Gary’s Note:
Ever met a Penthouse gypsy? Join Capital & Crisis
editor Chris Mayer on his trek to Dubai, where he meets the
newest brand of sovereign individual: the kind who vote “NO”
against taxation with their feet.
|
Penthouse Gypsies Flock Here… You May,
Too |
By Chris Mayer
November 12, 2009
Baltimore, Maryland, U.S.A.
As
the sun sets over this desert country, it bathes everything in a
whiskey-colored tint. The still cranes perched on unfinished
buildings look like ruins.
But
when the sun disappears and inky darkness fills the sky, Dubai’s
cityscape lights up and takes on a magical quality. Crowds fill
its restaurants in the evening, the apple-scented smoke of the
shisha in the air. “I love Dubai at night,” my host and friend —
let us call him Andy — said as we sat out drinking and chatting
on the balcony of his flat. “It’s like something out of Arabian
nights.”
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Andy
is an example of what Addison Wiggin (my publisher and companion
on this trip) and I have come to call a Penthouse gypsy. They go
where they are treated best, wherever in the world that may be.
They have money, own businesses and invest in real estate. They
are smart and independent and value their privacy. And they
aren’t living in the U.S. or the U.K or Europe.
Andy’s apartment sits on a man-made island in the middle of a
man-made lake. It’s called The Old Town Island, even though it’s
brand-new, because it looks like a part of old Arabia — or at
least the old Arabia of Hollywood and Westerners’ dreams.
The
Old Town Island stands in sharp contrast with the
ultra-modernity of Dubai’s signature buildings, with their
curves and sail shapes washed in multicolored lights. These
structures give Dubai the air of an eccentric rich man’s
playground. There is a casual indifference to costs. Only the
rich could build such things in deserts.
For
example, The Old Town Island sits next to the Burj Dubai, which
is the world’s tallest building, at 2,684 feet. That’s nearly
twice as tall as the Empire State Building. (The Middle East, by
the way, held the record for tallest building for 3,900 years —
thanks to the Great Pyramid of Giza — before the West took the
crown.)
The
Burj Dubai hotel will open soon. It is a symbol of Dubai, of its
ambition and can-do spirit, its boldness and its wealth. By
2008, Dubai had as much property under development as Shanghai —
even though the latter has a population six times as large.
Everywhere in the world, there is a tug of war between utility
and a desire to build pretty things. In Dubai, though, utility
seems to lose. Instead, the goal is to make the largest,
longest, tallest — you get the idea.
At
the Burj, the smallest suite is 7,200 square feet. The
electricity needs of this building in the desert are enough to
power a small city. Think of just the power needed to pump water
to its upper floors so you can flush a toilet. No wonder Dubai
and the UAE (of which Dubai is a part) are starved for power.
No
wonder, too, that the UAE has the largest carbon footprint per
capita of any place on Earth. People here also use more water —
145 gallons per day — than any other people anywhere. Yet there
is no river and hardly any water resources. The water resources
Dubai enjoys comes from turning seawater to fresh water.
One
question I kept asking myself on this trip was how sustainable
all this is or could be. But that leads to some interesting and
surprising answers about why Dubai exists at all.
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Four Reasons Why Penthouse Gypsies Love Dubai
Don’t assume that Dubai is like Las Vegas, a sort of Arabian
Disneyland in the middle of the desert. There was a reason why
people settled here long ago — and why the Penthouse gypsies do
so today.
The
old Dubai actually had the best of the creeks of the southern
Gulf. I visited the twisted old creek while in Dubai. Dhows
still make their way across the Gulf to Iran, India and East
Africa and back again, as they have for centuries. There isn’t a
container in sight in this old port. The big commercial port in
Dubai now is Jebel Ali — the world’s largest man-made port. But
in this old port, goods are offloaded by hand, largely on the
backs of Pakistani and Indian workers. The goods are stacked
right offshore — sacks of pistachios, crates of cigarettes,
boxes of toothpaste and other goods.
Dubai, then, is a port city. Its main business is trade. The
ruling sheiks opened up Dubai as a free port to the world — no
taxes, no hassles. “Free trade was mother’s milk for Dubai,”
writes Jim Krane, author of the excellent
City of Gold: Dubai and the Dream of Capitalism.
Trade is what made Dubai wealthy. Dubai has more in common with
the Venice of the 12th century… or with Singapore or Hong Kong
today.
As
with all free ports, it has had a history of being a haven for
smugglers. Early on, traders would smuggle gold through here on
its way to India. Gold, guns, slaves, diamonds, drugs — all ran
through Dubai.
Of
those, gold is the key driver. Dubai is still called the City of
Gold. There are gold souks all over. People here seem to love
their gold. While I was there rumor spread that the GCC — along
with China, France, Japan and Russia — were having secret
meetings in which they were planning to stop pricing oil in U.S.
dollars. (The GCC stands for Gulf Cooperation Council and is
made up of the six Gulf states, including the UAE.) Instead, a
basket of currencies would replace the dollar. This basket would
include gold. True or not, it helped generate some buzz in the
gold market, sending gold to a new all-time high. Just after I
came back, my readers bagged gains of 125% on one of our gold
stocks. I’ve got five others just like it. There’s still time to
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Today’s real boom in Dubai depends on a few key factors, and
it’s not all about oil money. After spending some time here,
chatting with Penthouse gypsies like Andy, I would boil it down
to four successful ingredients:
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.)
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 in very nice communities.
The
backlash of Sept. 11.
Before Sept. 11, Middle Eastern oil-exporting countries
reinvested $25 billion a year in the U.S. After Sept. 11, that
slowed to about $1.2 billion a year. Arabs no longer felt
welcome in the U.S. and feared what might happen to their
wealth. So guess where the money went?
Arab
wealth started flowing back to the home countries. The economies
of the eight states of the Gulf Coast grew 60% from 2001–08.
“Cash poured into Dubai,” Krane writes. And Dubai’s growth rate
topped China’s, averaging 13% per year.
Essentially, the repatriation of Arab wealth from the U.S. was a
big driver and still continues to be today. As the Middle East
region gets wealthier, a good chunk of that wealth will flow
through Dubai.
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Finally, the UAE fixes the value of its currency to the dollar —
at least for now.
What this means is that as the U.S. printed dollars, the
inflationary effects were exported to Dubai. That put Dubai into
trouble. Lots of speculative capital flowed into 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 (to the
advantage of the Penthouse gypsy).
Still, Dubai’s important position in world trade is many
layered, like a wedding cake. As Krane writes: “Dubai today is
the Middle East’s capital of commerce, one of its biggest
recipients of foreign direct investment, its top financial
center, biggest port and airport and home of the largest number
of foreign businesses.”
Quite a list, considering air conditioning arrived only in 1967.
Today, Dubai is a key crossroads on the New Silk Road. It fills
the gap between New York/London and Singapore/Hong Kong. And as
long as Dubai is kind to money, the Penthouse gypsies will come.
For
investors such as you and me, the Dubai story is part of the
greater New Silk Road. Dubai’s and the New Silk Road’s booming
populations need food, water and power. The increasingly larger
cities need infrastructure. Its growing wealth needs a
storehouse of value. On this latter front, the Penthouse gypsies
we met all prefer gold and/or a mix of currencies, such as
Norwegian kroner and Singapore dollars.
Regards,
Chris Mayer
P.S.:
While you may not be ready to emigrate to Dubai, you can still
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And you won’t have the leave the country.
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a host of other currencies. Your newest option is a basket of
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currency upside option for you — and Everbank will still pay
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The
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 |
The
sheiks of Araby can build and enjoy their impossible
cities…they’ve got the cash!
What
of us here in the late, great republic? What does the future
hold for our cities and suburbs?
While I've read these articles regarding urban farming trends
in the Detroit area with some sense of satisfaction—that
something good might come from the de-leveraging of our
industrial heartland—I’m left somewhat at a loss.
Firstly, I find it strange that an investment newsletter would
be promoting the development of primary capitalization over
more sophisticated allocations of resources. Secondly, I
recall some articles in the Mother Earth News, from the
seventies, that were trumpeting the exact same thing and
nothing came of any of it. Thirdly, given how many of these
urban agriculturalists are seeking tax subsidies, I'm
surprised that your publication is being so generous towards
them. Asimov was not mistaken when he described the return of
agriculture to an industrialized society as evidence of
degeneration. I'm all in favor of the home garden and
returning land and resources to better purposes but I don't
see how this is a truly positive result. If our system was
working properly Detroit would be getting investment money
that would revive its flagging industries, not send them to a
landfill so poor people can farm the land underneath. Why
haven't you balanced your reports of Detroit's demise with
news of our investment dollars being squandered overseas
because US policy makes it near impossible for those monies to
be invested at home?
But
we rant about political policy chasing away investment money all
the time. That’s our raison d'être; government and
politics are the polar opposites of the liberty and markets.
Politics dumb, market smart. Government interferes with capital
formation and prudent production and encourages unsustainable
bubbles in the darnedest places.
And
before we can promote more sophisticated allocations of your
investment resources, we feel we really ought to look at the
bigger trends…especially those the mainstream haven’t even
considered too much yet.
And
Isaac Asimov said a lot of things…
The
great philosophical blunder of our age has been the conflation
of wasteful, even damaging technology with liberty…for example
the popular notion that cars and a built environment that
requires their use to for every damned thing means
freedom.
(The
power of personal flight would be freeing. The ability to live
in a vacuum and feed on sunlight would be freeing.)
We
resorted to political chicanery to (temporarily) prop up the
hypertrophied industrialism that manifests as the car-dependence
and urban sprawl to which most of us have become addicted.
And
everyone and their mother are seeking tax subsidies. We in the
Whiskey Bar can grudgingly overlook when people do
stupid things like that out of habit…as long as they’re
otherwise moving in the right direction. So some of these urban
agricultural pioneers are looking for handouts. Doesn’t change
the fact that our big cities need to contract and that local
food production needs to ramp up.
Reality and its demiurge Mr. Market are insisting we do things
differently than we have been. Tax subsidies or not, things are
going to look a lot different in this century than they did in
the last.
Maybe this is a degeneration of sorts. Maybe something
new and better will evolve from the breakdown of industrial
civilization. It’s not like our current arrangement has been
particularly healthy, right or sustainable. From yesterday’s
missive from James Howard Kunstler…
“In the meantime, American life will just wind down, no matter
what we believe. It won’t wind down to a complete stop. Its
near-term destination is to lower levels of complexity and
scale than what we’ve been used to for a long time. People
will be able to drive fewer cars fewer miles. The roads will
get worse. They’ll be worse in some places than others. There
will be fewer jobs to go to and fewer things sold. People who
live in communities scaled to the energy and capital realities
of the years ahead are liable to be more comfortable.
“…both reality and history will probably take us out to some
woodshed of the national soul and beat the crap out of us.
That could be a salutary thing, since the crap consists of all
the lies we tell ourselves. Once we’re rid of all that, we may
rediscover a few things left inside our collective identity
that are worth regarding with real self-respect.”
See?
Lower levels of complexity aren’t necessarily bad.
Hey,
lookit. Your editor is no ascetic. He likes hot water in the
shower and electricity in his computing machine so he can access
the internet…but he hasn’t car nor credit card and he’s a better
man for it.
And
a bit from Bill Bonner writing in yesterday’s Daily
Reckoning…
“We wonder what people are going to be saying a century from
now.
"Yeah, Manhattan used to have the richest real estate in
America...back in the financial boom. Wall Street was the
center of the financial industry. People made fortunes from
high-margin financial products. But then, the financial
industry went into decline...and new financial centers in
Shanghai and Singapore took the business.’”
Bustling metropolises become deserted backwaters. Happens all
the time. Cows may graze where courtiers once danced. Wilderness
occasionally swallows the abandoned husks of entire
civilizations.
And
a Shooter reminds me to look on the bright side of tyranny and
deficit spending…
About the Health Care Bill, it is important to look on the
bright side, even if you oppose it. It pushes the US
Government an estimated $1 trillion closer to bankruptcy. The
sooner we go bankrupt, the sooner we can pick up the pieces,
and be free of a tyrannical government masquerading as a
benevolent keeper.
P.S.
If there are open bar stools left, I'd love one. Of course, I
can't promise I won't fall off in a drunken stupor!
Thanks. I needed that.
And
about those barstools…
Some
of you sent in requests a couple weeks ago that have gone
unfulfilled. I lost my intern for a while, but he is supposed to
be back here in the Whiskey Room and processing your
requests on Monday.
Tomorrow we’ll look at some letters about
the latest offering from James Howard Kunstler. Make sure
you tune in.
Regards,
Gary Gibson
Managing Editor,
Whiskey & Gunpowder
