Shiller Worried About "Boom In US Stocks... Bubbles Look Like This"

Tyler Durden's picture

On the heels of his recent appearance pouring cold water on Jim Cramer's housing recovery exuberance, recent Nobel Prize winner Bob Shiller unloads another round of uncomfortable truthiness (presumably on the basis of his future-proofing tenure guaranteed by the Nobel). "Bubbles look like this," Shiller tells Der Spiegel, adding that he is, "most worried about the boom in US stock prices." As Reuters reports, Shiller is concerned since "the world is still very vulnerable to a bubble," and with stock exchanges around the world at record highs despite an economy that is "still weak," the Nobel winner proclaimed, "this could end badly."


Via Reuters,

[Bob Shiller] believes sharp rises in equity and property prices could lead to a dangerous financial bubble and may end badly, he told a German magazine.




"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.




"Bubbles look like this. And the world is still very vulnerable to a bubble," he said.


Bubbles are created when investors do not recognize when rising asset prices get detached from underlying fundamentals.

We tend to agree - bubbles do look like this...

...we observe a variety of other features typically associated with dangerous extremes:

  • unusually rich valuations on a wide variety of metrics that actually have a reliable correlation with subsequent market returns; margin debt at the highest level in history and representing 2.2% of GDP (eclipsed only briefly at the 2000 and 2007 market extremes);
  • a blistering pace of initial public offerings - back to volumes last seen at the 2000 peak - featuring “shooters” that double on the first day of issue;
  • confidence in the narrative that “this time is different” (in this case, the presumption of a fail-safe speculative backstop or “put option” from the Federal Reserve); lopsided bullish sentiment as the number of bearish advisors has plunged to just 15% and bulls rush to one side of the boat;
  • record issuance of covenant-lite debt in the leveraged loan market (which is now spreading to Europe);
  • and a well-defined syndrome of “overvalued, overbought, overbullish, rising-yield” conditions that has appeared exclusively at speculative market peaks – including (exhaustively) 1929, 1972, 1987, 2000, 2007, 2011 (before a market loss of nearly 20% that was truncated by investor faith in a new round of monetary easing), and at three points in 2013: February, May, and today (see A Textbook Pre-Crash Bubble).

Many of us in the financial world know these to be classic features of speculative peaks, but there is career risk in responding to them, so even those who view the situation with revulsion can't seem to tear themselves away.



While I have no belief that markets follow any mathematical trajectory, the log-periodic pattern is interesting because it coincides with a kind of “signature” of increasing speculative urgency, seen in other market bubbles across history. The chart above spans the period from 2010 to the present. What’s equally unsettling is that this speculative behavior is beginning to appear “fractal” – that is, self-similar at diminishing time-scales. The chart below spans from April 2013 to the present. On this shorter time-scale, Sornette’s “finite time singularity” pulls a bit closer – to December 2013 rather than January 2014, but the fidelity to this pattern is almost creepy. The point of this exercise is emphatically not to lay out an explicit time path for prices, but rather to demonstrate the pattern of increasingly urgent speculation – the willingness to aggressively buy every dip in prices – that the Federal Reserve has provoked.

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Gringo Viejo's picture

"I'm forever blowing bubbles.....
pretty bubbles in the air."

Boris Alatovkrap's picture

Only bubble Boris is trust is form in hot bath water.

FredFlintstone's picture

Does Boris make own bubbles in tub after eating too much Shchi?

Oracle of Kypseli's picture

The fed is not listening to anyone even PHD's, Nobel Prize winners except their pay-masters. When you join the fed, it's a one way direction. CNTRL+P

Last month a taxi driver started chating about the fed and I asked him if he reads ZH. He had no idea what ZH is about but he was talking as he has been reading every posting here. The word is being spread. Hence, you don't need a PHD to know what's going on.  The only one not listening is the fed

Boris Alatovkrap's picture

(Command-P on Macintosh computer)

Oracle of Kypseli's picture

Boris likes tease. I was not born then.

Harlequin001's picture

How can there be a bubble in stocks if central banks are buying?

They create money from thin air for christs' sake. It's not like there's any shortage of it...

rubiconsolutions's picture

Boris - What about a Commodore 64?

Boris Alatovkrap's picture

Boris is frequent to make plenty air pocket during leisurely bath, no matter is what eat.

VD's picture

Sornette is referenced quite a bit these days on ZH. here is excerpt from his email to me from month ago:


"as for a ``correction’’, difficult to say given the QE spirit and will of the central banks

but we definitively see all our indicators flashing now that the US markets have been overbought and are changing regime,
to either a correction or a plateau with increased col"


extrapolate accordingly.

Boris Alatovkrap's picture

Increase of doubt in sustainability is offset by submission by new creation of serf class in USSA. Actually is not new creation, but only is new realization consumer class citizenry is not really free as illusion is dissipate.

Exit question, which is to be worse, slave in chain, or slave think free but is entire under submission to master?

Boris Alatovkrap's picture

<-- Worse is slave in chain

<-- Worser is think is free, but is slave by debt

Boris Alatovkrap's picture

Boris is much of confuse... who crap is vote up Slave in Chain. Slave in Chain is at least to rebel, but delusional serf is suffer death in slow boil. Some ZHer is more crazy.

ParkAveFlasher's picture

OK, sell at 1850.  Got it!

quasimodo's picture

That would have been good advice on gold(paper) at that level. My crystal ball was hazy sad to say.

ParkAveFlasher's picture

Nice correlation there.  I am with Hulkster vvvvv, save cash, own a business, work hard, build wealth.  That's the only way, seriously, that I can see.

prains's picture

.......or become a bankster oligarch ball licker as option 2, just say good bye to your soul

HulkHogan's picture

Over the next 10-20 years, millions of baby boomers will be retiring and will sell their small businesses, rentals, and franchises. That's a great place to find cash flow without chasing the market. I'll be waiting for a market correction and buying an apartment building or a 70 year old dry cleaning franchise, cheap (hopefully).

ToNYC's picture

You can't win it, if you're not in it; nor can you lose it all in what seems like a flash. Thanks, Bob. You earned that prize in Stockholm. You saw it coming, and wrote home about it.

ebworthen's picture

Now that they have fooled Mom and Pop into buying back into the equity casino they can crash it all over again (again).

andrewp111's picture

Mom and Pop have barely dipped their toes into the water so far. TPTB need to get the sheeple all-in before they pull out and let it crash.

AngelEyes00's picture
I’ve gotten a glimpse of how all this plays out.  QE by most of the world’s central banks is the last gasp of a debt bubble that has gotten too big to ever pay off and any increase in interest takes too much from tax revenue.  So QE must continue, but it is an endgame, and that is why China is doing 3x’s the amount of QE as the US.  They know this is endgame and also why they are loading up on Gold and suggesting a world currency.    This is how it plays out:   1.  Some event like taper or something else causes the equity, bond and derivative bubbles to burst.  Interest rates rise.   2.  At higher interest rates, debt levels are too high to service and pay for all other government commitments.   3.  The G8 agree to a debt jubilee, in which all federal, state, local and personal debts are wiped clean.  Along with this is also loss of pensions and social security (and other entitlements) which are other forms of debt.   4.   Elimination of all currencies to be replaced by one world currency pegged to gold/silver.  This will end the current currency wars and create an even playing field for all imports/exports.   5.  People’s personal cash in banks will be converted to the new currency, but gold will be astronomically higher valued than it currently is (because there isn’t enough for a world currency otherwise), so people will only get pennies on the dollar in the exchange.   6.  Banks will have a section for people to exchange their gold/silver for the new currency.  This is why it is important to load up now.    7.  The new world economy will get started slowly during a transition period, but you won’t owe on your house, cars, credit cards or any other loans.  However food and water (and other necessities will be difficult to come by.  The govt. will have locations where food is given out, but they will be dangerous and wait times will be in the days/hours, so load up now while you can.   8.  This new era will be post peak oil.  Whatever economy arises will never achieve the same level as before, so certain non-conventional oil sources will no longer be economically viable.  Oil will go from 91 million barrels a day to about 40 during the transition, and recover to something like 60, which will be mostly oil that already has an infrastructure set up for easy extraction.   Tips:  Lawlessness in some areas will occur.  But if you think having a gun will protect your supplies, think again.  Looters will band together in numbers ranging from 50-300, be well armed and use 30-90 dogs.  They’ll shoot out a window and send a stream of dogs into the house.  The dogs will also be used to find caches of food.  You can shoot a few but not all of them, so you will retreat to a closet.  The looters are not there to shoot you (unless they have to) but instead there for food, water and jewelry, gold, silver (and pet food).  Instead of confronting them, load up your car and when you hear all those dogs leave before they get to your house.  Once they’ve looted your place, come back in a few hours.  You and your family will be safe and you will still hopefully have some of food & water.  If your car is in a garage use it as a pantry, so when you leave you can move fast.  With no food smells on your hands and with plastic gloves on, bury your gold/silver in a container under the dirt under the house.  Better not to trust the banks during the transition, but you also don’t want to dogs to find it. 
GrinandBearit's picture

Was okay, till I got to the "dog gang" bit.

max2205's picture

When was the last bubble where they cranked up the 'we are going to steal your savings accounts' talk or still had zirp so long and so low...


Just asking

andrewp111's picture

The USA is self sufficient in food, and any US Government will keep food flowing as its highest priority. If there are fuel shortages, diesel to move food will still have the highest priority. Our politicians may be venal corrupt bastards, but they are not stupid.  The grocery stores will be full and the SNAP cards will be reactivated quickly - even if the banking system collapses.

Your ability to get gas for your car could be very limited, though. Severe rationing is likely in the event of a collapse.

Drifter's picture

Two words: paragraph break.

That shit looks like ...well ...shit.

NFX's picture

I would like to know how you can train 50 dogs to
Jump through a window! These 50 to 300 looters
Will have to arrive in something up my one way
Road. I have a few rounds of 308 to greet them
Before they even get out of their vehicles. Welcome

Oracle of Kypseli's picture

Mace and pepper spray. Maybe booby traps may be better. Better yet, buy directional loud speakers that pierce your ear drums. They use them against the pirates

Not sure if they are available retail!

Hulk's picture

The dog pack scenario is why we implemented steak cannons. We soak the steaks in dramamine liguid and then shoot them at the dogs. You try hauling 90 sleeping dogs away whilst getting peppered by 308...!!!

Nels's picture

Debt jubilee for ordinary folks?  I don't think so.   The debt jubilee will only cover what the Fed Gov owes the Fed Reserve.   SocSed & Medicare will become means-tested; everyone will die broke and leave no inheritance.

Any new global currency will still be based on unicorn farts of some sort, until the Chinese decide to announce a gold backed Chinese currency, which will become the new reserve currency.  What deposits the ordinary folks have won't buy a roll of toilet paper.

School loans are not dischargeable now, and that will become worse.  When the government starts bailing out all loans, that debt will not be allowed to be discharged in bankruptcy either.   There will be no out for the debt of the non-elite.  The non-elite will lose their deposits and still have to pay their loans. 

ponzilla's picture

The debtors (revolving credit, nonrevolving credit, student loan, bank loan) will generate a new SCORE for your future transactions.  Your score will decide if you Fly Freely or are on a No-Fly list.  Your SCORE will keep you confined within State by DHS/TSA checkpoints or depending on SCORE, allow freedom of movement.  Point is, if you have debt, get out of debt now!  Banks will never allow a "Jubilee for the foolish slave they created" to move freely out of the controlled area.  To attempt running from debt puts you "marked for Debtors Prison", aka., femacamp.

Rantabulous's picture

Thank you for sharing your thoughts.

An additional parameter I would suggest for you to consider is disease.

You are going to have a lot of hungry, stressed, older people (not necessarily old - just older, weaker immune systems) and diminished medical infrastructure.

This is a recipe for pandemic.

This will cause chaos, even amongst your organised 'dog gangs'.

I read a lot of ZH and other sources. I have general agreement with the thinking and concerns - financial, climate, energy etc. But I think that just when we think things might be at the worst, we will have the ingredients for a very bad pandemic. If this were to happen, under such global stress, to be honest, I have no idea what would come next.

It would be unimaginable chaos for a couple of years and I doubt that much of anything that resembles our current civilisation would exist afterwards. At least for a time, until history begins to repeat again.


andrewp111's picture

Maybe. But I have less faith in TPTB than you do. If they start a new global currency, it will be pure Fiat, but may have some Faux link to gold - just for appearances you see. If there is one characteristic of the ruling elites, they want power and control. They are absolute control freaks, and will not tolerate a true gold backed world. The new global currency is described in The Book of Revelation as The Mark Of The Beast Currency. It will be all electronic so interest rates can be negative and so money can be given a "color" by TPTB. It will be a pure command and control system. They will give you commands like "spend your food points by the end of the month or they expire". "the blue tranche can only be spent on new cars, and the pink tranche must be spent on feminine products".  It will be Central Planning on the most grandiose scale ever, because they really have no other choice. How else do you manage a world where growth becomes impossible, and shrinkage is destiny as oil supplies run down?

We also know The Mark Of The Beast Currency won't last more than a few decades. Central Planning always fails, including measures that are instituted under true desperation. Within a few years, it all devolves into WW III, which starts slowly, and eventually encompasses the whole world.

rum_runner's picture

Question - what role will Will Smith play in this scenario?

Drifter's picture

Another pundit getting people worried about the wrong thing. 

Zimbabwe stock market went up gazillions, never crashed.  But the currency crashed.

Same thing will happen here.

bwh1214's picture

Don’t bank on the stock market following the Zimbabwe model.  There are tremendous inflationary and deflationary, forces at work here.  More QE and we may go more towards inflationary/Zimbabwe, but even a taper and it will become deflationary.  The Fed is trying to walk on a fishing line strung between Everest and K2.  Fall to the right and we get hyperinflation to the left massive deflation.  Maybe starting one way and going the other, but they will fall, be ready for both.  This is the hallmark of any debt based monetary system.  It has reached critical mass and is going to fail.

Drifter's picture

There won't be any taper.  QE will go right on and get larger till USD loses reserve status and goes downhill quickly from there.  It might not crash per se, but the drop will be steep.

Stocks will rise to offset drop in USD value, as gold silver and other commodities will, sans any manipulation (good luck with that).

If China does gold-backed Yuan, USD will crash (along with other unbacked currencies), stocks will rocket up to compensate, just like they did in Zimbabwe.

Wall Street wiill not let the Fed do anything to threaten stock and bond values, their solvency depends on it.


bwh1214's picture

I agree that ending QE will not come any time soon, but doing nothing should always be considered teh default.  QE is the fed doing something, if they didn't do anything we would have massive deflation and paying off loans would destroy the money supply, causing defaults causing more money destruction in a spiral.  The Fed only has one product, the dollar, if they see massive loss in the purchasing power they will have no choice but to defend it, this will cause the US to truely default on its debt.  It will be interesting to see how this turns out.


andrewp111's picture

QE is not inflationary. It is short term stimulative and long term deflationary because it deprives the private sector of interest income. I expect that eventually the bubbles will burst in some kind of deflationary global cataclysm, and then the Government will switch from QE to outright Seigniorage. Federal deficits will be gone because Seigniorage goes on the income side of the ledger. Congress will just finance its spending with trillion dollar coins, and spending will go through the roof. That is when inflation goes into a positive feedback loop.

bwh1214's picture

andrewp111, what kind of la la land are you living in that QE is not inflationary.  They are removing debt from the system, and trading it for cash.  The debt is an asset but can not drive price inflation.  Think about it this way, if you hold any asset, treasuries, a car loan, gold, a house can you spend them to buy something and force up prices?  No you have to sell them first, and to get a lot of cash you need a willing buyer.  That willing buyer is supplied with QE, from the Fed, at top dollar.  Don't drink the coolaid fromt the keynesians indicating that the money in an economy is not special, and that liquid assets are a lot like money.  Money in an economy is unique in that it is the only thing that can buy stuff and drive prices.  I can't believe I heard that QE was deflationary.  

stant's picture

Looks like Martin Armstrong has moved it to spring 2014 instead of fall 2015 if I am reading his latest correctly

q99x2's picture

Hey, Shiller M'Fer. Get your punk ass down here to the fight club and we'll show you how the banks are coming for your money next. We can straighten that neck out for you too..

buzzsaw99's picture

not saying it's gonna crash, but it could...

wtg out on a limb there numb nuts

unrulian's picture

I have a stubborn bird dod...herding more than 3 of them would be like herding cats...300 punks with 90 dogs...ha

Sufiy's picture

Bubbles Chronicles: Bill Still Is Pumping Quark vs Bitcoin - Collapse Is Near

All world has gone mad: Bill Still is pumping Quark! Just watch this video and remember how the Bubble stage looks like and what are the arguments presented to buy something "which definitely will go up." We must be very close to the Bitcoin final parabolic rise before the Crash. If Bill Still can not withstand the plot to get fast rich scheme, what can we tell about the other people?   It is very interesting that Bill talks about another 30 crypto-currencies and there are at least 100 else are in existence. Why on Earth to buy Bitcoin at $1200 if you can buy "the better" Quark, which was pumped by Bill Still only to 4.5 cents by now (more then 2000% as Bill proudly has noted!?). Just Sell you Bitcoin now and move down the food chain - "it will be a sure thing: all crypto-currencies will go up once Chinese will be able to buy it, particularly after the Bitcoin will be Crashed."    It looks like we have found finally our own youth portion and will spread our bets evenly among all 100 crypto-currencies, with this kind of sure gains how can we lose anyway? Can you imaging if India will join this crazy feast, what about Malaysia? You can monitor some of those Crypto-Currencies here: Crypto-Currency Market Capitalisation. Junkcoin is not doing well - must be something with its name ... all others are "solid investments".   Can somebody tell Obama to put NSA to proper work finally? Just make the super duper NSAcoin with triple encryption, warranted from Spying and accepted for Tax payments and let Obama to Pump it a little bit ... 17 Trillion in Debt will be repaid very soon - at least we will have better roads and bridges. Can we get into this one as well at the start of Pumping?   And yes, who needs Gold and Silver any more, particularly, when it goes nowhere in price or even down compare to Quark as Bill is reporting? All that dirt, billions of investments - who are those silly people buying all that Gold any more