The Nostradamus in us

It’s human nature to follow the crowd when it comes to stock market predictions, but sadly few of them have proven to be right.

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By  Stephen Corley Published  November 26, 2006

|~||~||~|It’s human nature to follow the crowd when it comes to stock market predictions, but sadly few of them have proven to be right. If I was inclined to take a more populist stance, it occurred to me that a headline such as “The Crash is Coming” or “Buy now while stocks last” would set the tone and establish a broad appeal to readers of Arabian Business. At least that is the impression to be gleaned from public reaction in recent weeks to certain comments on the fortunes of the UAE property scene and the new-found consensus that it is about to experience a reversal. Rarely have I seen print, voice and broadcast media, simultaneously take up the cudgel and debate something so aggressively. Actually, debate is too strong a word. In fact everyone suddenly seems to agree. I shall try not to get worked up about the fact that to my knowledge, only one or two of us have persistently highlighted issues within both the property and stock markets over the last eighteen months, which if left unchecked may lead to systemic disruption. Then before you can say Damac, a local businessman utters a few choice words and the pack descends on the nuggets like they contain the very Wisdom of Solomon. It’s the nature of the beast I suppose. No matter how frustrating though, we should be grateful because it has allowed the rest of the token realists to come out of hiding and now, talk of a property crash is common currency. Unfortunately, as a natural contrarian, this makes me nervous. One thing well known in the prediction business is that when so many people are predicting an event, it seldom happens. So when there is an almost universal belief in an imminent property downturn, it would seem reasonable to question one’s original stance. In addition, most of my social universe seem to be engaged in buying property here for the first time, which skewers any attempt at objective assessment. Predictions are dangerous. Witness an editorial in the Washington Post circa 1901: “We have sanitation, surgery, drainage, plumbing - every product of science and accessory of luxury. It seems impossible to imagine any improvement on what we have.” Risky business then. Yet it’s human nature to make them. In financial markets, people are paid fortunes to predict, even when evidence exists that shows the majority to be persistently wrong. Cosmologists, astrologists, soothsayers, inventors; we’ve done it for generations. One of the nice things about Dubai years ago was that, as it had experienced limited growth and made little impact on anything or anyone, it didn’t attract much attention. Now the city lurks in the murky bowels of celebrity status, everyone wants a piece of the prediction pie. What’s interesting about the game here now is the sudden slip over into negativity. Whereas nearly everyone agreed to take the official standpoint over recent years, safety in numbers I assume or for fear of disturbing the mellow suburbs of delusion, that has changed. Now that a couple of prominent local figures have stepped out of line it’s safe to proffer an alternative point of view. And what an alternative that is. One of the region’s most irrepressible bulls commented in September that “In the short term the shortage of supply of completed property at a peak time of demand leaves predictions a no-brainer” Compare that to the same column six weeks later headed “It is almost accepted wisdom that the Dubai property market will undergo a correction”. John Kay, writing recently in the Financial Times stated, “Successfully predicting house prices involves good economic models, an appreciation of the sociological dynamics of aspiration and a trader’s flair for the waves of market psychology. Not many people combine these skills.” He concluded. “The only information anyone offering confident predictions about house prices gave, was that you should not pay attention to them.” It is still true. So in answer to the kind reader who asked if I had made any predictions given that I appear to rubbish those made by others; the answer is that I have no forecasts, just faith. I have faith in all the developers, investors, speculators and others who will continue to do what they do best and will in their collective wisdom push the markets to their inevitable conclusion. On that basis I stick by everything I have written in the last 18 months and would still pass on property and also for that matter on the DFM issue and pick it up cheaper next year. I would buy battered resource stocks, watch the oil price bounce back, finally sell the US Dollar and hoard gold and silver. - Stephen Corley is a business consultant with experience in fund and asset management. He can be contacted at||**||

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