Dubai Stocks Falling (yet again)

A big fall in the Gulf stock markets on Thursday was enough to make page 1 of the business section (though not the front page) of the Gulf News. Difficult as this is for me, I actually have to agree with what the Gulf News said about this market: over the long run, stock markets tend to do OK. (Of course, as John Maynard Keynes said, 'In the long run, we are all dead.')

Over 2005, the market went up more than 100%, then from late 2005 until today, it dropped more than 50%.

It could easily drop another 50%. Or 90%. Or rise 200%.

This is a very thinly traded market, with most shares restricted to Gulf Nationals, so it is subject to fluctuations far greater than the world's developed markets: one sheikh can move this market more in a month, up or down, than it has moved in years (he can't move it very much in one hour or one day, due to trading limits, unless he's a really important sheikh, to whom limits do not apply).

The average stock is now earning about 6%. Possibly. (Financial reporting here is not quite what it is in developed markets, but the 6% does not sound unreal.)

This means that long-term investors should earn a reasonable return on their money. On average. In the long run.

Traders on margin will eventually get margin calls, which, as we know, can have an adverse effect on bank earnings, even here where debtors' prison was never abolished, and banks have a bit more leverage to get debtors to repay loans than they had in the West in '29. But even with debtors' prisons, the old adage about blood and turnips still applies.

Short term investors, here like anywhere else, should lose. On average. In the long run.

But just remember what John Maynard Keynes said about the long run.