What strikes me first is demographics. Dubai's indigenous culture is small and practically invisible to the casual tourist. In Dubai, the ambient noise you hear is construction equipment. Almost no smells stand out. Everything is modern, new and arid.

In India, there are people everywhere...living everywhere...sidewalks, riverbanks, parks, monuments. There are shanties built on any available spot. You hear the sound of people...the murmur of voices, bicycles, car horns. Even today, when the weather is a beautiful 30 or so and the breeze steady, the air is tropical, dank and full of all manner of indescribable odors.

Soon after we arrived at the Taj, a sarapi-wrapped young lady delivered Chris and I personalized letters. Each informed us that due to state elections being held, it would be illegal for the hotel to serve us alcohol of any kind beginning at 5 PM on that day, ending 48 hours later. We found out later too that if our partners here in India were to keep the office open for work on Election Day, they risked being arrested, fined and possibly put in jail.

"Can a democracy be a dictatorship at the same time?" an op-ed asked in this morning's Times Of India in response to the draconian efforts the Maharashtra state had taken to boost voter turnout. The idea simply: if people weren't allowed to work and didn't have the option to spend the day drinking... they might turn out and vote. Right.

In Mumbai, voter turn out was just over 40% - respectable by some US standards - but down a bit from the last election in 2004. "Worth 2 days without the hooch?" might have been our op ed title, had we been asked to submit one.

When we asked one of our colleagues here if he voted or not, he said 'no' and laughed. "Maybe if there were a category that gave me the option to choose 'none of the above', I would do so. But there isn't."

Bureaucracy and corruption, are the two words we've heard most this week when asking what's holding India back. In one example, a national auction for oil and drilling rights held on Monday closed with only half of the contracts even receiving bids. A conflict between the Oil and Energy Minister and his brother have left many would be suitors for the rights contracts unsure who's calling the shots. This week, no one wants to put their own money down in fear of losing it unceremoniously.

Upon entering one of the security firms we visited we faced a door, but no walls. It looked every bit as if an architect had gotten carried away with "form" and completely forgotten "function"... Or a cubicle concept plan for "open space" office design gone horribly awry. Later we learned they'd planned to install glass walls several years ago during a renovation, but had never received permits to erect walls higher than 7 feet in their own office space. Huh?

"If we were willing to bribe the local building authority," our host suggested, "the walls could go up this afternoon."

Bribes, corruption and bureaucracy are part of the culture. But it's also part of what makes Mumbai work. "This is a 'make do' city," our travel compatriot Chris Mayer observed while we were driving around the city shooting video for a documentary short we hope to produce on the opportunities in the Indian market. We'd stopped in front of the state Police Headquarters for Maharashtra. It's a formidable colonial era building. But apparently they don't like you taking pictures... or stopping at all... in front of the building. An angry police officer began yelling at our driver in Hindi. Several officers carrying impressive weapons were standing behind him.

"Uh, maybe they don't like us shooting here?"

The driver got out and disappeared around the corner behind a truck followed by two of the police officers. One stood watching us in the back of the car. A few minutes later the driver returned.

"It's okay," he said and we carried on about our business.

Later we learned a quick 100-rupee note had saved us from a trip inside the police headquarters, rather than just gawking at its façade.

With 16 million residents here, many whom live below the poverty line, the roles defined over the millennia help ensure every mouth gets fed. The only part of the city that gets consistent electricity and water is Southern Bombay. The other parts of the city, and everywhere else in the country, go through regular interruptions in basic power.

Traffic is really a sight. Harsh, a twenty-two year old graduate of Northwestern in Chicago, explained that the population has been trained by years of scarcity to try to push their way to the front of the line. It used to be because they didn't have rice, bread or food; but now, they've been doing it for so long, it's a cultural thing. So, for example, when a train pulls up to the station everyone tries to get on at once. That's the way they drive, too.

"Harsh represents the future of India," his father Jayesh told us proudly. Jayesh and his family have been stockbrokers since 1954 when his grandfather founded KC equities "For years Indians have felt like second class citizens of the world. But not these guys. They grew up with the Internet. They're highly educated, motivated, confident. Rather than striving to stay in the United States after university, they're coming back to India to participate in the development of the economy, the markets here."

Having been to Dubai and meeting Moe, we were struck that a trend seems to be underway. In 1976, Richard Dawkins authored a book called The Selfish Gene, in which he identified a cultural unit - called a meme - that evolves and transforms as it gets passed from one human being to another.

Today, the "capitalist meme" is still actively cultivated here in the US. But because of access and speed of modern communications ... coupled with the crisis in markets and entitlement programs in the West... that meme is being carried by young, intelligent, educated, active and motivated youth to the far corners of the earth. Indeed, in today's Wall Street Journal's op ed pages, Susan Hockfield, the president of MIT, laments that the current immigration policy in the US is actively aiding and abetting the return of science and engineering students to their home countries.

But more so, opportunities in Dubai, Mumbai... Shanghai... are inviting students back home in droves as well. At dinner one night, Jayesh made this suggestion to his son: make a list of all the things you take for granted in the US and start businesses to provide them to the Indian market. Refrigeration, for example, or electricity and roads. India is the world's second largest producer of fruits and vegetables, but it loses 30-40% of them because lack of refrigeration.

Indeed, the small cap companies we looked at while working with our partners at Equitymaster.com included:

• India's largest financier of trucks and construction equipment
• The company leading the introduction of RFID and AIDC technology into retail purveyors
• The leading LED displays and light bulb maker in India
• The world's second largest steelmaker
• Largest producer of roses in the world

Foreign direct investment into the Indian stock market is still restricted and won't be available until the rupee and dollar become fully convertible. And that won't likely happen for several years. India is a net importer of grains etc. If the rupee were to float openly on the world's forex exchanges speculation alone could cause major disruptions in India's ability to feed itself.

For now, there are several companies available on the NYSE via ADR. And People of Indian Origin (PIOs) can invest in special accounts directly in the Indians markets. Likewise, Indians are now able to invest $250,000 a year outside the US. But progress in opening the flow of capital between India and the West remains a question for the future.

Bureaucracy, corruption and regulation are indeed impediments to short term growth. And reforms in a democratic society may come slowly... but the long-term opportunities are abundant. We intend to be there when they break.

Regards,

Addison Wiggin
for The Daily Reckoning Australia

P.S. We left the Taj at 2 AM to catch a flight at 5 AM. Our flight passed through Doha, Qtar and reached New York by 3 in the afternoon.

"We will know we're really making progress," our friend Ajit quipped as we enjoyed a final glass of wine on Friday evening, "when we can set the flight times of our own airlines heading to the West."

• Arab Wealth Pours Back into Dubai
• Qatar Relies on Natural Gas Reserves While Dubai Leans on Trade and Finance
• Unlike China, India is Not Willing to Learn from its Mistakes
• The Inflation Rate in India is Running About 12%
• India Has 36 Billionaires

The 4-lane Sheik Zayed road stretching between Dubai and Abu Dhabi is, at best, a competition for speed; at worst it's a death trap. Among the UAE's claim to world's largest shopping mall, world's tallest building and world's longest metro built in "one go", is this highways claim: to one of the world's biggest automobile pile-ups.

On March 12, 2008, 25 cars traveling along the route burst into flames after piling into one another as a band of fog rolled in from the Gulf. Nearly 60 cars were in the accident altogether... 347 people were injured in the crash, 6 lost their lives.

"The crash happened because everyone was speeding despite the severe weather conditions," an Abu Dhabi traffic police officer said at the crash site, as reported by the Gulf News. "Drivers weren't leaving a safe distance between cars and this resulted in everyone hitting each other after the first crash."

A documentary short posted on YouTube capturing the 911 calls placed from motorists describes 'Foggy Tuesday' as a morning devoid of "human caution." The film also heralds the obvious bravery of the men who arrived from the Abu Dhabi fire, police and rescue crews to save those who'd become entangled in the brouhaha.

We will not hold you in suspense any longer...the metaphor suggested by this fantastic auto accident is a perfect fit for those studying the Dubai property bust. And like the writer of a Hollywood script, we cannot help by bring it to your attention.

Yesterday, on the recommendation of our new friend Moe, we traveled the same stretch of Sheik Zayed highway where the accident had taken place. Mohammad "Moe" Fathi Al Abrozani a Bahrainian-Qtari whose mother was an Iranian-American. Moe was born in Abu Dhabi, educated in California, lived briefly in New York and Chicago, then spent seven years in Germany. (His German is so fluent our German friends, Andre and Vereena, here in Dubai did not expect him to be Arabic when they first met him in person.)

Moe had returned to the Middle East to take part in the expansive boom attracting so much attention around the globe. He's now an executive with TwoFour54 Media, a firm set up by the government in Abu Dhabi to woo Western firms into establishing their Middle East operations in the new Media City in the UAE's capitol city. The rulers of Abu Dhabi had witnessed the efforts, successes and failures of their fellow emirate, Dubai, and have since vowed to create a modern media communications hub greater than anything now in existence.

"Why mess with visas, permits and expatriate contracts down in Dubai?" Moe asked us at dinner the other night, "when you can come to Abu Dhabi and get them all from the government free...?" One foggy morning in the year 2008, the reckless speculation that spurned much of the outrageous development projects in Dubai began to pile up on each other. Now the motionless construction sites lay in wait for assistance. In a scene familiar across the West, Abu Dhabi, the company line suggests, has "come to the rescue" of Dubai; with low cost loans; paper money and the sincerity of an assassin.

When we met up with Moe and Andre at Shakespeare's a brand-new bar in the all-new Souk Al Bahar, they were quietly puffing from sisha - the traditional water pipes bubbling with aromatic smoke. Our mission in the region was and is simple. We want to establish a presence on the ground from which we can monitor the developments and assess investment opportunities in Dubai, the UAE and across the Middle East unfiltered by the mainstream press. But here we were being asked to consider moving the infrastructure of our publishing business, our families, our lives, half way around the world to the desert. Bloomberg, CNN, Forbes are all moving and or expanding their operations in either Dubai or Abu Dhabi.

Why shouldn't we? Our friends in Abu Dhabi are apparently ready and willing to help.

Dubai and Abu Dhabi, the two leading Emirates of the UAE are relatively new to the global finance and trade... but they want you to know they have arrived in high style. This weekend, Formula One racing makes its debut in Abu Dhabi. The government had to pull workers from several of its five star seaside resort project to complete the track and facilities on time. Ferrari World, a massive theme park dedicated to the sport sits nearby. Yesterday, the Emirates Palace Hotel - the world's first seven-star hotel - Demi Moore, Hilary Swank, and last year's Oscar winner, Freida Pinto (Slumdog Millionaire) graced the opening ceremonies of the Middle East Film Festival. The Abu Dhabi sovereign wealth fund has famously leveraged their way into both of the leading football franchises in the world - FC Barcelona and Manchester United.

Still, our friend Peter Cooper recalls a time in his own family history when Dubai was nothing but a backwater of the British Empire, a port full of smugglers, nomads and thieves. His great uncle had been stationed here during World War II. At the time, the strife caused by the war left the ragtag bunch group of 7,000 residents on the edge of starvation.

Sheik Rashid, the father of modern Dubai, dredged the Creek in the 1950s establishing Dubai as a free trade port. At the time, too, the Creek dredging project was roundly criticized, as it should have been. The project cost nearly 3 times Dubai's annual GDP. But it also established Dubai as the trading center for goods coming into the Middle East. If you go down by the creek today there are Iranian Dhows - the Middle East's answer to the Chinese Junk - bringing rice, rugs and refrigerators back and forth across the Persian Gulf. Iran's ports are about a two-day drift away for these wooden ships. Kuwait and Iraq a day or two more. Bahrain, Qtar, Oman closer still. Without the fantastic success of that initial dredging project, we wouldn't be writing to you from the desert today.

"Dubai the hot spot..." has been a center of trade, smuggling and the rougher trades ever since. As the back jacket copy on a 1970s novel about gold smugglers in Dubai written by the French Connection author Robin Moore indicates: "Dubai, where adventurers play the world's most dangerous games...gold, sex, oil and war. Cold- blooded adventurers in a blistering Mideast empire where life is cheap and no price too high for pleasure." The novel is still banned here because the sheiks don't like the image it portrays.

The promise of riches, however, is part of the region's allure and what has attracted those expatriates who chosen to ride out the bust and continue to live here to this day.

The most recent gold rush, the boom in Dubai property, came on the heels of the terrorist attacks on September 11, 2001 and the same policy response that spawned a housing and consumption bubble across the United States, London and much of the West. Arabs flush with energy and trading capital brought much of that money home to the Middle East fearing a Western clamp down. At the same time, investors in dirham backed assets - the local currency which has enjoyed a US-dollar peg since November 1997 - benefited from the same era of low interest rates that soccer moms in Montgomery County, Maryland or gamblers in Las Vegas, Nevada did.

And like all booms, the property in Dubai witnessed its excess and its pathos. An article in this week's Asian edition of Time Magazine laments the manmade island project meant to mimic all the countries on the planet. "The World is one of many architectural fantasies in Dubai that now appear to be shimmering mirages. The emirate boasts the 818m Burj Dubai, the world's tallest skyscraper; a manmade island shaped like a giant palm; a ski slope in a shopping mall; an 18-hole golf course in the middle of the desert that will slurp down 3.8 million liters of water a day. But the dozens of giant cranes that once littered the skyline are beginning to migrate elsewhere. Dubai today has the feel of a futuristic, five star ghost town blasted by sandstorms."

"The fools!" we can hear readers of Time Asia chuckle with superiority. Everyone likes to kick a gambler when he's down.

But the story remains. On our way to Abu Dhabi yesterday we passed by the free zone surrounding the new deepwater global trading port at Jebel Ali. Business Bay near Jebel Ali is the home to many of the Bubble Era development projects, 30-story towers standing side-by-side, dark windowed and tenantless.

We suspect many of these nutty projects - like the City of Arabia, which had boasted an amusement park full of life size animatronic dinosaurs as its calling card during the boom - will never find the funding to finish. More sober projects that are or are nearing completion will likely take years to find tenants. And those "investors" who bet big and large on Dubai property in 2003-08 are no doubt already wishing they never had.

But the free zone near Jebel Ali also the site of Dubai's real potential; banking and trade. Corporate tax rates in are effectively zero. You name a multinational and Moe can point to their local subsidiary. The Dubai Mall, for example, is reported to need 10,000 shoppers a day to break even but now only sports around 7,000. Why do the world's most famous brand names all have shops open and spiffy already, we couldn't help but wonder. It has to be for those fine tax rates, we couldn't help but conclude.

Among other racy themes we heard this week, Dubai is supposed to now be the world capitol of the flesh trade. And the gold price hit an all- time high early in the week after we arrived sparked by rumors the GCC would back a unified currency with gold and provide oil traders an alternative pricing unit than the US dollar...

We suspect this fantastic wreck in the desert is only one scene in a long, exhilarating drama. We're not "long" Dubai in any real investment sense. Not now anyway. But, like most onlookers to the spectacle, we struggle to avert our eyes. The story promises more exciting car chases, more steamy sex scenes and political intrigue to come...and we'd be lying if we didn't admit we're suckers for a good story. And, who knows, we may open an office of our own there.

Regards,

Addison Wiggin
for The Daily Reckoning Australia

• Qatar Relies on Natural Gas Reserves While Dubai Leans on Trade and Finance
• Arab Wealth Pours Back into Dubai
• Is Dubai the Bubble It’s Made Out to be?
• Equity Shareholders Are Wiped Out As Financial Shares Plummet
• DMCC and their Precious Metals Vault

"The real boom in Dubai really only kicked off recently. After spending some time here and chatting with those who live here, I would boil down the more important ingredients to these:

• Low regulations, low tax. This has probably been a Dubai advantage for a hundred years, but people here told us repeatedly how easy it is to set up shop in Dubai and how your privacy is protected. There are also no income, property or corporate taxes. Zero.

  (The city funds itself with taxes on hotel occupancy, liquor sales and restaurant meals, as well as permits for roads and such. Part of the budget also comes from the Sheikh's business interests - such as Emirates Airlines and the aluminum smelters.)

• The introduction of freeholds. In 2002, Dubai allowed foreigners to own property in so-called freeholds. That was a big milestone that kicked off a wave of immigration. So now there are these freeholds where the Penthouse Gypsies live in high style and in very nice communities.
• The backlash of 9/11. Before 9/11, Middle-Eastern exporting countries re-invested $25 billion a year in the US. After 9/11, that slowed to about $1.2 billion a year. Arabs no longer felt welcome and feared what might happen to their wealth. So guess where the money went?

  Arab wealth started flowing back to their own countries. The economies of the eight states of the Gulf Coast grew 60% between 2001-08, compared to 18% for the US. 'Cash poured into Dubai,' Krane writes. And Dubai's growth rate topped China's, averaging 13% per year.

  Essentially, the repatriation of Arab wealth in the US was a big driver and still continues to today. As the Middle East region gets wealthier, a good chunk of that wealth will flow through Dubai.

• Finally, the UAE fixes the value of its currency to the dollar - at least for now. What this means is that as the US printed dollars the effects were exported to Dubai, too. That is where Dubai got into trouble. Lots of speculative capital flowed to building islands in the shape of date palms or creating residential communities with robotic dinosaurs from Japan. Now Dubai is suffering through a massive real estate bust as a result.

"Still, Dubai's important position in world trade is many layered, like a wedding cake."

Bill Bonner
for The Daily Reckoning Australia

• Is Dubai the Bubble It’s Made Out to be?
• Qatar Relies on Natural Gas Reserves While Dubai Leans on Trade and Finance
• Dubai and Abu Dhabi: Newcomers to the Global Finance and Trade
• Bureaucracy and Corruption Holds India Back
• China is the World’s Largest Exporter to the Middle East

Qatar's greatest asset is its natural gas reserves. In fact, the largest gas field in the world is here. Its discoverers were disappointed when they found it in 1971. They were looking for oil.

The boom Qatar now enjoys is the result of some daring investments in liquefied natural gas (LNG) back when people thought doing such a thing was a little batty. Faisal Al Suwaidi, the head of Qatargas, deserves the props for his wager, which have paid off handsomely. Today, Qatar produces about one-quarter of the world's natural gas.

Qatar supplies such faraway customers as Japan, India and China. Qatargas also operates the largest LNG terminal in Europe at South Hook on the Welsh coast. This facility provides Britain with a fifth of its gas needs.

Qatar's dominant position has filled its coffers and changed the country forever. On a per capital basis, it is one of the wealthiest countries in the world. And given the world's growing energy demands and the appeal of clean-burning (and cheaper) natural gas when compared with oil, Qatar seems in a good position.

In Dubai, the story is quite different, as Dubai does not have Qatar's gas reserves, nor does it have much oil. Dubai's story is one of trade and finance.

As I write, the sun is just peeking over the horizon. It is dawn in Dubai. Out my hotel window, I can see two buildings with cranes over them and in the distance another building in scaffolding. For a city that was once booming and turned bust - as with most places - there is still a lot of construction going on.

As recently as September 2008, realtors could claim that no one had lost money in the Dubai property market. That's no longer true. In fact, now the market has too much of just about every property type. One headline story noted how 32,000 homes are about to come on the market next year, which is a big number to choke down in any city. Dubai had a huge property boom and now must suffer the flip side.

The hotels, too, are pretty empty. We are staying at the new Address Hotel downtown, which has been open for only 25 days, we are told. I'm the first person to stay in my room. It still has that new carpet smell.

I wandered down for breakfast and was alone in a cavernous dining room. The hotel is brand-spanking new and everything looks wonderful. It's just mostly empty. I think there are more hotel workers than there are guests.

In Dubai, revenue per room is down 35% from a year ago. Yet there is still an expansion going on. Next year, estimates call for a 15% increase in the number of rooms. This would mean a 40% increase in two years.

Over breakfast, I perused my complimentary copy of The National. One of the things I like to do in a foreign city is to read the local newspapers. I'm kind of a newspaper junkie anyway - I get three dailies delivered to my doorstep at home. In any event, I always find interesting nuggets from a perspective you might not get if all you read is The Wall Street Journal or Financial Times.

Today's business page carried an array of tales... There was the arrival in Doha of a new LNG tanker, fresh from Seoul's shipbuilding docks. There was a story about how UAE consumer confidence is up. Also, notes on bond issues in the Gulf, the latest figures on money supply in Kuwait (it's rising at a frighteningly quick pace of 18.7%), the price of villas in Dubai and more. All sorts of little odds and ends that help paint the picture.

There was also a lot of chatter about infrastructure, which I found particularly interesting. Abu Dhabi, the capital of the UAE, which I will visit on this trip, is looking to raise $100 billion for infrastructure projects. From The National: "The emirate needs to fund new transport, electricity and telecommunications schemes..."

Dubai itself also has ambitious infrastructure spending plans. Last night, as we made our way to our hotel, we could see the new Dubai Metro stops along the way, which, lit up as they were in soft blue and white twinkling lights, looked like something out of the future.

Incredibly, the Dubai government last year spent about 45% of its budget on infrastructure projects - mostly on the roads and ports. But there is a lot more on tap, as The National reports:

"Dubai could invest as much as $20 billion in desalination projects in the next decade alone as it increases its water output by 2.72 billion liters a day... [There are also] plans to add 14,405 megawatts by 2017... Construction costs for those new plants amount to $11.6 billion, while infrastructure costs, including substations and transmission lines, will be about $11.6 billion."

This massive build-out is not unique to Dubai, or even the UAE. There are also big infrastructure projects of all kinds in India and China and other emerging markets.

Regards,

Chris Mayer
for The Daily Reckoning Australia

• Arab Wealth Pours Back into Dubai
• Dubai and Abu Dhabi: Newcomers to the Global Finance and Trade
• Is Dubai the Bubble It’s Made Out to be?
• DMCC and their Precious Metals Vault
• The Inflation Rate in India is Running About 12%

"My short stay here in Dubai has led me to believe that Dubai & Co. is a largely unsustainable enterprise.

"Dubai's lifestyle makes the average American look like a prudent, energy-conscious, environmentally-friendly health nut! I read the other day that 60% of the average Emirates' total income is spent on consumer goods - Gucci totes, designer abayas and million-dollar number plates.

"The big difference I can see is that, save for the last few years, the vast majority of America's wealth accumulated over time and from the productive, honest toil of citizens who forged metal, cracked bullwhips and invented light bulbs. Dubai's wealth has come on fast and strong...and is not really the product of its own honest toil. Were it not for American, British and French companies - among others - who told them what all that black stuff underfoot was and what the rest of the world was prepared to pay for it, Dubai might still be a pearl diving port of a few thousand itinerant workers.

"If the American economy is drunk on its own home brew of 'irrational exuberance,' Dubai is sucking down straight tequila shots and desperately trying to catch up. We see it here everyday as the government squanders its unearned wealth on extravagant welfare programs and 'National Identify Preservation' boards and committees dedicated to 'cultural heritage association' this and 'watchdog for immoral behaviour' that. Then there's the over-reaching controls on the economy - price fixing, wage manipulation, rent caps...the list goes on.

"I read with interest the 'Frapp On Ice' story just the other day - about how Starbucks will close 600 stores over the next year as discretionary consumer spending shrinks. That story was all the more amusing for me as I actually read it on my laptop... in the Starbucks that just opened in the lobby of my building last week. There are now six Starbucks within walking distance from my front door (and I don't walk far - it was 125 degrees on Monday). We also have numerous Seattle's Best, Krispy Kreme's and the rest of the strip mall junk to go along with them. It's like anytown USA...super-supersised. Which brings me to my next point...

"Jumeirah Beach Residence (or JBR for the cool kids) is a 36-building project that opened a year or so ago. Each building is around 40 stories and there is said to be space for 25,000 people to live here. But where are the people, I ask myself? So few apartments are occupied that I still notice when a conspicuous new light comes on at night in the surrounding buildings...yet, apparently, most are sold. I can't see the newbies rushing to cut more keys as rent prices have, get this, risen by over 50% since we moved in in December. We took a relatively comfortable two-bedroom with a decent view, but if I walked in off the street today I couldn't get a studio on the first floor for the same price.

"The story is similar elsewhere in the city too. Projects are developed, pumped through the massive Dubai & Co. media arm and, voila! the joint is 50, 60, or 70% taken! 'It's another success story,' ring the papers 'Dubai's world-beating ingenuity triumphs again!' chorus the king and his merry band of sycophants. But, best as I can make out, the biggest developments - including JBR, touted as the 'largest single- phase residential project in the world' - are still ghost towns.

"A friend of mine was out the other day to inspect a house he saw for sale in one of these new developments (Arabian Ranches, in this case). The price was at the top-end of his budget and he was 'umming and ahhing' about it until the estate agent casually threw in, 'now, this property is only available in lots of 10.' In other words, the development is being sold off in 10-house chunks to middle-men who then flip 'em and burn onto the next 'world beating' development.

"So who's buying all these vacant houses, streets and islands? Some - and not just the conspiracy theorists either - say Dubai is a massive funnel for dirty Russian money. Others, including myself, reckon speculators buy into the hype...hoping a bigger idiot will buy into it a year later and hand them a handsome return.

"The trouble is, sooner or later you're going to run out of idiots. Even here in Dububble the supply of them is not without limit."

Bill Bonner
for The Daily Reckoning Australia

• Arab Wealth Pours Back into Dubai
• Qatar Relies on Natural Gas Reserves While Dubai Leans on Trade and Finance
• Dubai and Abu Dhabi: Newcomers to the Global Finance and Trade
• Equity Shareholders Are Wiped Out As Financial Shares Plummet
• DMCC and their Precious Metals Vault

Late last year, at a lavish party celebrating the Dubai International Financial Center’s anniversary, its director, Omar bin Sulaiman, declared that the Middle East’s time in the “financial wilderness” was over. Looking at Dubai, it is hard to argue with him.

Numerous financial services companies and banks are opening offices here. Morgan Stanley, HSBC, Credit Suisse and others are planning, or have already opened, full-service operations in Dubai.

The domestic stock markets are hopping. Over $3 billion has been raised in Middle Eastern initial public offerings in 2005. Bond issuances have tripled in two years. Further evidence that Dubai is attracting global wealth: Of the nearly one million residents in Dubai, about 80% of them are expatriates.

Oil still accounts for about a third of the economy in the United Arab Emirates, but travel and tourism contributed 11% in 2005, and that number is growing rapidly. International tourism to Dubai went up 9% in 2005, to 5.5 million tourists, and is expected to triple by 2010. Dubai has a good infrastructure, including a world-class airport — Dubai International — that’s one of the busiest in the world. Over 20 million passengers walked through its turnstiles in 2005. Traffic has grown at a compounded annual rate of better than 13% over the last 10 years.

The projects in the pipeline are staggering: More than $30 billion in construction projects, nearly all of them in the next five years. These projects include a mix of business and leisure properties, as well as infrastructure projects.

Dubai takes luxury to another level. Their hotels are like the cathedrals of the previous centuries; their shopping malls like monasteries. They are their signature architectural works. They stand as monuments to human craftsmanship and material progress.

Foreigners are the main feeder for the Dubai hotel market, particularly Europeans. But the Arab world figures prominently, too. Arabs make up nearly 40% of the total demand for hotels.

The fact that Arab wealth is heavily involved in Dubai is particularly important. To say the Arab world is not known for its stability would be an understatement. As David Ignatius wrote recently in The Daily Star: “Every Arab investor in Saudi Arabia, Kuwait and Qatar has to worry that Islamic fundamentalists will someday upset the money machine — and in anticipation of that disaster, they all want somewhere to run.”

Dubai is their chosen safe haven, “the Arab world’s ultimate gated community.” Far from a target, the powers that be will protect Dubai, because it is where they park at least some of their own wealth.

But as the wise old sages advises, never trust prosperity. Just when you think things are going swimmingly, along comes Fate to put the kibosh on things. In fact, Fate seems to relish the opportunity to slip one the ol’ banana peel and give a kick in the pants.

Is Dubai just another bubble? It could be. But it could also be another Hong Kong or Singapore in the making. Given the wealth in the region, and the increasing hostility of large governments (including the United States) toward business, such safe havens will be more important than ever. At least for the next several years, Dubai looks pretty good to me.

Chris Mayer
For The Daily Reckoning Australia

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