So much for BMW’s run-flat tires. Believe it or not, I’m actually sitting on the side of the A3 motorway in central Germany, about halfway between Frankfurt and Munich, waiting for the tow-truck to arrive.
Apparently you’re supposed to be able to drive on these tires even when they’re flat… and with such confidence in their country’s manufacturing capabilities, the German rental car company didn’t bother providing me with a spare. Call me old-fashioned, but I’ll take a spare and a jack over run-flat tires any day.
Given what we put this car through, though, it has performed admirably– about 2,500 miles of hard driving in just 4 days at speeds usually exceeding 200 km/h. You see a lot of interesting things when you spend that kind of time on the road, and one of my observations leads me to believe that we are in for a major shift world finance.
For starters, customs agents across Western Europe are visibly out in force, patrolling the highways and major travel hubs. Their mission? Generate revenue, coercively if necessary.
In just a single 12-hour period, we were stopped twice in France by government thugs. Similar to my treatment that I described last week at Helsinki airport, the encounter felt more like an inquisition– where were we driving from, what were we doing there, what do we do for a living, and most importantly, how much money were we carrying…?
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Tagged as:
bad governments,
bank accounts,
Dubai,
Hong Kong,
Malaysia,
panama,
Singapore
The ticking time bomb in Dubai finally exploded late last week.
On the eve of their most important Muslim holiday, which happened to coincide with the eve of Thanksgiving in the west, Dubai authorities made two statements spaced a few hours apart.
The first– that the heavily indebted, government-owned flagship holding company Dubai World had successfully raised a few billion dollars. Investors collectively exhaled, temporarily relieved that the company would be able to make good on its colossal debt payments.
The second statement came only hours later: Dubai World announced that it was asking creditors for a standstill on its outstanding debt… in other words, everything freezes– no more payments.
It’s a real life example of the adage, “If you owe the bank $100K and can’t pay, you have a problem. If you owe the bank $100 million and can’t pay, the bank has a problem.”
In Dubai’s case it’s around $80 billion.
Default and debt restructuring occur all the time, especially in the worst downturn of modern history. The part that stings investors about Dubai, though, is the utter lack of transparency and potential subterfuge. For months, the emirate has been reassuring investors that it would be able to raise money and make its debt payments.
Even Dubai’s ruler, Sheikh Mohammed gave worried investors the “talk to the hand” earlier this month, insisting that Dubai World (essentially his personal holding company) would be well capitalized and supported by Abu Dhabi, its rich neighbor.
Just a few weeks later, after months of tap-dancing, Dubai finally pulled back the curtain and confirmed investors’ fears– it had run out of cash. The nonchalant, innocuous way in which it was handled, however, will continue to infuriate investors for a very long time.
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Dubai
Long ago, physical commodities were used as a mediums of exchange… gold and silver were quite popular because they were scarce, divisible, durable, and hard to replicate.
If you had a few extra ounces laying around and wanted to store it securely, you would seek out the people who dealt with precious metals all the time and had the right equipment and staff to keep it safe. At the time, those were goldsmiths.
In exchange for keeping your wealth safe, goldsmiths would charge a fee… and for that fee, you could drop by any time and withdraw some of your gold on demand.
In other cases, if you wouldn’t be needing your gold for a while, you could leave it with him for a fixed period, say 1-year. In this case, the goldsmith would pay you interest on the deposit, knowing that he could loan out the gold to someone in need of capital at a higher rate for the same duration.
It was a simple, admirable system. When you wanted your money, it was there; if you didn’t need it, you could earn a return.
Over time, the system changed. Goldsmiths (turned bankers) began issuing paper notes which were redeemable for the gold that was secured in their vaults. The paper notes circulating around town were ‘as good as gold,’ depending on the bank’s reputation.
Occasionally, a greedy banker would circulate too many notes around town– $100,000 worth of gold in the vault, $110,000 worth of notes circulating around town. The banker got rich, and no one really noticed… until $110,000 became $150,000 became $200,000.
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Tagged as:
bank accounts,
Dubai,
Malaysia,
Singapore
Dubai is looking something like Rocky Balboa late in his first fight with Apollo…bruised, battered, struggling to his feet– but still fighting. Of course, if you remember the movie, Rocky didn’t win that fight. He was all heart, no belt. I think the analogy fits.
To be clear, I think Dubai is great… I have done a lot of business there and I enjoy it; it’s fun, safe, diverse, historic, and cosmopolitan. For the right expat, namely internationalists and expeditioners, it is a worthy location… as long as you don’t mind abiding by a few cultural guidelines.
Dubai is one of seven emirates that collectively make up the United Arab Emirates. Each is semi-autonomous– the UAE federal government handles things like the postal system, air traffic control, national immigration issues, foreign affairs, national defense, etc.
All other powers not expressly granted to the federal government are reserved for the individual emirates. Come to think of it, I think I read a similar clause to this once in the US Constitution. Oh well, at least someone is getting some use from it.
Out of the seven emirates, the two that count are Dubai, for its glitzy showmanship, and Abu Dhabi for being the money man.
As for the other ones… well, Sharjah is a fairly important port location, Ajman is where they tried to sell overpriced real estate using Stephen Baldwin as their celebrity poster boy, and the other three emirates don’t even try to get noticed.
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Tagged as:
Dubai