Bye Bye, Dubai

It seems like yesterday that Japan was at the center of the earthly economic universe. The largest banks in the world were Japanese, the electronics, heavy machinery and automobile industries worldwide were not only dominated by Japanese products but the engineering and vision for the future were developed and dreamed up in Tokyo. In all, Japan taught the world that measuring success quarter to quarter did not mean the earnings per share reported by corporations every 90 days but the presence and value of a business franchise over 25 years, fully a quarter of a century was how to measure a successful enterprise.

The Japanese attracted capital from foreign investors almost as quickly as admirers of their business acumen and discipline. During the course of the late 1980's the real estate market of Tokyo became so overvalued with indiscriminate speculation that it was valued at more than the entire land mass of the continental United States. Memberships at golf clubs were well over a million dollars and apartments where families crammed into what is little more than a 2 bedroom vertical ice tray were priced out of sight. Even watermelons were inflated at over what was then $100 a piece. The looking glass into the economic might of Japan in 1989, the largest economy in the world whose manufacturing and financial influence was evident throughout the world was nothing short of spectacular at over 40,000 on the Nikkei Index.

Fast forward 20 years and one can easily see that the mess created by the collapse of Japanese asset valuations continues to be seen. Real estate in Japan and other geographies where the Japanese were huge investors have not seen 1990 values since then. The Japanese stock market, the most revealing measure of a nations economic might, remains lower by 75% from its 1989 highs. Yet all the while Japan continued to be ever present as a manufacturer and engineer of consumer and industrial products as well as a major financial services player, all while leading the world in the production of good and services. The Japanese have survived an unprecedented valuation compression by continuing to do what they do best; employ their citizens in the manufacturing of products and services to sell to the world.

Dubai, another bubble blown up to the point of bursting by foreign dollars is but another example of the mania of herd mentality where it was thought that hotels in the middle of the ocean and indoor ski mountains sporting artificial snow flurries in one of the world's most blistering deserts was normal. And in the backdrop of this mecca of destination resort luxury is a nation so small and privileged that it would make the super wealthy Americans living on a small stretch of land between the East and Hudson rivers seem middle class. There is no manufacturing there, no technological institutions that drive thought, outside of host of foreign assets purchased with currencies derived from middle eastern oil revenue there is nothing that represents economic vitality.

The debt problems of Dubai are a symptom of western banks and investors, again, not doing their homework. The only reason Dubai was extended such debt was because it was thought that they really didn't need the money. Dubai is not a piece of the rock, but sand, slowly sliding through fingers in a remote part of the world. The ability to rehabilitate their balance sheet is not distantly similar to Japan's as they have little economic sense to draw upon. Actually when the rest of the world suffers under the weight of rising oil prices is when the sun, quite figuratively, comes out for Dubai.

Its a long and bumpy road back from the graveyards of valuation collpase, just ask the Japanese, or even the holders of sub prime mortgages.

Bye Bye, Dubai.