QE has become little more than a confidence trick

The markets were genuinely, and pleasantly, surprised by this apparent act of largesse, even though nobody was expecting any more than a marginal taper in the first place. The Dow and S&P 500 surged to new records and there was a collective sigh of relief. The printing press will be kept going after all. QE may have lost much of its ability to stimulate genuine growth but it has certainly put a rocket under asset prices.

After two days of deliberations, the Federal Open Market Committee announced: “[We] will closely monitor incoming information on economic and financial developments in coming months and will continue purchases of Treasury and agency mortgage-backed securities, and employ other policy tools as appropriate, until the outlook for the labour market has improved substantially in a context of price stability."

Actually, this should not have come as much of a surprise – though it ran counter to most predictions. Markets tend to front-run events, so even talk of a taper had caused market interest rates to rise quite significantly, and quite probably by more than the Fed had anticipated. By merely raising the subject, the Fed had therefore brought about a tightening of monetary conditions.

Wednesday night’s statement can be interpreted as an attempt to undo the damage. From top to bottom, it was extraordinarily dovish, with several references to the headwinds expected from US fiscal tightening and continued weakness in the labour market. The Fed has apparently decided that the risks of choking off the recovery are greater than stoking another asset bubble. The St Augustian principle remains intact: please make me chaste, but not yet.

But if not now, when?

There was little guidance on this, other than to reiterate that not until the unemployment rate falls to 6.5pc will policymakers consider raising interest rates.

There was perhaps another influence too, which the statement didn’t mention. While everyone has been focusing on President Barack Obama’s apparent humiliation at the hands of the Russians over Syria, a new stand-off has been developing on Capitol Hill over the public finances.

Yes, the wretched fiscal cliff is back. Next year’s budget should theoretically be agreed by the end of this month but there is absolutely no sign of it happening. In the past, there has always been a last-minute fudge, together with a cooling-off period, but it looks more serious this time. A federal government shutdown might actually happen, sparking a period of economic mayhem. Presumably everyone will eventually come to their senses and open the parachute. Even so, there is scope for considerable damage in the meantime, bringing the still quite fragile economic recovery to a juddering halt.

Monetary tightening on top could well have proved deadly. So for now, the Fed is holding back, even though it must know that QE has become little more than a confidence trick in so far as the real economy is concerned. It keeps markets happy, and asset prices growing, but it does nothing to address the underlying faultlines in the US and global economies, and, indeed, in the long term threatens only to make them a great deal worse.

The can has been kicked further down the road, but it’s still there, and the longer this failure to face up to reality persists the more painful the eventual denouement will be.

Damac’s move for a London IPO is risky

Dubai's business community used to say that you could tell the strength of the emirate’s property market by the number of lights turned on at night or, as was the case in 2008, switched off in the high-rise apartments built either side of the city’s main 10-lane motorway.

At the height of the global financial crisis, real estate investors in the emirate – many of them British – were hit hard as the value of their properties plummeted by as much as 50pc and money paid in advance for off-plan developments that were never built disappeared into the Arabian sands.

Real estate developers such as Emaar and Damac Properties were also hit hard as demand for property dwindled and finance for new projects dried up. At one point it looked as if the entire sheikhdom built by Sheikh Mohammed bin Rashid Al Maktoum would implode under the weight of the debt it had amassed. Many executives who grew wealthy off the back of Dubai’s property boom but later were to fall foul of a clampdown on corruption still languish in the city’s dilapidated central jail in Satwa.

Five years on, Dubai is once again buzzing. Money has poured in from wealthy investors escaping parts of the Middle East that don’t enjoy the emirate’s stability or security. These investors pay cash and they alone have propelled the emirate once again back to the top of international league tables for property prices.

As the bumper-to-bumper traffic jams return to Sheikh Zayed Road so too has the confidence of its property developers, so much so that Damac has now appointed bankers to manage a potential multi-billion-pound listing in London. Dubai remains the company’s main area for development despite projects in Saudi Arabia, Jordan, Egypt and Lebanon. In its heyday, Damac symbolized the speculator-driven frenzy that drove Dubai’s boom. Its brash marketing ploys included giving away Bentleys and BMWs to encourage investors to buy.

Given the reluctance of banks in the region to lend, listing shares in London could provide Damac with a handy source of revenue to fund new developments.

But even with the help of Deutsche Bank and Citigroup, Damac’s attempt to pull off a London IPO is a risk, given that many British investors still have painful memories of seeing their property investments collapse.

Although prices for prime homes in Dubai have gained significantly since 2011, the value of mortgages issued has declined, signalling that the current boom is more about hot money flooding in than it is about long-term investors seeking the security of bricks and mortar.

Despite the influx of money into Dubai from places such as Afghanistan and Egypt that has pumped up prices, buying property in the tax-free enclave isn’t for the faint of heart. Neither is buying shares in companies that are largely dependent on revenue derived solely from the Middle East, which, as the Arab Spring has proved, can be a volatile place for the bravest investors even in oil-rich corners of the Persian Gulf.