How have the housing markets held up in three major cities at the end of a tumultuous year?

MEERUT, India - Sajid, a tileworker from Andhra Pradesh, India, heard Dubai was a kind of paradise: A land of beautiful beaches, clean roads and plenty of high pay.  So he did what many of his friends and fellow Indians had done.  He paid an agent to fix him a job and went to Dubai.

Indians top the global list of migrant workers: more Indians leave their country to find work and send back money, called remittances, than citizens of any other country. The Indian Government estimates there are over five million Indian workers overseas, with 90 percent of them in the Gulf region.  Most of them are considered temporary migrants.

If you travel through the south Indian state of Kerala, it is easy to spot the homes and stores built by remittances.  Ask locals where the money comes from, and “Dubai money” is often the answer.  Kerala has the greatest number of migrants to that Gulf nation.

Sajid and other locals estimate there were more than 35,000 others who came from their area, looking for a better future.  They are from Meerut, a dusty north Indian city that sprawls into house plots being carved from former farmland.

In Dubai, Sajid says he lived in a camp with other workers, where water would run out.  He says there was often no cooking gas, so he and his friends would borrow gas from other camps to make their meals.  Life was difficult, he said, but for several years, it was fine.  He was able to save money and sent it back to his parents, his brothers and sisters, his wife and five children.

About eight months ago, Sajid says, his boss came to him and his fellow workers and told them to work faster.  “Do more in less time,” Sajid says he was told.  Sajid didn’t know what was happening but started to realize something was wrong when he saw other workers being ‘sent back.’

Then his pay stopped for a month, and then two, until he was owed six months pay.

He and his fellow Muslim workers were told to go home for the festival of Eid and they’d get a lump sum on return.  Sajid says they went, believing that they’d be happy to get their money in one chunk.  But before he left, he was told to sign a paper in English.  He couldn’t read it but says he thought it was a form for his leave.

While home for Eid, he got a call saying his visa was cancelled since he’d resigned.   It was then Sajid understood he’d been tricked into signing a resignation form.  Sajid has heard nothing since that phone call, and doubts he’ll get his money.

His father Shahabuddine has had to sell his land in Meerut to pay debts, including payments on the more than $2,000 that was owed to the agent that sent Sajid to Dubai.

Sajid has been trying to find local tilework – the only trade he knows – but says work in Meerut will only pay enough for him and his family to live from day to day.

In spite of his bad experience, Sajid says, he’d go back to Dubai if the work picked up.  For Sajid, and millions of other Indians, a place like Dubai is still the best hope for a better future.

Early in this millennium, which seems like an eternity today, I was taken on a helicopter tour of Dubai for a story I was working on. Sheikh Zayed Road, the main artery of the emirate, still had empty gaps where giant skyscrapers are today.

To understand Dubai development's past and future, a helicopter view is required.

On that same tour today, The Palm and World projects, which light up the coastline at night, and the “old” Burj Al Arab hotel - celebrating its 10-year anniversary - are pieces of a puzzle that make up Brand Dubai.

From up above it is easier to see what has been built - most strikingly the Jebel Ali Port which was nothing more than a sandy stretch of land two decades ago on my first visit during the Gulf War. Today, the port is the largest container facility in the region, dwarfing its rivals by a factor of four. DP World has more than 50 other facilities dotted around the globe, a successful creation of Dubai World’s spending spree.

It is these traits in Dubai that regional businessmen and government leaders list under the banner of infrastructure which will allow the brand as they see it to survive its worst challenge in the short history of the emirate, something lost as the scenes in this financial drama unfold on a daily basis.

While in Kuwait City this week, I rushed over to the Sheraton Hotel for a meeting to obtain background for a panel I was chairing and to get a different view of the financial crisis.  On my way out, I saw the photos from the winter of 1991.  I remember back then walking on shards of glass and metal, the intense devastation of the hotel by Iraqi troops. This was a stark reminder of where the city and the region came from in the last two decades.

Dubai was just embarking on its expansion with an ambitious Sultan bin Sulayem - the embattled chairman of Dubai World - rolling out his blueprints for the port which was his initial “Field of Dreams.”  He was wondering why I had a skeptical look on my face of disbelief.  Maybe I lacked imagination and he was perhaps overly ambitious after that grand project was completed.

Dubai World represents the primary, but certainly not the only challenge for the emirate today.  Government officials and creditors are starting what appears to be a much longer path to restructuring than most were anticipating just 10 days ago.  It won’t be half a year; the cost of borrowing will increase as the score of rating downgrades continue to pour in and there won’t be one giant property company with assets of $50 billion (at old valuations) because the deal was called off to merge Emaar and the companies under the Dubai Holdings umbrella.

One private equity player pointed to this leveraged play being written in Dubai nearly two and half years ago as we launched our program.  The debt he flagged at the time will eventually catch up with all the players in what most like to call Dubai Inc.  In the region, that label is used as a common reference to all the holding companies created by the government.  From far beyond the financial centers whose lending institutions bankrolled this debt mountain they ask questions like “Is Dubai Inc. a publicly listed company?”  “What do you mean the government owns stakes in each of them?” and “Why were they allowed to borrow so much money?”

We can call that the view from 35,000 feet, skyhigh in a jetliner where we cannot recognize the offshore projects, the port or the iconic hotel.  In the region, most have at one point or another taken that helicopter tour and know why it is important to get today’s financial burden sorted out.  They rightly though have difficulty answering those questions.

Bond traders may not be considered the life of the party, but the bond market has been among the best buys in 2009 investing.

In this Web exclusive, a closer look at how bond trading works for you.

It has almost become legend in London Underground parlance, “mind the gap”, meaning that commuters should move with caution as they enter the train to avoid an accident on the platform.

This phrase “mind the gap” applies as well with what we are dealing with in Dubai and the UAE overall. Comments, many complain, have tended to be either inconsistent on the one hand or contradictory on the other.

That again was the experience in the last 48 hours, when the central bank of the UAE said it would offer liquidity to the banking system to all domestic and foreign banks with operations in the Emirates. The move was designed to avoid a run on institutions by depositors and guarantee there are ample funds available if the need arises. It went over well and indeed there was no panic.

Twenty-four hours later, we were on the receiving end of a statement by a hitherto unknown official from the Dubai Department of Finance Abudulrahman al Saleh who said the investors and lenders may have to shoulder the responsibility of their actions.

To be precise, he noted that Dubai World “was set up on a commercial basis and not guaranteed by the government.” The statement was crystal clear, that buyers or in this case lenders should beware. Nothing wrong with that approach if it is telegraphed in advance, but in this case -– having spoken to a number of bankers and others involved in the process –- it was not. This, one London veteran of the Middle East said, “is not the way to rebuild confidence.”

When covering the region one learns to put various pieces of the puzzle together by working the phones, talking face-to-face over a coffee and then completing the picture. In this instance we are not there yet. Some would contend we are still a way off.

The chairman of the Supreme Fiscal Committee of Dubai and Chairman of Emirates Airlines, Sheikh Ahmed bin Saeed al Maktoum is the man calling the shots right now as he and his team comb through the assets of Dubai World and the other “Dubai Inc.” entities. The people I spoke to over the last 72 hours expect more clarity by Wednesday.

In the meantime, bankers who have lent an estimated $123 billion to the UAE overall, 70 percent of that from European banks, might feel they too need to mind the gap.

My wife invested a tidy sum more than a decade ago in five Chinese companies – and then forgot about it. When going through some paperwork, she rediscovered her investments and learned they had grown five-fold in value by November, 2007.

Our awareness of the investment, however, weighed on us during the calamitous events of 2008 as we watched, month-after-month, the value of the stock slide until we couldn’t take it anymore – in January this year, with the value just 20 percent up from her original investment, we cashed out.

From my previous reporting on behavioral finance, I knew that in the long run the smarter move would be to keep the cash in the market. But an surprise pregnancy and the unplanned expenses (to counter the unplanned joy) made it a straightforward decision for us. At least, we were getting out while we were ahead.

And then I’ve watched the Chinese stock market roar back to life, with year-to-date gains on the Shanghai index alone reaching 90 percent in August.

Doh!

What can I say – we’re human. And as humans we have a nagging propensity to sell low and buy high.

According to behavioral economist, our natural “fight or flight” impulses that kept us alive in the jungle often make our investment portfolios dead meat.

A buy and sell of a stock on a single day is a virtual coin toss: investors have a 50.2 percent chance of making money, investment counselor Philippa Huckle once told me. The longer investors hold, however, the chances of profit expand exponentially: there is a 70 percent likelihood of earning a profit holding for 18 months. Hold for five years, odds increase to a 95 percent probability of positive return, she said.

Yet despite this knowledge, our patience for investment is slipping: from 1984 to 2000 the average stock buy was held for two years and seven months; by 2004, the average slid to two years and two months.

According to Dalbar Inc., a financial research company, a $10,000 mutual fund investment in 1985 left to sit without withdrawal would be worth $95,000 in 20 years, despite losses suffered during the 1987 market crash, the 1997-98 Asian currency crisis and the technology implosion of 2000.

One interesting fact from behavioral finance research helps explain why we dropped that forgotten Chinese stock once we became aware of it – loss aversion. Research shows that investors “feel” the loss twice as much as a similar gain: In other words, the experience to lose $1 ,000 twice as intense as the pleasure of a $1000 gain.

Watching the stock drop month-after-month became too much to take, and we – like a lot of other investors – wanted that pain to go away. And it cost us.

Now I’m trying to forget that, too.

Driving around the Chinese town of Yi Wu, my crew and I were listening to the radio when an ad came on encouraging listeners to trade in their old TVs and washers for new ones.

"You can get a 13-percent rebate!" the speakers blared.

The government is going all out to promote its rebate programs and get its citizens spending. The manager of Xin Hong Electric, a store selling electronics and appliances, told us his sales were up as much as 30 percent. Not only can Chinese get discounts on new refrigerators, dryers or microwaves but cars too. Car sales were up nearly 80 percent in October compared to a year ago, driven in part by tax breaks and China's version of the U.S.'s "Cash-for-Clunkers" program. China is expected to overtake the United States as the world's biggest car market this year.

At Xin Hong Electric, I was struck by how many people were taking advantage of the rebate. We met up with a paper fan maker who had just bought a new fridge to add to his recent purchases: a TV, an air conditioner, a washer, and a microwave. He told us he had wanted to upgrade his appliances, anyway, and thought, why not do it now and save some cash?

That savers' mentality is said to have contributed to the imbalances in the world economy. Americans have been taking on too much debt and overspending, while Chinese (and certainly many other consumers in Asia) have been saving for a rainy day. Many economists say the government trade-in programs have had some success, but getting Chinese to feel comfortable spending will take a lot more work. They say the government will need to improve its retirement and health care programs so that people don't have to worry as much about paying large potential medical bills. The bottom line is consumers need to feel confident enough in the future to open their wallets today.

How confident are you in your home country's economy?

The old adage, “timing is everything” certainly rings true with the request by the Dubai Government for a standstill on payments by Dubai World for a period of a half year.

Investor confidence in Dubai, exemplified by developments like the palm islands, has been shaken.

As timing goes, it was curious at best, coming just before the Eid el Adha holidays in the region and the long Thanksgiving break in the United States. Adding to the intrigue is that Dubai successfully raised $5 billion in a bond offering taken up by two Abu Dhabi government controlled banks the same day

This left investors scratching their heads wondering what the motivation was. I spoke to a number of fund managers and bankers with investments in the Emirate and, like most politics in the region, there is more to it than meets the eye.

As one fund manager said,  Sheikh Mohammed bin Rashid Al Maktoum, the Ruler of Dubai and Prime Minister of the UAE, is playing hardball. He is out to “teach a lessons to his boys.” His “boys” are the names which have become well-known power brokers in the build up of Dubai Inc. over the past two decades.

It has been a busy week for Dubai Inc.

Sheikh Mohammed cleared out his advisory board at the Investment Corporation of Dubai and pushed out the respected head of the Dubai International Financial Center who also served as Vice Governor of the UAE Central Bank.

The names on his advisory board included Sultan Bin Sulayem the Chairman of Dubai World and its property arm Nakheel. This I am certain was not an easy move by the Ruler.

Dubai’s rapid development was closely linked to the Palm and World property developments. I am sure we have all looked at their images offshore on Google earth at least once. Dubai World was also the force behind the high profile dust up in Washington with the P&O ports buyout.

Many I spoke to believe Dubai World is being singled out for good reason. Of the total $80 billion debt on the books, $59 billion of that comes under its leaky umbrella.

In fact, others within Sheikh Mohammed’s inner circle seemed to think it is only right for Dubai World to clean up their books like everyone else has been asked to do. That task is underway today with the help of accountancy firm Deloitte.

The other question being raised amongst global investors is the level of bench strength for Sheikh Mohammed or who he is turning to during this shake-up. Names at the forefront today include Mohammed Ibrahim Al Shaibani, Director-General of Dubai Ruler's court and Ahmed Humaid Al Tayer, Governor of the Dubai International Financial Centre.

They were in Sheikh Mohammed's delegation during this week’s visit to London and the response to their moves has been positive so far, according to bankers and investors I spoke with.

There is a sense of irony after what has gone on this week. British Prime Minister Gordon Brown congratulated the Dubai ruler for the actions taken to respond to the debt challenges during the bi-lateral meeting. It is something the PM knows a great deal about, with U.K. government debt soaring to 12 percent of GDP.

That nod of goodwill came before Dubai’s request for a standstill agreement, and left investors wondering what is next.  As one regional economist said this was a “disappointment in a way.” Dubai Inc. had cleared all the hurdles on the path to recovery but appears to have stumbled on this one.

We’ve all heard the old tale that if you invested $10,000 in Microsoft when the company went public in 1986, today you’d be a multi-millionaire. We think back to when oil was trading at $30 a barrel, and ask ourselves why we didn’t get into the action. Or, look at the price of gold. Why didn’t I invest a bit just a few weeks back? We kick ourselves.

But actually making these investments is of course easier said than done. Because when we’re faced with investment decisions, it’s not that simple. People are comfortable with different levels of risk. And finding out where you stand within that spectrum can be challenging.

On this week’s Biz Clinic, we sampled a series of these tests designed to gauge your stomach for risk.

The following are some from a test put together by professor at Rutgers University:

In general, how would your best friend describe you as a risk taker?

1. A real gambler
2. Willing to take risks after completing adequate research
3. Cautious
4. A real risk avoider

You are on a TV game show and can choose one of the following. Which would you take?

1. $1,000 in cash
2. A 50% chance at winning $5,000
3. A 25% chance at winning $10,000
4. A 5% chance at winning $100,000

When you think of the word "risk" which of the following words comes to mind first?

1. Loss
2. Uncertainty
3. Opportunity
4. Thrill.

Take the full test if you want to get a clear picture of your appetite for risk.

While I was skeptical, the tests can be helpful. One independent consumer survey broke down a possible investment strategy for me. Another suggested a mix of aggressive mutual funds, with bonds. I was told I had a “moderate risk tolerance.”

They helped put my level of risk in perspective. And they got me thinking of another question you might ponder:

A Harvard-dropout has started a relatively new company that could revolutionize the way people use personal computers. You could make millions in the long run. But right now, he needs $10,000. Would you fork over the cash?

The Dubai Air Show was not a glamorous affair.  When one points to regional orders from Algeria and Ethiopia to mark the highlights for 2009, there is a slight disappointment to be candid.  The total tally tells a similar story, some $5 billion of firm placements vis-à-vis $155 billion from just two years ago.

In comparison to the state of the industry in Europe or America today, the result however was impressive.  We interviewed the CEO of low cost carrier Jazeera of Kuwait and asked him why profits were down 53 percent over the same period last year.  The German executive Stefan Pichler replied in a matter fact fashion: at least we are still making money.

I believe it serves as a good microcosm for the region in general as it searches for the bottom of the crisis.  Businesses are not witnessing runaway growth, but they do see light at the end of the tunnel.  For example, the big brand carriers in the region, Emirates, Ethiad and Qatar are not cutting back their original commitments, only stretching them out if necessary.  It is worth noting that the carriers seem less concerned about posting profits right now, but building out their brands and their market share.

With oil trading around $80 the scope to build off the foundation recently put down is there.  Sheikh Ahmed bin Saeed Al-Maktoum chairman of Dubai’s Supreme Fiscal Committee and Emirates Airline told us that the second half of the $20 billion government bond package should come by the close of the year.  If so, and if there are buyers beyond the UAE central bank, it will be an important indicator.
 
I chaired a forum of business leaders in London this week and found that most believe a firm floor is being put on this economic recovery in Europe as well.  Germany, France and Italy are growing again, albeit all below one percent in the last quarter.  Spain and the U.K., both overly dependent on the property sector, are suffering under the weight of their budget deficits.  It is a similar script being written in the United States. 

But there was categorically a belief there won’t be any hidden surprises, with an important caveat that policymakers may be already planting the seeds of the next financial crisis – in sum too much money thrown at the banking system that will eventually fuel inflation.

Meanwhile, the energy surpluses continue to fuel investments on European soil.  The relatively new investment arm in Abu Dhabi is moving swiftly post-F1 to raise its profile, buying Brawn Grand Prix with partner Daimler.  It also plans to raise its stake in the German industrial group to 15 percent.

Qatar is choosing to continue its investment advances in London.  There is active talk the QIA wants to raise its stake in grocery chain J. Sainsbury and after the Americans leave the posh neighborhood of Mayfair, Qatar will take ownership of the current site of the U.S. Embassy.

These investments may not raise the GDP figures in either Germany or the U.K. but do help us in our search for the bottom.