GIC in Dubai

Report from Dubai
March 24, 2013

From my friend David:



Looking at the world’s tallest building, the Burj Khalifa in Dubai, I thought of Brunelleschi and the construction of the dome of the Cathedral of Santa Maria del Fiore (the Duomo) in Florence.


Centuries ago, Filippo Brunelleschi, the Italian Renaissance architect, redesigned scaffolding so that his workers could have sanitary facilities and eat 180 feet above the ground. By enabling workers to remain above ground instead of spending their time climbing up and down, Brunelleschi increased productivity and thereby cut the construction time required to complete the dome in half with his genius idea. While the construction of the entire cathedral in Florence required 130 years, Brunelleschi’s work on the dome, begun in 1420, was completed by 1436 – a mere 16 years.


The construction of the Burj Khalifa started in January 2004 and was completed in January 2010. The entire building was finished in less time than Brunelleschi’s crew needed to build their scaffolding. We are about to visit the Burj Khalifa.


Dubai is a place of great contrasts that are immediate, robust, and continuously encountered. Here I am in the Persian Gulf and in the world’s tallest building, having had the good fortune to escape another of the world’s tallest buildings more than a decade ago, on September 11. Digesting these contrasts is a very intense and emotional experience.


Arriving at 1:00 a.m. at the world’s tallest hotel, the new JW Marriott Marquis in Dubai, one is greeted with long-legged, short-skirted women on their way to night clubs, but one shares the elevator with a burqa-clad mother and her children. In the same group are four young women from Saudi Arabia who have come to Dubai on holiday. They are bubbling with excitement because they have transitioned from one culture to another and want to experience the freedom and international collegiality of Dubai.


At the JW Marriott Marquis in Dubai, employees represent 71 nations. The hotel is an incredible assemblage of restaurants, luxurious accommodations, and services; it is one of the newest marvels in a city with incredible construction underway.


In neighboring Saudi Arabia, by contrast, life is austere. There are no cinemas, alcohol, or joyful exhibitions in any public place. It is hard to imagine that, an hour and half away in Dubai, the shopping malls are jammed with people from around the world. The tourism here is as intense and diverse as one might expect in Shanghai, Paris, or New York.


It is an exciting time to watch new buildings surging toward the sky, and to reflect on huge accumulations of affluence coalescing into one monumental edifice after another. That is the prospect that greets the eye in Dubai.


I was able to capture some fascinating images while here in Dubai. The first is a view of the city from the observation deck of the Burj Khalifa. The second is a view from the same deck looking upward to the top of the building. And the third image is of the famous hotel Burj Al Arab. Those images can be found on Cumberland’s website. Here are the links:,,


Now to Cyprus.


We are sitting in Dubai with folks from around the world who are gathering for the Global Interdependence Center conference. It has been a fascinating day. I have toured the tallest building in the world and am relaxing in front of the tallest hotel in the world, enjoying the breeze and watching the sun set in the Persian Gulf. Cyprus is the focus of conversation everywhere.


Some things are becoming obvious as the events churn to a conclusion. Here are some points shared from economists, bankers, investors, and academics who are participating in this global meeting.


One: It is fairly clear to the political leadership in Europe that they goofed badly with their initial proposal. To be blunt, they blew it. Also clear is that they have learned not to attack the €100,000 baseline deposit insurance scheme.


Two: The best columns on Cyprus this weekend, both in the Financial Times (FT), were by John Authers, who discussed the meaning of the crisis in terms of markets, and Tony Barber, who discussed it in terms of history, setting, and geopolitical risk. We advise that the rest of the FT material that was devoted to Cyprus be mandatory reading for anyone interested in the subject and its impact on the world economy and financial markets.


Three: If you do not have the voters and legislature on your side, you lose. That was clearly the case among the Eurogroup, primarily dominated by finance ministers and politicians who ignored their respective electorates or at least some of them. That was clearly the case in Cyprus.


Four: The discipline of the European Central Bank needs to be applauded. The bankers realized that the deposit tax would trigger runs, but they could not make themselves heard by the politicians and finance ministers. Their warnings were unheeded to the extent that they were able to make the argument. Bankers understand that when you promise deposit guarantees to constituent citizens, you must always deliver on them. They realize you cannot violate that promise.


In a way, the Cyprus affair offers the opportunity for the Eurozone to advance more quickly. Serious central bankers and bank regulators know there must be some form of Eurozone-wide deposit insurance mechanism. They want to model it after the Federal Deposit Insurance Corporation (FDIC) that we have in the US. They now know that they have to do this quickly and that it must be credible.


Events will unfold in and beyond Cyprus; and as they do, the ramifications of these developments in the last several weeks will continue to become apparent. The actions of the finance ministers have changed the rules. They offered the notion that they would contemplate the unthinkable and attempt to impose it. They were rebuffed by the political forces that represent the smaller savers and the governmental body that had to either approve the plan at its own peril or reject it. Now we are going to see the rest of this tragic theatre unfold.


We will close with an excellent summary by Don Rissmiller of Strategas, whose firm is a participant in our conference here in Dubai. Don wrote: “A key question remains how big a ‘tax’ Cyprus will need – and from where – to secure additional funds. For any economy, there are generally 3 things that could be taxed: 1) income (what the economy generates this year), 2) wealth (what the economy has accumulated up to this year), and 3) transactions (as individuals exchange income and wealth). Income taxes and transaction taxes (sales taxes, VATs, etc) can come from this year’s pay. The problem for Cyprus is that – with a banking sector much bigger than GDP – there’s not enough income.


“And so, by eliminating all other options, the one that’s left has to be the answer. The question is, can Cyprus come up with a wealth tax that the population is willing to pay? And does that tax also avoid a dangerous precedent & euro-area bank runs? As we have noted before, making cash unsafe can have dire consequences – the economy needs a liquid asset in which to transact financial and (perhaps even more importantly) non-financial business.”



David R. Kotok, Chairman and Chief Investment Officer


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