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15 March, 2006

And we all come tumbling down

The financial losses suffered by investors in tumbling regional stockmarkets is likely to have repercussions far beyond a few now-empty dishdash pockets.

First: thousands of often inexperienced, first-time local investors have taken out huge, unsecured bank loans to speculate in the markets. Most will now presumably default on these loans.

Secondly: GCC nationals aren't used to losing money. They're used to the government bailing them out if they don't have enough money or don't save any money. They're used to the courts bailing them out with favourable verdicts if they can't pay their bank loans, or if they have a dispute with their foreign partner. They're not used to having access to things like gambling, since that's banned in most Islamic countries. Hence the fever - to the point of violent stampedes - that broke out over many recent IPOs, with the markets effectively becoming a legitimised casino.

What will the outcome be? Disillusionment, resentment, shame, anger. Hospitals in Saudi are already treating hordes of hysterical, distressed investors. Saudi's shoura council wants the government to intervene to prevent a crash: it won't. Kuwaiti investors are demanding their government bail out the bourse: it's refusing. Even independent analysts are recommending an emergency freeze on all IPOs. Increasing fury and bitterness against governments seem likely; all the more dangerous in a region with no real popular enfranchisement.

Either way, futures in worry-beads seem an extremely safe punt right now.

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34 Comments:

Blogger DubaiSceptic said...

You couldn't make it up. Bond. Kingsmill Bond if you must know. I'm sure he is an eminent commentator but I'd think his special area of knowledge would be bespoke handmade paper. For the aristocracy.

And he is saying that the Dubai bourse is headed for a fall. Or that investors are behaving like Wile E Coyote's legs still going like crazy even though he is in mid air after overshooting the cliff.

Irrational exuberance anyone?

BTW - your recent postings on the legal system are just incredible. More power to your pen.

15 March, 2006 02:00  
Blogger Hot Lemon& Honey said...

Everybody knows that the stockmarket in the UAE is not under any control so I wouldnt waste my money there and hope for luck..and yes lots of people have invested their savings in it and lost.

I must disagree with our second point "They're used to the government bailing them out if they don't have enough money or don't save any money. They're used to the courts bailing them out with favourable verdicts if they can't pay their bank loans"
Not fair to generalize, its not the case and let me tell you from personal experience..its not the case at all..the ones who get away with it are those who dont need the "favourable verdicts"
So its an unfair generalized comments...
"GCC nationals aren't used to losing money." I laughed at that one..who is "used" loosing money like that..LOL.

15 March, 2006 02:36  
Blogger secretdubai said...

BTW - your recent postings on the legal system are just incredible. More power to your pen.

Gracias!

If only you could have seen the first drafts before some freaked out friends got me to tone them down for safety reasons, quite considerably... ;)

15 March, 2006 02:50  
Blogger DubaiSceptic said...

Well, I don't live in Dubai. Have only been once. So if friends got you to tone it down then you need friends like that - given some of the comments on your website - I don't need to mention them specifically.

As a male observer of your part of the world, I just think your comments are part of what sociologists will use as research material.

Just wish you lived in the subcontinent so that I could read your take on social mores in Pakistan and India - Secret Subcontinental on Honour Killings, dowry deaths, the rise of divorce in India (inevitable and, in my view, not a necessarily BAD thing).

And, given that I'm posting from London, do you sleep at all?

15 March, 2006 03:05  
Blogger MuFi101 said...

iTs DuBai!! MaYB iTll puLL iTSeLF BaCK , wHT aBt tHe reAL eSTaTe maRKT?? CaNt THat pULL iT aLL baCK, caSH LosT i Mean

15 March, 2006 04:02  
Blogger Hot Lemon& Honey said...

if SD is not happy with the legal system here..its only natural to predict here veiws about India and Pakistan.
Dubaisceptic...its not all bad in Dubai, some of the things mentioned on this blog and few others are at times exaggerated...its actually a great city and one must remember its still developing..just give it time..
One more thing..
Dubai doesnt have to fit in the western standards to be considered a developed country..we have our take on lots of things in other cultures too...

15 March, 2006 04:48  
Blogger jumeira_john said...

Oh, finally some words of wisdom in this whole dilemma of real estate market bubble burst.

I am for all but to see it crash and dissolve. But since we're not going to witness that happen anytime soon, the rich will get richer, and "poor" will simply move somewhere else.

15 March, 2006 06:04  
Blogger marwan said...

Just market forces at work. I recall some analyst at Nomura Bank last year saying it was long overdue a correction anyhow. And regardless of recent events, the bourse was highly inflated last year on the back of those record oil prices.

Every bubble bursts.

15 March, 2006 06:13  
Blogger John B. Chilton said...

In predictable, tag-team-wrestling fashion, The Emirates Economist taps Secret Dubai on the shoulder and takes it from here.

15 March, 2006 06:48  
Blogger qadi said...

They all went for the hot blonde(I prefer them dusky myself, but it's a metaphor), and as a result, they had to all go home and jack off instead.

Didn't anybody pay attention while watching "A Beautiful Mind"?

Then again, perhaps Jack Grubman has struck again!

15 March, 2006 07:11  
Blogger unJane said...

Everyone knows the stock market is a gamble - that's why it works. When the 'g' word is haram in your culture, it creates a bit of a disconnect. Everyone's happy as long as they are winning but the minute the tide turns the other way they scream foul. Can't really have it both ways, can you? On a related note, I've heard that a lot of the (grandiose?) development schemes like The World have been cancelled. What have you heard?

15 March, 2006 08:34  
Blogger Harsha said...

Well, with the new property law coming out, the bubble is gonna blow up a lil more.

A lift in the property 'Boom'

15 March, 2006 09:45  
Blogger Balushi said...

@Dubaisceptic!!! Oh is it? Which country do you come from? America is it?


Why not secret America! and i will write the articles, I havent even live there but here are my articles:-

-Little boys shagging little girls in school.

-getting shot for no reason!

-Wife running away with co worker

-women sleeping with dogs

-Husbands and wife having Orgies and group sex!

-Children using drugs infront of the parents!

-daughters having sex at teenage years and getting babies and aborting!


Bla bla bla!!


This is Your and secretDubais Country or any other western country!

You Guys are in NO Position to critises or secretise anyone.

15 March, 2006 10:13  
Blogger Harsha said...

And Balushi, your telling me , none of this happens in 'your country'? jus because 'western' countries dont hide it and 'your country' does, 'your country' can can get away with it.

Even if 'your country' admitted it, they'd blame it on the west for spoiling their culture. :o)

15 March, 2006 10:20  
Blogger sandsOfTime said...

This market correction was telegraphed a mile away. For every smart UAE investor there were two idiots who bought shares because their "friends" told them to do so. On the bright side this makes the stocks of some solid companies affordable again. I for one am glad that the governments are refusing to bail out those idiots who obtained loans to buy overpriced shares. Next time, the market will start operating more on fundementals rather than rumor and innuendo.

15 March, 2006 10:31  
Blogger Balushi said...

It may happen anywhere!- But it aint a Norm.
But its a Norm in his and secy's country!


You just said we dont report things So How come secy is posting stories here????

15 March, 2006 10:40  
Blogger John B. Chilton said...

Some of us need to pay a visit to a hotel somewhere in the snowy mountains to have our eyes opened.

15 March, 2006 11:53  
Blogger the shadow said...

If you can't handle the lows then you shouldn't do the highs.

A correction has been expected for many months so I don't feel any sympathy at all for the people getting burned right now.

The irony is that the herd have done it to themselves. Did they really think that the subscribe-to-an-IPO-and-dump-it-six-months-later-for-a-300%+-profit model was a sustainable one? Ha, suckas!

15 March, 2006 12:00  
Blogger grinch said...

@ Harsha re property law
Hi! I'm not sure that I fully understood that property announcement. It says that Expats can own the freehold of properties in "designated areas" but those areas haven't yet been announced, right? So does that mean that those who bought in areas that will not be "designated" are screwed as they won't be able to take up the freehold and will have to sell at a loss?

15 March, 2006 12:11  
Blogger Harsha said...

hmm probably, wont be a loss really, wil continue they way its been , only the prices wont increase where as the 'designated areas' the prices would increase right about.. NOW!

15 March, 2006 12:30  
Blogger trobriander said...

This comment has been removed by a blog administrator.

15 March, 2006 14:00  
Blogger trobriander said...

SD,

This rancid obfuscation takes place when the market opts for shaping up by cutting the fat and keeping the muscles.

In the roto-rooter burger land, a time like this is when some midgets turn to petit(e)s ‘Rockefellas’!

Well, long-term share holders will ‘lend’ its stake for a fee so that a trader can sell it before a nosedive. He/she would later repurchase exactly the same number of shares, at a lower price!, thus closing the deal and then return the shares to their rightful owner.

So, yes, it’s a good time for those on the 20th to look for luxuries suites on 50th floor.

15 March, 2006 14:05  
Blogger DubaiSceptic said...

Balushi - you are a treasure. If you didn't exist SD would have to invent you - after all, every forum has its "Disgusted of Tunbridge Wells". in my optimistic moods I sometimes think you have a sophisticated sense of humour and are sending yourself up - but then I read your rants again and realise you are for real.

15 March, 2006 14:43  
Blogger secretdubai said...

And, given that I'm posting from London, do you sleep at all?

Not much!

I tend to recharge at weekends, when I often sleep in until it is nearly dark on Fridays.

its only natural to predict here veiws about India and Pakistan.

I don't think there are many educated people - men or women, muslim or non-muslim - who have any sympathy or support for honour killings or the hulood(sp?) laws in Pakistan ;)

elated note, I've heard that a lot of the (grandiose?) development schemes like The World have been cancelled. What have you heard?

I heard it months ago, but was waiting for a newspaper to "make it safe", by making the topic public, before posting. One did, as you can see here, however this story was almost immediately pulled by the publishers after High-Level Complaints. But not before I managed to take an archive pdf!

15 March, 2006 14:54  
Blogger unJane said...

wow - you do have the goods, thanks for sharing. I don't want bogus boy thinking I'm happy about the news and crawling up my a ss so please put the 'r' on my 'elated'. Cheers.

15 March, 2006 15:35  
Blogger archer14 said...

I read somewhere online that the stock exchange in the ME is overvalued at $300 billion. This isn't any 'correction' of any sort if you'd believe even half of that amount is true.
Thanks for the pdf SD, but whats the real deal? Did shk Mo get tired of seeing the Zayed racecourse blocked everyday or is it because Iran is about to go bust?

15 March, 2006 16:48  
Blogger al-republican said...

SD:

It's HUDOOD.

15 March, 2006 17:16  
Blogger secretdubai said...

al-rep - thanks! My aged memory grows rustier by the day.

15 March, 2006 17:26  
Blogger SIN said...

SD,
Similar story with Palm Deira, and its disappearing act. Unfortunatley that story died an untimely death too.
Realistic expectations in this country is still a learning phrase, and shall take a while for some to catch on the depth of its meaning.

15 March, 2006 17:32  
Blogger Matis said...

This comment has been removed by a blog administrator.

15 March, 2006 22:30  
Blogger Matis said...

Hi guys,

I just want to add my two cents to the causes of problems in the middle east. Surely you'll admit that the problems are compounded by graft at the highest level, i.e members of the royal families.

With this in mind I have created this blof about Middle East Royal Family graft. If everyone has a story or two that needs telling, then please add to it.

The Blog address is:

http://arabroyalfamilyallowance.blogspot.com

cheers

15 March, 2006 22:35  
Blogger Papadose said...

Well, this is no "dot com" bust. Certain companies are certainly at undervalued prices now with solid fundamentals. You're looking at companies that are "cash rich" (from IPO's, rights issue proceeds) which took a bad beating these past weeks, but in the long run, they'll be back. Look at Tamweel IPO subscription - 500 times oversubscribed. And this too at a time of a supposed market crash?! Its a correction alright and a healthy one but newpaper headlines are not going to be your route to making good investments.

16 March, 2006 00:24  
Blogger Hot Lemon& Honey said...

Matis...at least write something about who you are in your blog so we know who is this curious person is...

16 March, 2006 03:11  
Blogger Mohamed Elzubeir said...

I am not an economist by any means, but my simple understanding of part of the problem can be summarized in one word -- Brokers.

You have a lot of every day people going crazy with this new thing called stock market.. brokers say, sure, pay us 10k and we'll give you a 100k to buy with. However, if the stocks go down, we'll have to sell and you owe us.

So, even though not everyone who bought in wanted to sell, brokers sold anyway. And with a continuous downward spiral of the stocks, the brokers continue to sell..

And hence the current situation.

Please do feel free to correct my simple minded assessment.

16 March, 2006 23:25  

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