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
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• The Inflation Rate in India is Running About 12%

..where earnest men and women toil long hours in glass towers. What are they doing?

'Look at this chart,' they tell clients. 'It shows how much you can expect to make at different risk levels. And see this curve? It is what we call the 'efficient frontier,' where the risk/reward relationship is optimized by proper asset allocation.'

'Wow,' you say. 'You must have some pretty smart cookies working for you.'

'Well, we do our best,' says the young man, modestly.

In a normal economy, 'finance' performs a useful function - helping to match up people who have capital with people who need it. But even when it is on the level, the profession is full of bombast and flimflam.

Those numbers, presented so confidently to customers, were 9/10ths smoke and 1/10th mirror. The new book by Rogoff and Reinhart confirms a point made by our friend Nassim Taleb: both the theory and practice of modern portfolio analysis were flawed. The theory was flawed because people are not reliable. They don't always react in the way their models predict. What they did in the past may or may not be what they do in the future. And the practice was flawed because the past that the number crunchers looked at was limited to the last 25 years; it was the period since 1980, for which they had the figures! In other words, their models were based on numbers only from the boom years.

The US dollar is getting trashed, Strategic Short Report's Dan Amoss tells us.

The greenback "is increasingly being viewed as a 'funding' currency in the carry trade," Dan continues.

"In other words, leveraged speculators are borrowing US dollars in the short-term money markets at near-zero rates to buy bonds in higher- yielding currencies like the Australian dollar or the euro. If this trend remains in place, it will continue to drive down the exchange rate of the US dollar, and drive demand for gold up.

"This trashing of the dollar is not bullish for America as a whole. It's dangerous for the viability of the middle class. It's good for exporters of agricultural products, specialized manufactured products, and energy producers, but bad for everyone who pays for lots of imported products, or imports that are incorporated into the supply chains of businesses that sell to US consumers.

"I think this claim that 'a weak dollar is good for exports' is narrow- minded and misleading. It ignores the fact that a weak dollar would drive capital out of the US, into economies that are paying a real return on their currencies."

Bill Bonner
for The Daily Reckoning Australia

• A Dollar Crash Will Have Disastrous Implications for Global Financial Markets
• The U.S. Dollar vs Inflation, Americans Vote for the Dollar
• U.S. Dollar Strength or Oil Weakness?
• Gold, the Dollar and Inflation
• U.S. Dollar Bulls Rallying Behind Fed Statement

"The World Bank met on Sunday faced with a mounting food price crisis that has sparked deadly unrest in developing countries, underscoring the urgency of fighting hunger and poverty," reports Channel News Asia.

How urgent, you ask? The Prime Minister of Haiti was sent packing this weekend by crowds protesting soaring food and fuel prices. We don't even know who the man is but reckon he won't be the last public official to be ridden out of town on a rail before this current crisis is over (and it may not be any time soon).

As usual, it's the people at the margin (whether lending or with food) that are affected first when surplus turns to scarcity. Despite all the daily signs of abundance here in Australia, let us not forget that there are about four and half billion people on the planet who have little margin for error in their daily lives. If food prices go up, many of these people go hungry.

World Bank President Robert Zoellick, doing his best impersonation of Franklin Delano Roosevelt, wants a "new deal" for global food programs. He's asked richer nations to contribute US$500 million immediately to help get food to poorer nations.

IMF President Dominique Strauss-Kahn was less pragmatic but more rhetorical. Wrapping up his organisation's annual spring meeting, he said that, "Food prices, if they go on like they are doing today ... the consequences will be terrible…Hundreds of thousands of people will be starving…As we know, learning from the past, those kinds of questions sometimes end in war."

People often talk about resource wars being a common feature of the coming century (or decade). But it's usually oil and energy they're talking about, not rice and wheat. Food is fuel for the body (we've been watching the Biggest Loser). If you don't have access to cheap calories, what good is cheap fuel?

It's our contention here at the Daily Reckoning that both food and fuel are getting more expensive. The scary thought is that artificially low interest rates and cheap energy have, for many years now, sent bogus signals to the world about how much and how fast the population can grow. Agricultural abundance is only a very recent (and perhaps temporary) historical phenomenon. It's no coincidence that it occurred alongside the energy boom from cheap oil.

Not that it's any consolation to starving people stranded in long petrol lines, but businesses in the agricultural sector are going to boom (provided they aren't nationalised). Farm equipment, fertilizer, and large producers should all see earnings rise this year. And next year. And the year after that.

The second "f" crisis is in finance. It's been with us so long now it doesn't seem like it's new. But some people are slow on the uptake. The nerve endings of large institutions like the IMF and World Bank are few and far removed from the tiny central brains that direct the movements of these mammoths. Brontosaurus Banks.

Like a bunch of dinosaurs standing under a meteor shower, the G-7 meeting this weekend produced lots of talk and no action. The ministers agreed that concrete steps need to be taken in the global financial system to improve transparency and the way the banks value certain assets. The G-7 statement also paid lip service to issue of credit ratings and how to make sure in the future that garbage debt doesn't get a Triple A investment grade rating.

Here's the trouble though…American policymakers are worried about recession and plunging house values. Everyone else-especially the increasingly sweaty Wayne Swan-is worried about inflation. Because of the different concerns, no one can agree on any policy solutions.

The conclusion? There is no one solution to the credit crisis. That is bad news for people who think of the economy like a machine. It's not just a matter of changing the oil or checking the fuel pump. The engine is sputtering, the drive train is wrecked, the tires are flat, and someone seems to have cut the brake lines. There are no air bags.

As they say in the used car business, it's not the years, it's the miles. You wonder if this globalisation jalopy is going to make it.

As for the dollar, Europe would like it to be stronger in order to revive its exports. Dollar-pegging countries in the Persian Gulf would like the dollar to be stronger too, so they don't import inflation and the political instability that goes with it. Even Japan and China would like the dollar to be stronger. Dollar strength maintains the basic economic model of the last 50 years: manufacture cheap and sell to America.

But the dollar is not strong. And the things that would make it stronger-a lower trade deficit, higher interest rates, lower government spending-are not going to happen. In fact, the opposite will happen. While officials talk up a "strong dollar," everything they actually do weakens the dollar.

This is why the day-to-day movements in the dollar index and in gold don't tell you much. The most important fact about the gold price is that that the official policy of the U.S. government is to cheapen its currency. Rates are being lowered. The government is spending money. It's also giving away money, hoping Americans can spend the country out of recession.

Do you know of any person or any nation that ever spent its way to prosperity? Neither do we.

The fuel crisis hasn't reached the same acute stage as global food markets. But in time, it will. There were two developments in the clean coal front this that caught our eye this week. First, "Australia is now investing $63 million in developing clean-coal technology in China, our biggest coal buyer," according to Dennis Shanahan in today's Australian.

Making the last stop in his first world tour, Aussie PM Kevin Rudd told reporters made the case for an Australian Chinese partnership on coal, "The fact that Australia is the world's largest coal-exporting country, and that China is the world's largest coal-consuming country, presents both of us with a fundamental responsibility to act in this area of critical technology," he said.

You say "responsibility" we say "opportunity." Now that we are moving into a world of energy "haves" and "have nots," coal is a realistic source of transportation fuels for oil-poor, coal-rich nations. What coal-rich nations lack is the technology and capital to turn coal into liquid transportation fuel. Australia has several public companies that can help them do it. That's the opportunity.

The trouble with above ground coal-to-liquids (CTL) technology is that it produces nearly double the carbon dioxide emissions that you get from burning coal to make electricity. In the U.S., green politicians have actually prohibited U.S. government agencies from buying coal-based fuel with tax payer money.

The U.S. has plenty of coal. The Air Force would like private enterprise to turn that coal into fuel for U.S. planes. But California Congressman Henry Waxman introduced a provision into last year's U.S. Energy bill (section 526) that prohibits government agencies from buying fuels from "unconventional" sources.

Those "unconventional" sources are oil shale (the Pieceance Basin in Colorado), coal (the Powder River Basin Wyoming), and heavy oil sands (found in Alberta in Canada). Two U.S. Congressman are looking to repeal Section 526 from last year's U.S. Energy Bill and unlock the future fuel from those unconventional hydrocarbons.

Will the section be repealed? It depends on what you think about global warming. We won't weigh in here. Our main interest is in how governments respond to the dueling crisis of Peak Oil and Global warming.

The old "real politik" answer is to use your domestic resources to achieve energy security. This way you don't exchange your currency reserves for oil and outsource your supply of a vital industrial commodity to foreign interests. If you have lots of coal but no oil, you turn your coal into fuel.

But hey, if the planet is warming and coal is the culprit, burning more coal doesn't exactly make things better, does it? What do you do? Go nuclear? Conserve? Go renewable?

All of these options are on the economic table and an intelligent and prompt response is becoming increasingly urgent. You can bet that the government will do something, and probably the wrong thing. Meanwhile, our money is on the firms doing something with coal, wind, waves, and solar.

These three crises-food, fuel, and finance-are a formidable triply whammy for the global economy. It's bad news for the indexes, which already have plenty of bad economic news to consider. But for a certain class of agricultural and alternative energy firms, this could be the bull market of a lifetime.

Dan Denning
The Daily Reckoning Australia

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• Rising Coal Prices to Increase Electric Bills in Australia
• Thorium as a Nuclear Fuel
• Increased Oil Production Won’t Solve the Energy Crisis
• Are Farm Prices Destined to Rise as More People Compete for Food?

But the trouble with recent news financial news is that the press doesn't know what to do with it. Just today, former crime buster and now New York governor Eliot Spitzer charged the feds with being "partners in crime" with predatory lenders. What do you do with an article like that? Should it go with the crime stories? Or in the Health section? Is it a matter for the police to deal with, in other words... or psychiatrists?

England was made bully prosperous by its dark, satanic mills. But now, spiders build their webs in front of the mill doors, confident of being unmolested. In the City, meanwhile, people come and go in such fury of busyness that the whole world stands back in admiration or disgust.

The City's new Jerusalem makes up one third of Britain's entire economic output... and last year accounted for nearly half of U.K. GDP growth. It pays one third of all corporation tax... contributes a surplus of nearly £20 billion to the trade balance... and there are now more finance sector workers in Britain than there are construction workers, farmers and factory workers COMBINED. So rich and important has the City become that you cannot drive through drunk without running over a millionaire. Every day, it turns over a third of the entire world's foreign exchange - more than $1 trillion.

"London has 40% of the global foreign equity market... trades 70% of all Eurobonds... and is the world's leading market for international insurance," reports the Fleet Street Letter. "Currently the business and finance sector accounts for 28% of Britain's GDP... some £306 billion per year. "That's 21 times more money contributed to the economy than the construction industry... 35 times more money than the automotive sector... 47 times more money than the pharmaceuticals industry..."

But what kind of City on a hill has the City built?

One of the great conceits of the credit expansion was that "finance" was, if not a noble trade, at least it was an honest one. Mothers wanted their babies to grow up to work for Goldman Sachs. Why not? Nothing paid better... and there was no heavy lifting. But what do they actually do 'in finance' and how come they get paid so much for it?

They 'add value' by 'allocating capital efficiently,' comes the answer. But what kind of value has actually been added to Britain's economy... or America's?

In these Daily Reckoning columns, we have made the point that the financial boom was a fraud. It was based on phony money... and produced phony growth. At the end of it, the average American is worse off than when it began. He has more debt... and a lower, real hourly wage.

In Britain, the story is very similar.

Personal debt in Britain has reached £1.3 trillion... (about $2.5 trillion) up 137% since 1993 and greater than the U.K.'s GDP for the very first time. Much of that debt is the notorious 'subprime' mortgage debt. Nearly 20% of all new U.K. mortgages written last year were either "subprime" or were "made to a homebuyer who offered no proof of income", reports the FT . Consequently, 21% more people were forcibly evicted from their homes in 2007 than 2006. The Council or Mortgage Lenders expects repossessions to jump another 50% in 2008! More than 500,000 Britons have missed a mortgage payment in the last 6 months."

On the institutional side, an estimate coming out of the G7 meeting put losses from sub-prime lending alone at $400 billion. So far, only $120 million has been revealed. If the estimate is correct, there is surely more subprime debt hiding in a Wall Street and City basements.

Colleague John Stepek, in the London office, puts it this way: "Our consumers are in more debt than their American counterparts. Our houses are more overvalued. We are even more dependent on a small niche area of the economy -- the City of London -- than Americans are. So we have even further to fall."

He might have added that the FTSE is already down 13% this year, while the Dow is down only 8%. And while the dollar has rallied, the pound has fallen.

Blame the City? Call in the cops to investigate?

It's true, practically all the deals made by Wall Street and the City over the last few years have a bit of Ponzi in them. As long as the volume of credit kept expanding, an investor could hope that a greater fool would buy out his positions at a higher price. Subprime mortgages, liar's loans, private equity finance, Chinese stocks, residential housing, SIVs, CDOs - they all needed more and more leverage, more and more finance, just to stay even.

Many of the new financial products, too, were based on false pretenses. Mathematicians crossed their fingers, calculated the odds based on historical prices, and then passed off the results as though they were as reliable as the periodic tables. If wheat had never traded at $10 a bushel, the $10 figure was an "outlier," not worth worrying about. What they didn't realize, or didn't admit, was that prices are neither fixed nor random - but subject to influence. By speculating on "normal" patterns, they were leaning against the very price curves they said were eternal. And when enough speculators crowded on... the price curve bent, and then collapsed under their weight. "Stability creates instability," as Hyman Minsky used to say.

But prosecutors would have a hard case. No one held a gun to investors' heads. Instead, they asked for it. he whole show was more a slapstick farce than a police thriller.

Bill Bonner
The Daily Reckoning Australia

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