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Professor Espouses 2+2=4, Lauded with Accolades And Wins Nobel Prize For Real Estate Bubbles

Reggie Middleton's picture





 

I like Professor Shiller and respect his work. Really, I do, but... Massive bubbles, the sort of the proportion of the 2008 crisis, are nigh impossible to miss if you can add single digits successfully and are able to keep your eyes open for a few minutes at a time. Yes, I truly do feel its that simple. I saw the property bubble over a year in advance, cashed out and came back in shorting - all for a very profitable round trip. Was I a genius soothsayer? Well, maybe in my own mind, but the reality of the situation is I was simply paying attention. Let's recap:

  1. The housing market crash in the spring of 2006 and publicly in September of 2007:Correction, and further thoughts on the topic and How Far Will US Home Prices Drop?
  2. Home builders falling and their grossly misleading use of off balance sheet structures to conceal excessive debt in November of 2007 (not a single sell side analyst that we know of made mention of this very material point in the industry): Lennar, Voodoo Accounting & Other Things of Mystery and Myth!
  3. The collapse of Bear Stearns in January 2008 (2 months before Bear Stearns fell, while trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies): Is this the Breaking of the Bear?

We all know what happened after this part. Well, 5 years later, before we even ran off the effects of the last crash, things are looking bubblicious again and again very few are facing facts. Reuters/CNBC reports "Nobel Prize Winner Says Housing Market Looking A Little Bubbly":

Robert Shiller, who shared the 8 million Swedish crown ($1.25 million) prize with fellow laureates Eugene Fama and Lars Peter Hansen, said the U.S. Federal Reserve's economic stimulus and growing market speculation were creating a "bubbly" property boom.

You think so?!

The Royal Swedish Academy of Sciences lauded the economists' research on the prices of stocks, bonds and other assets, saying "mispricing of assets may contribute to financial crises and, as the recent global recession illustrates, such crises can damage the overall economy."

This was the case in the collapse of the U.S. housing market, which helped trigger the 2008-2009 global financial crisis. Markets are at risk of committing the same error now, Shiller told Reuters after learning he had won the Nobel prize.

"This financial crisis that we've been going through in the last five years has been one that seems to reveal the failure to understand price movements," Shiller said.

Bubbles are created when investors fail to recognize when rising asset prices become detached from underlying fundamentals.

Shiller and other economists warn that prices in some markets have risen too far, too fast due to the Fed's ultra-easy monetary policy. The benchmark U.S. Standard & Poor's 500 index hit a record in September, though it is generally not considered overvalued based on expectations for corporate earnings results or economic growth.

Shiller's work led him to suggest in 2005 that the U.S. housing market might be overheating. He helped create a closely watched gauge of housing prices, the S&P Case/Shiller Index.

In June this year, he pointed to a potential new housing bubble in some of America's largest cities. 

"It is up 12 percent in the last year. This is a very rapid price increase right now, and I believe that it is accelerated somewhat by the Fed's policy," he said.

China, Brazil, India, Australia, Norway and Belgium, among other countries, were witnessing similar price rises. "There are so many countries that are looking bubbly," he said.

The Fed has held U.S. interest rates near zero since late 2008 and almost quadrupled its balance sheet to around $3.7 trillion through a campaign of bond buying, or quantitative easing, to hold down long term borrowing costs.

Bloomberg TV & Reggie Middleton on the Flawed Case Shiller Index: "That's what they said in Japan about 12 years ago, look where they are now!"

Previous opinions on the topic...

Is There A Bubble In The Canadian Condo Market? We Drill Down Into The Facts To Find Out

The Canadian condo market is running into a precarious over-supply situation with large inventories slated to be entering the market in 2014 and 2015. Major centers such as Vancouver, Montreal and Toronto are witnessing a rapid pace of condo construction, despite falling sales....

20130406 FBC371

Bernanke's Bluffing Because A True QE Pullback Will Cause Fundamentals To Reassert In Banking Sector

A little over two years ago I queried "Is Another Banking Crisis Inevitable?". This post attracted the attention of certain ING executives who apparently were asking themsevles the same question. I was invited as the keynote speaker at their valuation conference in Amsterdam wherein I dropped the negative reality bomb! Interest rates were GUARANTEED to spike and when they do, those banks with fictitious bank sheet values and business models predicated upon credit bubble metrics were GUARANTEED to start collapsing. 

It's not just the European banks either. In 2009 I queried "Why Doesn't the Media Take a Truly Independent, Unbiased Look at the Big Banks in the US?". Then there's real esate in both the US... CNBC's Fast Money Discussing Hopium in Real Estate...

 

hat visual relationship is corroborated by running the statistical correlations...

Reggie Middleton ON CNBC's Fast Money Discussing Hopium in Real Estate

 

Crain's New York illustrating Reggie's BoomBustBlog and the followup article in Crains illustrating his accuracy in calling real estate and the European debt debacle,"

“His work is so detailed, so accurate, it's among the best in the world,” says Eric Sprott, CEO of Sprott Asset Management, a Toronto firm that manages about $5 billion and subscribes to Mr. Middleton's research.

 


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Tue, 10/15/2013 - 16:02 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

Given how regular the collapse momentum triggers are and how slowly the drag is into the abyss, it is getting hard to keep my eyes open on this.

I know what's coming, I can feel where we're at without looking around much anymore, I'm never surprised by the news that I read.

Wed, 10/16/2013 - 14:45 | Link to Comment gregga777
gregga777's picture

I assume you are familiar with Physics. In Physics studies mass has the property of inertia. Inertia being the resistance to change velocity-the greater the mass is, then the greater it's inertia.

Financial and economic systems also exhibit inertia. The greater the system the greater it's resistance to change or inertia. We all know that the USA can't live beyond it's means forever. But, It will go on for far longer than anyone thinks it possibly can due to the sheer size of the US economy and it's importance to the world's economy.

Given the US Dollar's role as the world's reserve currency, and that the US economy is the largest in the world, couples the entire world to the US economy, hence the inertia involved is enormous. Regardless of ideology, economic system, or be they friend or foe, a US economic collapse is not in any country's best interest. As bad as the consequences will be for the USA it will still be one of the richest countries in the world. The consequences will be far worse for many other countries.

Wed, 10/16/2013 - 14:44 | Link to Comment gregga777
gregga777's picture

I assume you are familiar with Physics. In Physics studies mass has the property of inertia. Inertia being the resistance to change velocity-the greater the mass is, then the greater it's inertia.

Financial and economic systems also exhibit inertia. The greater the system the greater it's resistance to change or inertia. We all know that the USA can't live beyond it's means forever. But, It will go on for far longer than anyone thinks it possibly can due to the sheer size of the US economy and it's importance to the world's economy.

Given the US Dollar's role as the world's reserve currency, and that the US economy is the largest in the world, couples the entire world to the US economy, hence the inertia involved is enormous. Regardless of ideology, economic system, or be they friend or foe, a US economic collapse is not in any country's best interest. As bad as the consequences will be for the USA it will still be one of the richest countries in the world. The consequences will be far worse for many other countries.

Tue, 10/15/2013 - 14:45 | Link to Comment Son of Loki
Son of Loki's picture

Good on ya Reggie. I always learn from your articles and share them with Mrs Loki.

 

Thnx.

Tue, 10/15/2013 - 14:39 | Link to Comment 0b1knob
0b1knob's picture

The "Nobel" prize in economics is something of a joke.   Its a PR stunt by a bank and not related to the Nobel committee at all.

http://exiledonline.com/the-nobel-prize-in-economics-there-is-no-nobel-prize-in-economics/

Its considered a joke by the real Nobel people which is saying something considering how bogus the Nobel "Peace" prize has become.  Kissinger?  Obama? Arafat?

Tue, 10/15/2013 - 14:07 | Link to Comment Stuck on Zero
Stuck on Zero's picture

Reggie:  I nominate you for the Nobel Prize in Economics.

 

Tue, 10/15/2013 - 14:19 | Link to Comment oddjob
oddjob's picture

Oh yes, advising people to short MS before it doubled was pure genius.

Tue, 10/15/2013 - 14:03 | Link to Comment Serfs_Up
Serfs_Up's picture

Knowing that there were Bubbles in the Real Estate Market circa 06-07...?

Peter Schiff better get his cut of the action, really.

These are the same retards that believe in the maxim WAR = PEACE

 

Tue, 10/15/2013 - 14:01 | Link to Comment kchrisc
kchrisc's picture

"Nobel" is just another word for joke.

The Joke Peace Prize goes to Obama, Kissenger, Europe. LOL

Tue, 10/15/2013 - 17:28 | Link to Comment Element
Element's picture

They really screwed up with this latest 'joke' though, no one knows (or much cares) who they are, and their title is an acronym that no one will remember, plus it's of course non-earned and undeserved. But at least they didn't give it to a bunch of terrorist war-mongering WMD-flinging lawyer-politicians once more. And they do help to more quickly eliminate chem weapons, question is, why didn't they start with the USSA, given it's abysmal record of repeated international massacres and systemic addiction to war, and constant flagrant support and funding of international terrorism since at least 1898?

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