Robert Shiller: Stock Plunge ‘Might Create Aftershocks In Either Direction In The Short Run’

Robert Shiller, the Yale professor credited with correctly-calling the “dot-com” and housing busts last decade, has been voicing his concerns about U.S. stock prices for quite some time now. I blogged back on December 1, 2013:

These days, Dr. Shiller is worried about U.S. stocks once more. Madeline Chambers reported on Reuters.com this morning:

An American who won this year’s Nobel Prize for economics believes sharp rises in equity and property prices could lead to a dangerous financial bubble and may end badly, he told a German magazine.

Robert Shiller, who won the esteemed award with two other Americans for research into market prices and asset bubbles, pinpointed the U.S. stock market and Brazilian property market as areas of concern.

“I am not yet sounding the alarm. But in many countries stock exchanges are at a high level and prices have risen sharply in some property markets,” Shiller told Sunday’s Der Spiegel magazine. “That could end badly,” he said.

“I am most worried about the boom in the U.S. stock market. Also because our economy is still weak and vulnerable,” he said, describing the financial and technology sectors as overvalued.

“Our economy is still weak and vulnerable.”

My thoughts exactly- though I wish it weren’t so.

While Dr. Shiller doesn’t say U.S. stocks are in a bubble, I wonder if he wouldn’t consider them relatively “frothy”?

(Editor’s note: Bold added for emphasis)

With U.S. equities in a correction for the first time since 2011, I’ve been curious what the author of the 2000 book Irrational Exuberance (now in its 3rd edition) is thinking these days. Dr. Shiller was on the CNBC TV show Squawk on the Street Friday and said:

I’m not surprised. I don’t know if this is a big story. But my story has been, you’re correct, that valuations are high, quite high, by historical standards. There’s only been a few other episodes in U.S. history when they’ve been this high.

(Editor’s note: Bold added for emphasis)

When asked how much more of a “shakeout” he sees, Shiller told viewers:

Here’s the problem. We really find it very difficult to predict short-term changes. The easier thing to predict is volatility, and I think that the shocks that we just saw yesterday might create aftershocks in either direction in the short run. We’ve been in a low volatility era. And this is a big move down, but it’s not the end of the world. I’m not sure there will be a huge reaction to it.

(Editor’s note: Bold added for emphasis)


“Historically valuations are high: Robert Shiller”
CNBC Video

While I didn’t see this part of the interview, Zack Guzman added on the CNBC website Friday:

While Shiller conceded the possibility that the selloff could “create aftershocks in either direction in the short-term,” he highlighted a psychological bias for those in the periphery to “over focus on the latest news.”

“When people who don’t normally pay attention to the market are brought in, it can feed on itself like an epidemic,” he said.

With a long-term view in mind, however, Shiller reminded investors a correction would not be the end of the world, citing confidence China would see renewed growth and the comeback of a healthy U.S. housing market…

(Editor’s note: Bold added for emphasis)

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

Source:

Guzman, Zack. “Market ‘aftershocks’ are coming: Robert Shiller.” CNBC. 21 Aug. 2015. (http://www.cnbc.com/2015/08/21/market-aftershocks-are-coming-robert-shiller.html). 23 Aug. 2015.

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Sunday, August 23rd, 2015 Asia, Crash Prophets, Housing, Investing, Stocks
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