Founder & Chairman
I just recently arrived back in the U.S. from a week in Dubai, United Arab Emirates. All I can say is Wow! For the record, it’s over the top, probably unsustainable and a little scary as to what the ultimate downfall might look like; however, it is a spectacle to behold. They literally built an entire city of skyscrapers, many over 100 stories, in less than 5 years. To contemplate the vast amount of money and the army of workers that it took to build their skyline is beyond my comprehension. Sadly, while everything looks pretty on the outside, it’s obvious that in many instances the well ran dry, there was no master development plan and as such, the city itself, as well as the construction is discombobulated at times, and downright contradictory at others. There are bridges to nowhere, where it just ends in mid-air either because the funds weren’t there to complete it, or multiple developers couldn’t agree on how to complete them. Construction quality and materials were sometimes poor or rushed, and much of the area is difficult to traverse by foot either due to lack of sidewalks or crazy cab drivers. Aside from these facts, it is absolutely stunning and beautiful, at least from the outside looking in.
The culture clash is obvious, but at the same time, quite manageable. The indigenous “Emiratis” are Muslim and very conservative, don’t drink alcohol and wear elaborate gowns and headwear, while by my estimation, over half of the population that inhabits Dubai is a combination of expats and tourists that are not Muslim, and many don’t understand the basic laws by which the U.A.E. governs their population. This can make for awkward times at a minimum, and for the unfortunate or ignorant, and uncomfortable stay in an Arab jail cell. Aside from some basic common sense guidelines, it doesn’t take too much effort to live within the tolerances of the local Emiratis and a wonderful time can be had. I felt safe at all times, much to my surprise, virtually everyone spoke English, all signs had both English and Arabic lettering, and the area is pretty easy to navigate. I never saw a cloud, and it was between 85 and 90 degrees for a high every day. I wouldn’t want to be there in the summer, where 115 degree temperatures and high humidity are common.
It was difficult for me to stay on top of the world of finance, as I never turned on the television, had somewhat limited internet access and ultimately, the real killer, a 9 hour time difference that turned my world completely backwards for a few days. I did manage to collect some data, and I suppose in a subtle twist of Irony, the middle-east’s western neighbors in Europe are having a problem dealing with their excesses as well, and may be a preview of things to come in Dubai. As for the markets, Europe and us here in the good ole U S of A, I seem to have missed quite a bit! From European bond markets getting hammered, to the complete and utter failure of the super-committee, and a bit of a hiccup in equity prices, I can say I wasn’t all that sad to be gone. But there is a silver lining in all of this. In spite of things going pretty wrong, the markets have held up quite well. A closer look at the internals and a few things jumped out at me. For starters, the volatility index (VIX) has not fallen anywhere near as far as one might expect given the recent spate of news, and overall selling volume has been pretty low, suggesting that it’s mainly hedge funds that are responsible for this recent move. The news has been pretty crummy lately, particularly on the budget front where our inept politicians handed us an epic fail on the debt reduction front. It looks like that had been anticipated by the markets and may have essentially been priced in, but only time will tell for sure.
On the domestic economic front, the data is getting better, albeit not as fast or as robust as we would like. This could be the silver lining that turns things around in the markets. While, at this time it is impossible to say with any certainty, it does look like we could be on track for the year-end rally that we have been expecting. That doesn’t mean that we won’t have to deal with some volatility along the way, that much is almost certain, however, with much of the negative news seemingly priced into the markets now, the selling pressure may abate soon and open the doors to the short-lived bull market we have been waiting for. For now, no changes are being recommended to the portfolios. If we do get a resumption of an upward market, then I like the things that are in the portfolios at the present time. If things continue to deteriorate, then we may have to become more defensive. We are watching the technicals very closely, and will notify you immediately should we enter into an area outside of our comfort zone.
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