The reversal in trend that is happening now, for the Dubai economy was much awaited & expected. Only point is that the pace & severity of the downturn was something that was unexpected. But this correction, in a way, is a healthy one.
In the last 4~5 years, Dubai had seen exponential growth, which was unprecedented. With numerous mega-sized & iconic projects underway, it was believed that two-third of the worlds construction cranes were in Dubai! Though business was growing, life, per se, was reaching an extremely difficult pace that deteriorated the quality of life. Rents were soaring, acute traffic congestion, extreme inflation and above all - lack of quality. Problems associated with crazy, unplanned & unregulated growth.
With no proper regulation in place & with no genuine demand for houses; real estate prices were speculated & exorbitantly high. And for certain people the growth & economic prosperity had gone in to their heads & had lost ground with reality! The path of life that were traversed were going into oblivion & virtues like - modesty, humility, simplicity, courtesy were tardily evaporating.
Hence the correction or rather ‘negative growth ;-)’ is a healthy one, though there is price to be pay. Hope, henceforth the focus is on value & quality, by having proper regulations in place, rather than on exponential quantitative growth. Bigger the bubble, steeper the fall.
Media these days is abuzz with news of the global financial crisis. Job cuts, recession, bankruptcies of banks, manufacturers & even countries, financial ‘tsunami’, credit crunch, worst performing stock market... index down by 50%, plummeting real estate prices are the most common headlines. Reading newspaper or watching news channel makes you feel dispirited & dejected.
Parallels are drawn to the Great Depression of the 1930s & the economists, who still do not know whether the worse is over yet, predict that the present situation is supposed to be worse than the former. Since none of us have experienced or know how bad the 1930 situation actually was, the gravity of the issue can not be comprehended.
On a positive note, I also learnt some heavy-duty economic-financial theories & phrases (since I come from a non-financial background) – importance of certain figures like industrial output data, consumer spending & US unemployment figures; leveraging, filing for bankruptcy, Govt bailout packages, significance of central bank injecting liquidity into the ‘system’, cut-down or freeze on ‘capex’, how the “wall-street” impacts the “main street”, Repo Rate. The list of jargons goes on & possibly they have now become common household phrases. You can hear them in the office corridors & party gatherings. Many a layman would have transformed in to econo-financial experts by now.
It is, in fact bewildering, how the loans extended by various institutions to consumers in the US (misdeeds of a single country) can push the whole world into a major financial crisis. This is a part of ‘globalisation’ & the ‘world becoming flatter’! The US was not only exporting its nuclear technology, software, fast food, coke etc but also its toxic debts. Every country (except Antartica!), every industry, every person is paying a heavy price for this today. We now look at this unregulated financial system with scorn. When the bubble is big, the crash is also steep.
Today, we are all paying a price for - somebody living miles away from us could get easy money & could not repay it back. So let us be sensible to take debts judiciously & live within our means.
Financial/ economic predictions are quite interesting.
When the crude oil prices started its rally, it was predicted that it will touch 150$, 175$ and even 200$. Reason was supply-demand theory – booming economies like China & India, supply disruptions (Iran, Nigeria, Cyclones), US inventory etc.
But nobody predicted its steep fall of 20% with in 4 weeks of touching its all-time high of 147$ in mid-July. If the price increase was based on supply-demand theory - demand has not fallen by 20 % in 4 weeks. Supply disruptions have suddenly vanished! Now when it has started tumbling, new figures like 100$ & even $75 have started coming out.
So is the case with other commodities like gold & even the recovery of US$.
For every rise & fall, there is an analysis & a plausible explanation. The ‘how’ of it. But there is no explanation on ‘why’ & prediction of ‘when’ these will happen.
If the steep price increase was due to excess demand, demand can not drop by 20% in 4 weeks. Where has the supply fears disappeared? Then aren’t all these explanations baseless & these rise & fall mere speculations.
Another classic example is the US sub-prime crisis. With thousands of experts working with world renowned financial behemoths, they could not predict this crisis which started in the US & has become a full blown financial crisis with repercussions globally.
