Monday, November 09, 2009

The ABCs of Economic Recovery

10 November 2009 - Warren Buffet voted with his pocketbook this past week investing $26 billion dollars to purchase Burlington Northern Santa Fe, one of America’s oldest railroad networks and the backbone that helped build the country. Buffet is a classic, disciplined value investor who likes getting into a company when his internal screening criteria have been met.

The Oracle of Omaha — as he is fondly referred to as a result of his Mid-Western roots in Nebraska — is also big on animal instinct. The concept is simple, we all need to be aware to both survive and smell opportunity when it beckons. In that spirit, Buffet is probably letting economists debate the merits of whether this is a V shaped recovery (sharp downturn and straight line back to growth) or a recovery that reflects a W, which recovers, dips and bounces up and down for a few years. Maybe I am a child of the 60’s, but my fond recollection of those letters has more to do with the VW Beatles to get to the beaches of California, not illustrations to guide economics.

There has been quite a spirited debate on the accuracy of gross domestic product figures again. The criticism being that the measurement is looking backwards not forward and the basket that measures GDP is not reflective of real, on the ground decision making. I put aside traditional economic research for the last month during three visits to the Middle East which included Dubai, Qatar and finally Abu Dhabi during the Formula 1 festivities and the launch of our regional hub in the UAE capital. Instead, I relied entirely on 
animal instincts.

Going back to my Greek roots, I used the agora to get the latest reading of what is happening. Bankers confidently said that the road show, aimed to raise $6.5 billion in Dubai would be well received. The first portion of that offering was three times oversubscribed.

Businessmen noted that they felt the worst was over in the property market there and that foreign buyers started to show interest again. Colliers International released figures this week indicating that prices rose 7 per cent in the third quarter, although they are down 47 per cent on the year. Again, it does point to a bottom being reached.

In Qatar, despite the bottom following out of the natural gas market (trading one-fourth the equivalent of crude prices right now) the economy is hardly suffering through the “recession” with growth of 8.5 per cent this year. The biggest challenge is completing projects on time and allowing the market to catch up with all the construction. Again put the GDP numbers on the shelf and you find businessmen confident that capacity can be absorbed and that population growth and natural gas exports will drive their order books for a decade if not two. The Qataris know a thing or two about VW as well, but it has nothing to do with economics, just their stake in the German automaker after the protracted boardroom battle with Porsche.

Finally, the Formula 1 race looks to be only a start not the finish line for Abu Dhabi. I was surprised enough at the $40 billion officially spent to build up Yas Island and the infrastructure around it to host the circuit. According to Economy Minister Sultan bin Saeed al Mansouri that is only the beginning.

He says that the Yas Marina complex will be a blueprint for future development with an eventual commitment of $1 trillion dollars — for roads, power plants and rail links. That is an eye-popping number that others within the government were shall we say shy to commit to themselves, but it does give a sense of how both the old economy will help build the new one and the future won’t be measured by a V or a W in the region - John Defterios presents Marketplace, Middle East on CNN

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