46 CITY
Talking points
Issue of the week: a local squall?
The consensus view in markets is that Dubai is a containable problem. That could yet be short-sighted
Say what you like about Sheikh Mohammed of
Dubai, but you have to credit him with some
chutzpah, said Louise Armitstead in The Daily
Telegraph. As a stream of money continued to
exit the emirate this week, the Sheikh lashed out
against faithless international investors who “do
not understand anything”. Some maintain it is
too early to write Dubai’s obituary, but the Sheikh
has shot himself in the foot, said Lex in the FT.
Dubai’s failure “to communicate decisively and
promptly with capital markets” has dented its
chances of re-emerging as a credible financialservices hub. “There is no Plan B for Dubai: its
cheap, credit-fuelled, City-in-the-Desert growth
gambit has been shown to be a mirage.”
Gulf as “containable”. But, given the “skin-deep”
nature of a global market recovery “driven by
short-term sentiment and massive policy action”,
investors could be forgiven their jitters. Indeed so,
said Larry Elliott in The Guardian. There are
serious concerns about Ireland, the Baltic states
and, in particular, Greece. “But it’s not just a case
of looking for the usual suspects.” Many countries
– Britain included – have seen budget deficits
explode. “The debts that hobbled banks at the
start of the credit crunch have not disappeared:
they have, in effect, been nationalised.” Dubai
should be a wake-up call for us all.
There will be plenty more shocks to come, said
Aline van Duyn in the FT, not least in the US,
That’s surely too harsh, said Sultan Sooud
where the exposure of banks to commercial
Qassemi in the same paper. The only surprise
real-estate loans tops $1,000bn. Many of these
about Dubai World’s request for a debt
loans have been extended in a strategy dubbed
Traders in Dubai
“standstill” is that “it took so long to happen”.
“delay and pray”. Ultimately, it’s “a timing
Perhaps “Dubai Inc’s” biggest mistake was not to have
game”: eventual losses will be determined by the state of the
restructured its debts a year ago, when $80bn or so “would not
economy when these loans become due. The same is true globally.
have raised many eyebrows” amid total bank write-downs
An important factor easing Dubai “contagion fears” was the
topping $500bn. But that, of course, is the key question, said
news that India recorded unexpectedly strong growth of 7.9%
Jeremy Warner in The Daily Telegraph. “Does Dubai amount to
in the third quarter. With debt blow-ups “inevitable” in the
no more than another aftershock from a banking crisis which is
coming months, “the big question is whether the world can
now largely behind us, or does it signal the beginnings of a new
grow fast enough to limit the losses and make banks more able
financial earthquake?” Most financiers view the situation in the
to absorb the pain”.
Making money: what the experts think
size and shape of his
new fund, which
The gold price may
will be available to
be hogging the
UK investors in the
headlines, but silver
spring, has yet to be
bullion has also
decided. But it will
been soaring, says
focus on Chinese
Isabel Andrews in
stocks. There are
Spectator Business:
doubters, noted
prices are up to
Jennifer Hill in
£8.50 per ounce
The Sunday Times.
from around £3 four
Experts such as
years ago. So what’s
Jerry Lou, Morgan
the outlook for
Chinese garlic: buy buy buy
Stanley’s China
antique English
strategist, believe “an asset-price bubble
silver? The recession has revived interest,
is forming in China”. But Bolton is conbecause people trust silver’s intrinsic value.
vinced the country is in the “sweet spot
But the market is much smaller than it
for growth”.
used to be, and prices of some pieces have
fallen dramatically. “Fifteen years ago, a
Georgian coffee pot might fetch £1,500 to
● Garlic bubble
£2,000,” says auctioneer Rupert Slingsby
One rather surreal market bubble currently
of Woolley & Wallis. The same “run-ofexpanding in China is garlic, notes Andy
the mill” pot might go today for £600McSmith in The Independent. Wholesale
£800. “That’s a big drop.” Where then
prices have almost quadrupled from
is the money heading? Pieces with
March. Indeed, garlic has been “a better
“particular artistic or historic significance” investment this year than gold or silver” –
seem the best bets: records have recently
a story which “has echoes of the great
been set for nutmeg graters, Victorian
Dutch tulip bubble of 1637”. The current
novelty items and antique spoons.
price surge is being attributed to a halving
of the planting area last year and belief in
● Bolton heads east
the bulb’s powers to ward off swine flu,
“Anthony Bolton’s investment juices are
says Lex in the FT. But unbridled trading
flowing once more,” says Patrick Hosking
activity suggests “the most likely cause is…
in The Times. The former Fidelity “star”
the abundant liquidity swilling through the
manager has been enticed out of semisystem”. A bubble in garlic is relatively
retirement to begin stock-picking again.
harmless when it bursts. Not so the current
And he’s heading east to Hong Kong. The
bubble in Chinese property.
● Silver dreams?
THE WEEK 5 December 2009
Bank ruling:
victory or defeat?
It was the rebellion that ended in a
whimper. Some 1.1 million bank
customers hoping for refunds were
disappointed by the Supreme Court’s
landmark ruling that charging fees
for unauthorised overdrafts is not
unfair, reported Philip Aldrick in The
Daily Telegraph. “UK banks are some
£2bn richer as a result.” The court
decided that the Office of Fair Trading,
which brought the case, did not have
the authority to determine the fairness
of charges, which can be as much as
£39 for a bounced cheque or direct
debit – pretty steep when you consider
that a bank’s administrative charges
are just £2.50.
“So whose side were you on,” asked
Ian King in The Times. “Were you with
the plucky campaigners standing up
for their rights against the greedy
money-grabbing banks?” Or were
you one of the “silent majority”, angry
that the actions of a vocal minority
could be about to jeopardise your free
banking? “Both sides have a strong
moral case.” Indeed so, said Patrick
Collinson in The Guardian. But most
customers will “secretly cheer” this
ruling. In any case, many banks have
softened their position: RBS has cut
its bouncing fee to £5, and the
maximum penalty charged over a
month is down from the “absurd”
£6,668 to £260. It would be foolhardy
to take this “victory” as “a green light
to return to old practices”.