Tel Aviv, Israel

This marks my first visit to Israel. I learned Hebrew at elementary school and, admittedly, spent most of those lessons sitting in the principal's office -- definitely not your model student until I was accepted to McGill University in 1986. To this day, my parents are shocked that I even made it to university, let alone graduated. But I can still read Hebrew and flying into Tel Aviv on Sunday was certainly an experience for this traveler.

Each year, Patrick Doherty of Valartis Bank Austria AG, and I embark on short junkets around the world to absorb foreign cultures, the local economy and take several days off to relax and discuss financial markets. Pat, who was originally a history professor in Ireland prior to becoming a private banker, will have a field day here because of the deep historical significance of the country.

After just 62 years, the Jewish state has certainly come a long way hosting a vibrant export sector mostly based on technology, biotechnology and industry. We visited Tel Aviv's version of Silicon Valley on Monday; Microsoft is easily the largest company on the strip and also its biggest brand.

Israel is highly dependent on raw materials for its manufacturing base and imports virtually every commodity – including its largest – crude oil. Gas prices are about 6 shekels a liter or about $1.55 a gallon.

Despite a protracted Arab-Israeli conflict since it emerged as a nation-state in 1948, Israel has grown quite impressively. The economy shrank modestly in 2009 and largely escaped the wrath of the credit crisis in 2008 through shrewd fiscal policies and a vigilant central bank that began raising interest rates in 2009 as the economy rebounded sharply during the second half of the year.

Morgan Stanley Capital International (MSCI) pegs Israel an emerging market. I'm not sure I'd say Israel is an emerging market; it probably emerged more than 15 years ago. Bangladesh, Vietnam and Nigeria are probably emerging markets in the truest sense. I'd say Israel, like Brazil or Thailand, is an advanced emerging economy.

The Tel Aviv 25 Composite of the largest Israeli stocks, or TA-25 Index, soared 75% in 2009 as world markets recovered sharply. But like most bourses, which correlate positively to New York amid severe market dislocations, the stock exchange has corrected sharply since March, dropping about 20%. Year-to-date, the market is down over 4%.

After touring the Tel Aviv area on Monday, we headed to the beach late in the afternoon for some R&R. Most tourists are away this time of year and that's just fine with me. It's warm but not humid and the sun is out all day. On several occasions, however, we heard bombs go off south of Tel Aviv. Upon inquiring, we discovered the IDF (Israel Defense Forces) regularly conduct military operations. This appears not to faze the locals as life goes on despite the blasts nearby. Gaza, where Hamas is the largest political force and a sore spot on Israel's southern border, lies just 53 miles or about 85 kilometers south of Tel Aviv.

Last night, I enjoyed a marvelous dinner in Tel Aviv at a restaurant called Messa. The food and ambiance are outstanding. And Israel, which holds the title to some tremendous wines in valleys located between Tel Aviv and Jerusalem, was enjoyed by our party of four. The wine was so good I noted the label: Zauberman Merlot, 2007. Simply outstanding.

Tomorrow, Patrick and I will head to Jerusalem and explore its surrounding area, including the Dead Sea. I'll comment on the markets on Wednesday.