Please, do buy. You won’t regret it.

The anti-EMH theories are falling even faster than I expected.  Last year I did a post reminding readers of bubble theories we all heard around 2009-11, which have recently been refuted.

And now Dubai.  Five years ago we were told it was just a giant property bubble, without any sound fundamentals.  Here’s the Economist:

TRAVELLERS flying into Dubai often look down and marvel at the man-made islands with the luxury villas. These outlandish creations came to symbolise the emirate’s economic boom in the mid-2000s””and the crisis that followed in 2009, when it needed help to pay its debts, many related to property development. But once on the ground, travellers see signs of a more sustainable prosperity. The airport is bustling””more international travellers use it than any other.

Dubai has bounced back from the crisis, which saw its economy contract by around 2.5% in 2009. It is expected to grow by around 5% this year, as it did last year.  .  .  .

Dubai long ago used up most of its oil reserves, so the government has for years tried to diversify the economy. While skyscrapers and palaces grabbed headlines, this less glamorous work has slowly paid off: Dubai is now a regional hub in several areas. The airport, which already serves some 70m travellers a year, is set to expand to serve over 200m, eventually. Emirates, the local airline, is world-class. The port at Jebel Ali is by far the busiest in the Middle East, the cargo it handles growing by nearly 12% last year. It is likely to become the biggest container port in the world by 2030.

Three decades ago Jebel Ali became the Middle East’s first big “free zone” (a place where foreign firms can operate, unusually, without a local partner and with less red tape and lower taxes than in the rest of the emirate). Now it is the world’s largest, and Dubai has 22 such zones in total, most based around particular industries. Dubai’s free zone for finance even has its own judicial system, based on common law. The number of companies in it grew by 14% in 2013 and 18% last year, to reach 1,225. More growth is expected, with $1 billion worth of new development planned.  .  .  .

Planners expect Dubai’s population to reach around 3m by the time it hosts the World Expo in 2020. The Chinese are increasingly using it as a logistical hub for their African ventures. Dubai also stands to benefit if sanctions are lifted from Iran, with which it already has strong economic ties.

I guess the world’s biggest international airport, a huge container ports, 22 free trade zones, low red tape and taxes, and a common law judicial system for business don’t count as fundamentals.  Oh, and remember that house price “bubble”?  Yup, just another false claim by the bubble-mongers:

Screen Shot 2015-06-11 at 3.51.39 PM




42 Responses to “Please, do buy. You won’t regret it.”

  1. Gravatar of E. Harding E. Harding
    11. June 2015 at 12:14

    Those housing price trends look eerily similar to those in the U.S. (except the 2006-8 boom, which was probably due to the commodities bubble at the time).

  2. Gravatar of ssumner ssumner
    11. June 2015 at 12:51

    E. Harding, Not really, American house prices are still far below peak (2006) levels.

  3. Gravatar of bill bill
    11. June 2015 at 13:51

    a day or two ago, Krugman gave Dean Baker credit for calling the US housing bubble even earlier than Krugman did. Which is hysterical, since Dean’s big paper came out in August of 2002, and a US buyer in 2002 that held until today has seen the price appreciate by more than inflation.

  4. Gravatar of benjamin cole benjamin cole
    11. June 2015 at 15:45

    I agree, but the fact that some markets go down over time does not mean EMH is flawed. When a market retreats, it only means investors believe the future will be less profitable.

    I do wonder about situations in which institutions that are trusted tell investors that a certain segment will be extremely profitable in the future. The institutions could have a conflict of interest. This situation could create something that might be termed a bubble and could define the late 1990s and the craze.

    Also, I think gold can be in a bubble as expectations are not of future profits but simply what people will pay for gold in the future. Again, trusted tub-thumpers bray about gold and some investors will be naive enough to buy.

    But in general EMH works.

  5. Gravatar of bill bill
    11. June 2015 at 15:53

    And even when EMH fails to hold, most people are better off assuming it will. : )

  6. Gravatar of Ray Lopez Ray Lopez
    11. June 2015 at 16:04

    According to Sumner there never has been a bubble. This guy further probably believes Dutch tulips were rationally priced (until they became common later), that the Mississippi and South Seas bubbles were rational attempts to monetize government debt, and if you wait long enough, even Russian Czar bonds would have paid off, if bought at the lows.

    Hey Scott, I got a Filipino maid that wants to go live in Dubai, care to join her? I’ll pay for your ticket.

  7. Gravatar of benjamin cole benjamin cole
    11. June 2015 at 16:09

    Speaking of bubbles, the Shanghai Stock Exchange Composite Index is up more than 150 percent in the last 12 months. I have no idea what this means. China just threw its former top security chief into prison for the rest of his life, on corruption charges.
    The PPI has been deflating for 36 straight months.

  8. Gravatar of marcus nunes marcus nunes
    11. June 2015 at 17:01

    @ Ray Lopez
    Are you by chance related to Trini?
    You would profit from reading Garber´s Famous First Bubbles:

  9. Gravatar of E. Harding E. Harding
    11. June 2015 at 17:08

    -I was referring to patterns of change, not absolute levels. Much like your look at changes in W/NGDP and comparing them with increases in unemployment.

    The trends still look very similar, even if the trend in one area is somewhat stronger (or weaker) than in the other.

  10. Gravatar of Major_Freedom Major_Freedom
    11. June 2015 at 17:34

    “The anti-EMH theories are falling even faster than I expected.”

    Hahahaha, good one.

    “Last year I did a post reminding readers of bubble theories we all heard around 2009-11, which have recently been refuted.”

    You can’t “remind” readers of what doesn’t exist as if it exists.

    No, not all bubble theories we heard 2009 have been “refuted.”

    The absence of a collapse tomorrow is no more a confirmation of EMH, as a collapse tomorrow is confirmation of anti-EMH.

    You accept the latter point there, but even though accepting the latter logically implies the former, you contradict yourself and claim that an absence of a collapse somehow proves EMH.

    If collapses do not falsify EMH, then absences of collapses do not falsify anti-EMH. But if absences of collapses confirms EMH, then presence of collapses falsifies EMH.

    “And now Dubai. Five years ago we were told it was just a giant property bubble, without any sound fundamentals.”

    First, that is a straw man. Nobody said there were “no” fundamentals. Bubbles cannot form on a basis of no fundamentals. And nobody said the entire property market was in a bubble.

    Second, you contradict yourself here too. If an absence of a collapse falsifies anti-EMH, and you claim EMH is emporical, then a presence of collapses must confirm anti-EMH.

    An empirical EMH means that you must accept that EMH can in principle be falsified by experience. Yet no matter what happens, if there are collapse or if there are no collapses, you take all this as evidence of EMH.

    These blog posts are just getting sloppier by the day.

  11. Gravatar of Major_Freedom Major_Freedom
    11. June 2015 at 17:38

    If next year or the year after the property market in Dubai collapses, then Sumner will just take that as evidence in favor of EMH.

    Sumner is not “reminding” his readers, he is lying to them. He is lying when he says he believes EMH is confirmed as long as there are no collapses. The truth is that he believes EMH no matter what happens.

  12. Gravatar of E. Harding E. Harding
    11. June 2015 at 18:21

    ssumner, what would be the minimum needed to confirm the EMH? What would be the minimum needed to falsify it?

  13. Gravatar of benjamin cole benjamin cole
    11. June 2015 at 19:00

    BTW bubbbleheads: if you believe in bubbles, then perhaps you also believe in “market holidays,” or reverse bubbles in the surface of the investment waters.

    I would dearly like to know what part of the market today is in a reverse bubble. Please tell us!

  14. Gravatar of E. Harding E. Harding
    11. June 2015 at 19:05

    Pppft. That’s easy. Oil is exiting its reverse bubble at this very moment.

  15. Gravatar of Robert Robert
    11. June 2015 at 19:31

    You link to the Buffet piece wherein you agree that people are better off buying index funds. The question is: “What happens when everyone buys index funds?”

    The market ceases to perform its price discovery role. Active management becomes profitable and easy.

    There must be an equilibrium point – where active management earns excess fees enough to offset the probability of outperforming….?

  16. Gravatar of Bubble-monger (a.k.a. Willy2) Bubble-monger (a.k.a. Willy2)
    11. June 2015 at 20:44

    Bubble, bubble, bubble.

    And just guess what happens when the big chinese real estate bubble bursts. Then China doesn’t need all those african resources anymore.
    Or when the customers of the chinese in Europe stop buying chinese products ?
    Or when (not IF) the US economy implodes ?

    And that will deflate the Dubai bubble as well. The article does place some question marks regarding the current situation in Dubai.

    Bubble, bubble, bubble.

    On top of that: (Real Estate) markets are ALWAYS (ruthlessly) efficient. Both on the way up and on the way down. With or without a bubble. So, the EMH doesn’t automatically rule out the formation of bubbles.

    Bubble, bubble, bubble.

  17. Gravatar of am am
    11. June 2015 at 20:47

    Dubai does a good line of trade in cars to Africa too.
    It also attracts the African sole trader who fly in, buy up, fly home, sell and go back again. If your ever in African airports you’ll see many returning home from the Dubai shopping trip – all easy to do with the expansion of their airlines into Africa.

  18. Gravatar of ssumner ssumner
    12. June 2015 at 04:19

    Bill. Good point, I’ve seen similar claims with other bubble-mongers.

    Ben, You said:

    “I agree, but the fact that some markets go down over time does not mean EMH is flawed. When a market retreats, it only means investors believe the future will be less profitable.”


    Ray, You said:

    “I’ll pay for your ticket.”

    Just send me the money, I’ll go sometime later.

    E. Harding. OK.

    You asked:

    “ssumner, what would be the minimum needed to confirm the EMH? What would be the minimum needed to falsify it?”

    As you probably know, theories can never be definitely proven. To show the theory is useful you’d look for evidence:

    1. Markets respond almost immediately to new info.

    2. Asset prices follow a random walk. Perhaps with an upward trend.

    3. Excess returns earned by stock pickers (Mutual fund mangers, hedge funds, etc) are not serially correlated.

    Vice versa to show it’s not useful.

    Ben, It’s very telling that the bubblemongers almost never talk about reverse bubbles. They don’t talk about NASDAQ being 1175 around 2002 or 2003.

    Robert, You said:

    “There must be an equilibrium point – where active management earns excess fees enough to offset the probability of outperforming….?”

    I agree that you’d think this would be true. But it’s not–index funds outperform managed funds.

    Willy2, You said:

    “And that will deflate the Dubai bubble as well.”

    Have you no shame?

  19. Gravatar of collin collin
    12. June 2015 at 05:29

    So things are doing well in Dubai so there can’t be a ‘bubble?’ From most of history of bubbles, the big bubbles don’t come from dysfunctional economies but the most functional hard working ones. Was there are harder working society than Japan in the 1980s? The US housing bubble came from two income families working themselves to an early grave trying to afford higher house prices.

    I fear the biggest problem is not Dubai, but its neighbor the House of Saud. Considering they have started a giant Mission Creep disaster in Yemen, they border nations with ISIS rebels, and running HUGE fiscal deficits, you have wonder how rationally they are acting. With current oil prices, it is harder for Saudi Arabia to buy the population with such a potential dysfunctional society. I still say the best interest for the US is sign the Iranian nuclear deal today and start distancing from Saudi Arabia. (Then if Saudi continues to act irrationally the next few years, then there would be consequences with Dubai…It could be a replay of the Texas oil/S&L crash.)

  20. Gravatar of Todd Ramsey Todd Ramsey
    12. June 2015 at 05:38

    “Excess returns earned by stock pickers…are not serially correlated.”

    What about Warren Buffett, who has beat the S&P consistently (although not every year) over 60 years?

    It seems possible that asset market prices reflect not only every piece of information (subject to information cost constraints), but also every bit of investors’ emotions. If true, an investor can beat the market by not following the emotional swings of the herd. That is Buffett’s contention.

  21. Gravatar of benjamin cole benjamin cole
    12. June 2015 at 05:39

    E Harding:

    When is oil in a bubble, or when is it in a reverse bubble, and when is it at exactly the proper market price? Is your definition of a bubble any price that wanders? BTW I am open to suggestions that the NYMEX and Brent prices are medium-term manipulated due to the supply constraints which are placed on oil by thug states, and the role of powerful institutional players who can cloak their identities, legally.

    But you seem to be saying that the oil shale boom is some sort of reverse bubble, instead of just being an addition to the supply.

    Was gold in a bubble at $1800 in 2011? How about at $800 back in 1980? Or a reverse bubble in 2002 at $300?

    Maybe we are just arguing semantics….

  22. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    12. June 2015 at 05:42

    @Prof. Sumner
    How do you propose market prices for investment assets are formed if there are no active managers ? When evaluating performance, please use a risk adjusted measure, not just compounded return over a arbitrary period of time.

  23. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    12. June 2015 at 05:48

    @Ben Cole
    I agree with you. It is a common statistical mistake to look at a sharp price decline that succeeded a price rise and call it “bubble”. The probability that a sharp fall in prices will succeed a sharp rise is not low, but the problem is that the probability that people should be looking for is the conditional probability: given a steady rise in prices, what is the probability of a sharp decline? That probability is much lower.

  24. Gravatar of Njnnja Njnnja
    12. June 2015 at 05:58

    In all fairness, EMH does not say that *every* market will be free of bubbles; certain basic criteria such as a sufficient quantity of investors, liquidity, and ability for prices to change to reflect new information. For a market like US Equities these hold pretty well. However, it is clearly possible that real estate prices do not change quickly to reflect new information enough for EMH to hold very well.

    For example, many buyers need financing that makes the time between agreement and closing several weeks, and even in an all cash deal the amount of paperwork that needs to be done is tremendous. Perhaps transactions move too slowly to reflect all new information that is pertinent to the market, at least enough that EMH does not even approximately hold.

    (Note that a libertarian might argue that we could get rid of governmental red tape to make the market more capital-“E”-Efficient but that would only support the position that the market is not currently as efficient as it could be, and therefore susceptible to bubbles.)

    Furthermore, I would not assume a priori that, say, a real estate market thousands of miles away in a legal jurisdiction that I understand poorly if at all is very efficient at all. I don’t think that it takes a “bubble-monger” to question whether such a market is in a bubble, since in such a case, I would put the burden of proof that the market satisfies the necessary conditions for EMH on the person arguing that it does hold.

  25. Gravatar of Ray Lopez Ray Lopez
    12. June 2015 at 06:58

    @marcus nunes – I’ve read Garber’s work and all my other examples are from Rational Expectations type people who don’t believe in bubbles. Even the 1987 US stock market crash has incredible apologists who believe this ‘collapse’ (Sumner says you cannot call it a bubble if later it exceeds its former highs, which is ludicrous, but so be it) was due to some pending legislation in Congress which would have impacted stocks slightly.

  26. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    12. June 2015 at 08:23

    I think this discussion is not meaningful without precise definitions. What are fundamentals, anyway? “markets react immediately to new info”, but what is “info”? Is “info” any kind of hard facts (such as actual oil production) or “expected data” (investors “expect” oil production to be X)? People that comment in this blog certainly believe expectations are important, but expectations are not hard facts. Expectations always will be wrong to a certain extent. Sometimes, expectations will be very, very wrong. People once believed tha Earth was flat. The fact that they believed did not make their “fundamental view” about the Earth any more correct. I think that a good definition of a bubble is when expectations on which investors priced assets were so wrong that when reality downed on them there was destruction of wealth in society. But one thing is sure: that cannot be know ex-ante, only ex-post.

  27. Gravatar of Meets Meets
    12. June 2015 at 16:48

    The anti-EMHers have a poor track record predicting bubbles, making their theory suspect.

  28. Gravatar of ssumner ssumner
    13. June 2015 at 05:57

    Collin, I think you missed the point, I was talking about their so-called “bubble” in 2008.

    Todd, I have many posts explaining why Buffett’s returns are perfectly consistent with the EMH. The model doesn’t say no one will have serially correlated returns, it says on average you won’t see serially correlated returns. Check out my post “Being There”

    Jose, I don’t understand the question; prices reflect market expectations, with or without active managers.

  29. Gravatar of Major_Freedom Major_Freedom
    14. June 2015 at 07:25


    “Even the 1987 US stock market crash has incredible apologists who believe this ‘collapse’ (Sumner says you cannot call it a bubble if later it exceeds its former highs, which is ludicrous, but so be it) was due to some pending legislation in Congress which would have impacted stocks slightly.”

    Oh come on, doesn’t everyone have infinite investment time horizons? Where if a housing bubble bursts, and millions of people then die of old age, disease or violence, and then the central bank inflates more, and eventually makes the housing prices higher than the previous peak, that it was never a bubble after all?

    That once bubbles burst, in order to remain a bubble, there can be no inflation from then on?

    That we can redefine what took place in the past by doing something different in the future?

    That gobbledygook seems reasonable to me.

  30. Gravatar of Major_Freedom Major_Freedom
    14. June 2015 at 07:28


    Actually their track record is perfect. Every anti-EMH predictor turned out right when 2008 happened.

    But EMH does not recognize anti-EMH predictions being right as evidence that they were right, because EMH theory is a priori. It is not a theory of predictions. It is a way to view the world in all outcomes.

  31. Gravatar of Major_Freedom Major_Freedom
    14. June 2015 at 07:50


    Market monetarism has a flawed view of prices.

    It views prices the way a chemist views the number of atoms or molecules in a given volume of space at a given pressure and temperature.

    It views prices essentially as a “given”.

    As a result, Sumner does not understand that without active managers, there would be no market. Without active management the market would disappear, and prices and spending would become rigid quantities constantly repeating. For every individual would be passively paying the price that is being offered, and no active management means all prices offered have no reason for changing.

    As I am sure you know, the reason why prices change is because active managers are not content with recent past prices. They disagree with them. They believe that they can make more profit by paying a higher or a lower price than the recent price, or offering a higher or a lower price than the recent price. That is active management.

    If everyone tried to invest “passively” in index mutual funds, the capital markets would collapse. For there everyone would be, money in hand and offering to buy however many index fund units as their money will allow, which is to say they will pay the going price, but there would be no individual offering to sell either the index fund itself, or the individual equity components from which the index is constructed.

    Sumner is like how some sports journalist think and act. He knows he depends on the athletes for his paycheck, but deep down he dislikes the athletes because he depends on them, and because some of them make so much money.

    After all, EMH is true for baseball, basketball and soccer because no sports athlete make above league average salaries every single year their entire lives. Those players earning large salaries must be lucky. Has nothing to do with skill. Right?

  32. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    14. June 2015 at 10:21

    @Prof. Sumner
    Suppose a certain market is the aggregation of 100 assets. But people believe in a certain form of CAPM. Everyone buys and sells the basket. Who is going to price in the idiosyncratic factors that determine individual asset prices ? If everyone just buys the basket, noone will have a view on individual asset prices. Active managers do that. On average, they may underperform, but without them, everyone is worse off, prices will loose connection to “funtamentals”, no matter what they are. The fact that on average active managers underperform does not matter investors should not pay that price in order to enhance return/risk profiles on a risk adjusted basis. This is a well known finance problem. Look for FAJ, volume 66, #2, Xiong, Ibbotson, Idzorek and Chen, “The equal importance of asset allocation and active management”.

  33. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    14. June 2015 at 10:24

    I agree with your comments on market prices

  34. Gravatar of ssumner ssumner
    15. June 2015 at 08:01

    Jose, I agree that it’s a good thing there are active managers, if that is your point.

  35. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    15. June 2015 at 09:38

    @Prof. Sumner
    Yes that is my point. But I would agree that for those investors that don’t have the tools, nor the time to evaluate active managers, passive investment and diversification is the way to go.

  36. Gravatar of Bubble-monger Bubble-monger
    19. June 2015 at 04:54


    I would reply: How long do you keep peddling these faulty notions ?

  37. Gravatar of Bubble-monger Bubble-monger
    19. June 2015 at 06:05


    Let’s look at the facts:
    – What does Dubai produce ? Oil production is in decline. Does Dubai export sand ? So, why do they need a big port ?
    – A big airport is nice to change planes when one is flying from say India to Europe. Then one can change planes in Dubai. But when say Iran, Saudi Arabia or Kuwayt offers the same “service” for a cheaper price then passengers will change planes in those countries.
    – Same story for those “logistical hubs”.
    – When sanctions against Iran are lifted then those containers will go straight to Iran and NOT make a stop over in Dubai. Again, why would the container port(s) in Dubai be used ? To export containers filled with sand ?

    – The article in the Economist talks about a 20% drop in real estate prices. A 20% drop is another word for “BUBBLE”. The authorities in Dubai wanted to prevent a real estate crash. But the rules imposed were imposed because it became clear there was a real estate bubble in the first place.

    “Don’t you have any shame ??”. Is that the only reply you can give ? Have you run out of convincing counter arguments ?

  38. Gravatar of ssumner ssumner
    19. June 2015 at 19:00

    Bubble-monger, Most of those arguments can be used against Singapore, a “bubble” that has lasted for 50 years, and is still going strong.

  39. Gravatar of Bubble-monger Bubble-monger
    20. June 2015 at 04:36

    No. Singapore is located in the middle of a region in which A LOT OF manufacturing took (& takes ??) place (Indonesia, Malaysia, China, Philipines). Singapore was a TRUE hub for shipping traffic. And with the shipping all kind of supporting services (e.g. financing) emerged. Dubai doesn’t have a region to serve. Hardly any factories in the region.

    BTW: Singapore (like the rest of South East Asia & Australia) has benefitted form the GIANT debt expansion in China after 2008. And Singapore has become bubble as well.

    That’s why one has to keep an eye on China. And China is going to implode. Taking the entire region with it.

    And anyone who looks at Singapore now and digs a little deeper sees that Singapore’s best days are over. Singapore has all the same (demographic) problems of Europe & the US.

  40. Gravatar of ssumner ssumner
    20. June 2015 at 05:28

    Singapore is a bubble too? Then I hardly know what to say. Dubai is in a booming region of 1.8 billion people, where GDP growth over the next 50 years will be explosive. Dubai is becoming India’s Singapore.

    And BTW, Singapore does not have a demographic problem, it has probably the fastest growing population of any developed economy.

  41. Gravatar of Two Sumner Predictions: One Specific, One General Two Sumner Predictions: One Specific, One General
    20. June 2015 at 22:30

    […] a recent post at his blog, Scott gave the title, “Please, do buy. You won’t regret it.” He […]

  42. Gravatar of Bubble-monger Bubble-monger
    21. June 2015 at 23:10

    The problems in the Middle East (including Israel) are:
    – lack of water.
    – very high population growth due to (heavily) subsidized food, electricity, fuel & Healthcare.
    And as a result that Middle East is now in the process of blowing up. (Remember the words: “Arab Spring” ??).

    The Far East (China, Japan & Korea) is in (severe) demographic decline. Combine that with an aging Europe & Australia and it should be clear that Singapore will get hurt. Singapore itself is also aging.
    Even more, the whole of South East Asia is currently in a bubble (think (again): China). But in the next say 20 years I would expect to see South East Asia (+ India) doing surprisingly well.

Leave a Reply