The market made an unexpected recovery last year with the Arab Spring bringing an influx of exiles, expatriate families and businesses into the emirate. Completed villa community prices gained 15-25 per cent though stabilization was more the name of the game for apartments.

It is therefore not such a wild prediction for party-loving Nick Candy to see this recovery continuing. The Arab Spring protests, civil wars and revolutions are still happening. Syria is in uproar and the smart money still leaving. Ditto Egypt and Libya for that matter. Yemen is in chaos. Bahrain is still seeing some serious protests.

Moving to Dubai

So rich Arabs continue to pack up and move their families to the safety of Dubai. Multinationals do the same for families of expatriates. And banks that used to have representative offices in Dubai and their main operations in Bahrain are switching that around.

There is also a steady inflow of the super rich into Dubai from all over the world from Indian billionaires to UK expats facing excessive tax bills. More of them are making their home now in Dubai than before the crisis of late 2008. That was reflected in luxury car sales last year which topped the previous record year of the real estate boom.

However, the huge oversupply of property of pretty much every type and budget is the balancing factor. Around a third of office accommodation is vacant and 15-20 per cent of residential real estate. That said the population of Dubai is growing annually by as much as 10 per cent so in theory this oversupply should be quickly taken up.

Supply and demand

Indeed, that is why the market could move from stabilization to price rises pretty quickly. The demand side of the supply/demand dynamic is much stronger than often assumed by foreign observers. Nick Candy may well have done his homework on Dubai.

A more credible threat to the Dubai real estate market in 2012 is the oil and business embargo just imposed on Iran by the European Union and Australia. If this ends with military action in the Strait of Hormuz that jacks up insurance for container ships to uneconomic levels then the status of Dubai as a trading hub will be compromised, quite apart from scaring the tourists off.

All the same nobody thinks there is much physical danger to the infrastructure of Dubai because any engagement would likely be short and many miles offshore. The winning party is not in any doubt either. In truth that sort of hiatus might simply be a good buying opportunity.

And on the other hand, the higher oil prices from a stand-off with Iran will keep the UAE very solvent in 2012 during a difficult time for the global economy, with high oil prices just one of a long list of problems. The Candy brothers started by buying one flat in the UK in 1995 and have since become immensely rich global property developers. They have not got much wrong in that time!

Stephen King, chief economist at HSBC also talks with Maryam Nemazee on Bloomberg Television’s ‘On the Move’ on the sidelines of the World Economic Forum’s annual meeting in Davos, Switzerland.

In theory holding rates low ought to encourage bond holders to exit this market. The return on this investment is negative after inflation, a guaranteed loser for capital holdings not a preserver of wealth unless you think the other options have even more downside.

Fear trade

It is a fear trade. Equities rallied very modestly on this news. In previous years stocks might have surged as the yield on equities is far higher than the yield on bonds, or at least still in positive territory.

But then stock markets around the world have lost their momentum and volumes. Famous market timer Jo Granville thinks the game is up and the Dow Jones will plunge 4,000 points this year (click here).

It is an extreme forecast but these are extreme times with the eurozone on the brink of tipping the world into a second global financial crisis and the Iranian dispute threatening $140 oil this summer according to the IMF.

Reason enough to be cautious. But as Dr Marc Faber continues to warn investors the US T-bond just has to be a long-term loser at these levels of interest rates. How long is the long-term? Is it beyond three years or within that timetable?

Certainly the Fed is preparing the market for QE3, a second round of electronic money printing which it is desperately keen to keep as a policy response to the imminent eurozone crisis.

But investors must surely scratch their heads. How much money can be pumped into the global economy before you get much higher inflation? Which asset classes will benefit from inflation and which lose? Bonds definitely look a loser, for how long can the Fed actually keep rates at these levels?

The Central Bank of Italy would love to keep its rates near zero but the market has long taken over, and low ECB rates mean nothing for Italian bonds. The ECB still has Germany as its benchmark and financial bulwark. The Fed has the heavily indebted United States.

Owning things

One thing is for certain, investors who own things will be OK. Inflation will be reflected in an increase in the value of things. Paper assets like money and stocks are another matter entirely. Money we know will be debased eventually and when it happens very quickly.

Share prices must reflect the profitability of the companies they represent. A world in recession will be a world of low profits and low share prices. That is most likely why easy money is starting to have less of an impact on stock markets. Investors are beginning to wake up and see it as a sign of bad times ahead, not a bed of roses.

It will be hard assets, things like real estate and precious metals that go up with and even beat inflation. Bonds will ultimately be a disaster and stock markets will likely collapse before them. Paper money will fare worst of all and that includes bonds.

The ArabianMoney monthly investment newsletter continues this commentary with actionable investment ideas that cannot be published on this website for legal reasons (subscribe here). The time to sort out your personal investment portfolio is now and not when disaster strikes but only you can take this responsibility.

Both gold and silver prices jumped sharply after the statement with gold now well above $1,700 and silver $33 an ounce. Mr Sinclair sees this as a major indicator of the quantity of money printing to come which will send the prices of precious metals much higher.

Important day

He told KingWorldNews.com: ‘Today is an important day. There are many days we talk but this is a mile-marker. What the Fed did today is they turned on the light of what will be QE to infinity. Today the light went on with regards to the intentions of the Fed. They did that for very specific reasons, we have troubles people can’t see and this is one of the ways out.’

Mr Sinclair reckons that this message is not going to be lost on any person or institution currently holding cash. The devaluation and debasement of the US dollar is being explicitly targeted by the Fed and they are putting a date on it.

‘I think you are going to see a very significant change amongst investors, corporations and companies with extra capital and people of the mainstream,’ he said. ‘You’re going to find gold being accepted as a hedge against what’s going on by entities, that up to now, you would think would be the last ones to be buying gold. How about someone like General Electric?

GE gold?

‘I used GE as an example because the principal of GE is a major advisor to the government. That would be the most unlikely thing for GE to buy gold. But don’t count it out. You are going to see a lot of things this year you thought at one time impossible, becoming reality.’

Mr Sinclair’s predictions on the gold price have been consistently accurate with the rare exception of the 2008-9 price correction, although that too only proved to be a bump on the road to higher prices. He sees gold prices heading north of $5,000 an ounce.

(For the full radio interview click here)

He told journalists at the World Economic Forum in Davos: ‘I see the Arab Spring as one of the more hopeful swings in the world today, and while it is still going on I believe it is a case of so far, so good. But I worry that Europe’s problems might seriously affect its trading partners in the Mena region.

Eurozone contagion

‘It is important this revolution in parts of the Arab world should be successful, because if they are not what follows is likely to be much less benign. Exports from Tunisia to Europe dropped by 10 per cent just in the month of last November. I am worried that the EU crisis would pose a threat to the very positive developments in politics and economics taking place in the Arab world.’

Not surprisingly Mr Soros is also concerned about the impact of high oil prices on the global economy with the IMF saying yesterday that oil prices may hit $140-a-barrel this year.

‘There is a tremendous tension with regard to Iran and the Iranian government is in dire straits,’ he said. ‘The Arab Spring is seriously affecting Syria and this will eventually endanger the Iranian regime, which is very divided and narrowly based among the country’s population. So Iranian politicians are looking to make up external threats, and that makes the situation very dangerous indeed.’

Twin crises for 2012

However realistically the Middle East is going to have to live with both a crisis in Europe and a showdown with Iran in 2012. Realistically there is also something of a split between the likely economic impact on the Oil States and the rest of the region.

The non-oil producers will feel the worst of a slowdown in trade and tourism from Europe while those exporting oil will get the considerable cushion of higher oil prices that can be spent on public works and salaries. UAE stock markets rallied the most for six months yesterday on news that Abu Dhabi is resuming $30 billion worth of projects put on hold three months ago and the release of 6,830 nationals from debt obligations totalling $544 million.

Then again if the military threat from Iran was crystalized into action that blocked the Strait of Hormuz the impact on trade flows and tourism to the Gulf States would be very bad. So long as this is just cat-and-mouse chasing up the oil price its economic impact for the Gulf States is probably mildly positive though the threat of escalation is very apparent.

Mr Soros takes the broad view of social and economic history for the whole of the Arab world but the reality will be more complicated with winners as well as losers. That is normally how history works out.

But after a major spending review the Executive Council this week re-opened the state coffers. New budgets and opening dates have been approved for the Louvre, Guggenheim and Zayed National museums, the most high-profile projects put on hold.

Airport extension

In addition there will be a 700,000 square metre extension to the Abu Dhabi International Airport to raise capacity to 27 million passengers a year to be finished by the end of 2016.

Abu Dhabi is also going ahead with metro and tram systems, two highway projects and new industrial zones for petrochemicals, food and auto manufacturing. Other plans included almost 21,000 new villas for UAE nationals, 24 schools, 14 hospitals, six treatment centres and the Cleveland Clinic.

This is quite a shopping list and contractors will be relieved that Abu Dhabi is back spending again after reassessing its expenditure plans.

The re-think followed the $10 billion bailout of Aldar Properties last year that served as something of a wake-up call and prompted a review of all major projects and spending commitments. Some feared Abu Dhabi was embracing the age of austerity but that now appears very wide of the mark.

The leading emirate of the UAE wants to diversify its economy away from a dependence on hydrocarbons by spending oil and gas revenues on infrastructure that will deliver an economic return.

Museum controversy

How best to do this is always a major debate in Abu Dhabi. The museums are criticised as an expensive way to import foreign culture and entertain tourists but their value in terms of prestige is enormous.

Better housing, schools, hospitals, roads and public transportation systems are more obvious ways to enhance the standard of living in the UAE. Industrial zones attract new business and create jobs, although if they become too dependent on subsidies their worth is debatable.

Still the oil is not about to run out in Abu Dhabi for at least one hundred years at current rates of extraction, so the additional infrastructure is intended to enhance rather than replace hydrocarbons as a source of national wealth.

Nothing is actually decided at the World Economic Forum, rather like summits of European leaders. But Davos is always a good gauge of global opinion and business confidence about the future. Last year there was some optimism about the economic recovery.

Gloomy prognosis

2012 is a more gloomy prospect. The eurozone crisis is close to a denouement on the Greek debt mountain with unknown consequences. World Bank economists have warned this could be worse than Lehman in late 2008 in its contagion impact on the global banking system.

Then there is the mounting geopolitical issue of Iran and the new EU embargos on oil and other business activity. Lehman was not the only issue in 2008. Remember it was $147-a-barrel oil in July that year that pushed events over the edge.

US business executives we are told are feeling more upbeat about 2012 than their European counterparts or the Japanese for that matter whose economy is also close to a major implosion.

Where will the economic growth come from in 2012? Certainly not from the UK, Europe or Japan. China is also slowing down, although a hard landing is not widely forecast at present.

From the Gulf States? Not very likely with the military might of the world flexing its muscles for a possible conflict with Iran over the Strait of Hormuz.
Higher oil prices will help but not fully compensate.

Splendid isolation?

Indeed with large parts of the global economy either in recession or close to it the Americans are going to have to organize their own pre-election party. Can the USA grow in splendid isolation?

The danger of contagion is surely obvious. The USA is financier to the world and will suffer immediately from a blow-up in the eurozone banking system through loan guarantees, quite apart from the impact on earnings from its largest export market.

Besides the US national debt and deficits are still overpowering and growing, higher in fact than the eurozone. The temporary US mood of subdued optimism rests on very shaky foundations that are about to be shaken very hard.

The hottest rumor is that silver will double in price in the next six months. Certainly the interest in articles about silver on ArabianMoney suggests that investors are most curious about this asset class.

But watch out for the infamous volatility of silver and be prepared to be patient if a global stock market sell-off takes prices down before they go up. Still we have made silver our pick of the year for 2012 (click here).

He was rated the number one market timer in 2011. Mr Granville has a long history of spectacular hit and miss market calls. Momentum, price and volume are his guide. Trading volume is the lowest since 2008.

Stock market crash

Markets will go straight down for the next few weeks with 1,000 points down a quarter until the end of the year. This is not a man to ignore.

His advice concurs exactly with the warning in the last ArabianMoney investment newsletter. This presented our ideas on how to short this market that were not published on this website (click here). New subscribers will get the January letter with our compliments. You still have time to short the market if Granville is right!

Many passengers use Dubai as a transit airport for onward destinations with the government-owned Emirates Airline offering the world’s largest longhaul flight network.

New A380 concourse

By the end of year Dubai International Airport will open a fourth terminal dedicated to A380s. Meanwhile, Emirates is adding longhaul routes from Dubai to Seattle, Dallas, Rio, Buenos Aires and Harare.

The continued expansion of the Emirates’ network and the arrival of A380 aircraft each month should ensure that Dubai Airports will grow again in 2012. Dubai’s low-cost airline flydubai is also growing rapidly, expanding the airport’s footprint to even smaller feeder destinations.

For local travelers this extra capacity has resulted in some spectacular seat sales with prices plunging to their lowest in a decade. This will be a great year for bargain travel via Dubai thanks to the capacity expansion at a time when global demand for air travel is weakening.

Oil embargo

A possible regional hiatus over the Iranian oil embargo that starts in July is also a potential serious hazard for the local travel and tourism sector. Whether or not this is actually a danger to travelers it will surely be perceived as one.

This action also threatens to push up oil prices in 2012, something that usually results in fuel surcharges and lower passenger numbers as well as impacting airline profitability.

Certainly the Dubai aviation, airline and tourism sectors have some rougher turbulence to navigate through this year.