up and bail out Dubai.

Third, many of the knowledgeable parties of the region know about the rulers of UAE. Abu Dhabi is the real rich cousin of all the emirates in UAE. But there are blood ties between the emirate leaders. And they would not have let Dubai down, if push came to shove. After all, family always can be counted on in a crisis!!

What We Can All Learn from this Dubai Debacle

So there was never a real crisis.

As I have said, this was a public exhibition of humiliating Dubai that had gone too far in their growth and had not respected the neighbors. They had broken the cultural traditions and had to be punished.

Now, I do not condone the excesses of Dubai. Some of their projects were just too extravagant and were unviable. And in my books, anything that sounds too good to be true, usually is. And this castle of Dubai growth has to come crashing down. And at least it has come to a hard halt, if not destroy Dubai.

I lay some of the blame on the media. I cannot imagine that I am the only one who had figured this out. There must be several knowledgeable experts who would have been warning the world not to panic. But we would not have been “sexy” in our opinions. Today’s media runs with panic stories and loves a good thrill of scare and fear. And calm and sensible voices are shut out.

Now all that said, I’m still researching other possible sovereign defaults that will have MUCH more significance for the global economy than Dubai. I’ll be sure to pass the information along to you as it becomes available.

But for now, if there is one lesson to learn from the Dubai debt fiasco, it’s this: It’s better to be calm than to panic. You can’t afford to let a few media idiots to force your hand and make hasty decisions when it comes to your investments. Take your time to get the truth.

As always, we’ll be doing our part here in FX University Daily to sort through the media haze and bring you the facts. Right now, the facts are: Stay calm. Keep diversifying. Buy gold on dips.

Bottom line: It’s always better to remain calm when everyone else is panicking.

Stay strong willed and prosper!
Ashish Advani    

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