Every roller coaster ride must come to an end

Now that markets have reminded us that they can move in both directions (believe it or not?????) where is the next move? My friend Naji and I argue often about the fair value of the Saudi Market, although both of us know the danger of valuing a whole market, we’re talking about ballpark figures, not exact numbers. While I think that the Saudi Index is worth 5,000-6,000 he is more optimistic and believes it is worth somewhere around 7,000, maybe 8,000. The question now becomes, how will the index get there? I’ve studied historical bubbles in financial markets and if there is one thing that I’ve learned it’s that you cannot predict how high they will get and for how long. In his recent report, “The Winter Discontent”, Mr. Tarek Fadlallah of Nomura reminds us of a quote by John Maynard Keynes, “The market can stay irrational longer than you can stay solvent.” Therefore, I’m not going to bet on when they will go back to rationality (although usually markets overshoot in both directions), but trust me that they will, eventually. Will it be straight down? Unlikely, but possible. The most likely scenario is for the markets to zig-zag down with a few bear market rallies (fake rallies embedded within major declines). Every roller coaster ride must come to an end, it can go up and you can have lots of fun, but in the end, it always comes back to the ground.