Is it a bubble?

I was at the Press Gallery Christmas function last night in Wellington. Great do. I have renewed respect for journalists’/government relations types’/politicians’ drinking ability.

At some stage I got cornered on what would happen to Auckland house prices. Having no good answer I resorted to the Keynes line that markets can remain irrational for longer than you can remain solvent.

This morning I thought I would have answered it more as The Economist writes:

“Manias can last much longer than investors think, as many contrarians discovered to their cost during the dotcom boom of the late 1990s. Nor do investors know whether a bubble will be resolved through a sharp fall in prices or a long period of stasis, in which inflation erodes prices in real terms.”

And the folly of forecasting asset prices is neatly encapsulated by Irving Fisher (Professor of Economics at Yale University), in 17 October 1929, soon before the crash:

“Stocks have reached what looks like a permanently high plateau.”