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"It Looks To Me Like A Bubble Again", Shiller Warns On US Stocks
Looking out across markets it would be difficult to overstate the number of risk factors at play.
Thanks to a veritable collapse in commodity prices made worse by what China’s move to devalue the yuan telegraphed about the prospects for the country’s economy, emerging markets and especially commodity currencies are under siege, a situation that’s putting a tremendous amount of pressure on accumulated FX reserves which, all else equal, will serve to decrease global liquidity and put upward pressure on core yields, offsetting the QE effect in a kind of push and pull dynamic. This is the situation facing the Fed as the FOMC ponders whether a symbolic 25 bps liftoff would exacerbate the situation or whether markets are resilient enough to cope with a dovish hike.
Of course the truly dangerous thing about the above is that it comes after seven years of policies designed to inflate asset prices and misallocate capital. Add in an acute lack of liquidity and the presence of nefarious algos and you have the recipe for spectacular turmoil like that we witnessed on August 24 when the Dow fell 1,000 points out of the gate in a bout of flash-crashing, circuit breaker tripping mayhem.
Considering all of this, the wisdom of being heavily invested in US equities (or any risk assets for that matter) might fairly be questioned, and indeed some very “serious” people are sounding the alarm. Here’s FT with spoke with Robert Shiller on the sustainability of the US equity market bubble:
A growing number of investors believe that US stocks are overvalued, creating the risk of a significant bear market, according to research by Yale University market scholar Robert Shiller.
The Nobel economics laureate told the Financial Times that his valuation confidence indices, based on investor surveys, showed greater fear that the market was overvalued than at any time since the peak of the dotcom bubble in 2000.
“It looks to me a bit like a bubble again with essentially a tripling of stock prices since 2009 in just six years and at the same time people losing confidence in the valuation of the market,” he said.
Shiller is apparently skeptical about the extent to which a Fed hike will be the trigger for a dramatic sell-off.
“I’m not looking for any big effect,” he said. “It’s been talked about for so long, everyone knows that it’s coming. It’s just not much of a big deal.”
As we’ve said repeatedly of late, in a vacuum, a 25 bps hike is probably not a big deal, but not only is the Fed not operating in a vacuum, global markets are more interconnected than ever before and now that the confluence of factors mentioned above have put the whole of EM on the verge of a meltdown, the slightest policy error could reverberate, triggering crises in LatAm and AsiaPac which would most certainly weigh on DM markets.
In any event, Shiller’s simple point is that in his eyes, the market is getting nervous and while we can argue about the triggers and proximate cause, the bubble will burst one way or another as investors re-think their exposure:
He said the recent bout of volatility “shows that people are thinking something, worried thoughts. It suggests to me that many people are re-evaluating their exposure to the stock market. I’m not being very helpful about market timing but I can easily see aftershocks coming”.
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I'll say "just a bit" 'cuz if it keeps going, I don't want to look stupid, or burn any bridges.
"It looks to be like a bubble again"......said the blind man to his deaf son.
My bubble meter is counting "investment" ads on the radio.
According to my calculations, the needle is just bout pegged.
You can also just listen to how many times the word "portfolio" is used throughout the day, especially if preceded by "your."
pods
Muh porfolio!
Funny you said that because I listen and watch for the same thing. The one that really started setting off my alarm bells was the comercial with two dudes fishing talking about how their broker even found them some nice hedge funds.
https://youtu.be/bcY_3Bvx0l8
Hey wait a tic, you're a big fisherman aren't you? Hmmm.....
Wow... I hadn't seen that yet. So awesome.
Like 2007-08 era HELOC commercials.
Time to bring the E-Trade baby back just for that cherry on top......
He reminds me of Dr. Doolittle...Push-me Pull-you !
The wall of worry has plenty, but where's the saving event or country? The cheap dollar was going to save US manufacturing, but that's gone. China growth was going to save exports, but that's gone. Low rates were going to save us, but that didn't work. QE was going to ignite everything, but no. TARP, lol. Where exactly is the good news going to come from? Stock buybacks have about peaked especially if the free money has run out.
You are forgetting about the fires in CA and hurricane season is not over plus there will be more riots over police shootings and they could always pay people to destroy more cars...everything is looking up.
(one-way) Free tickets to Mars are now available.
No shit Shiller! J/K love the guy. His name just sounds too much like Sherlock.
One needs only to look at charts of the major indices since 2009 to see the bubble.
It only cost $11 Trillion of debt, and punishing savers with 0% on savings.
Oh, and sound money, the rule-of-law, and the future.
In other news: Scientists Recently Discover that Water is Wet.
And he says the Fed can go ahead and hike rates with no consequence, just like all of his Ivy League counterparts are saying. Is that because they know the Fed can hike rates with one hand and roll debt to their POMO desk with the other?
We are watching the ultimate shitshow.
Won't wet water cause a watershed moment?
It's a bubble as long as the Fed has it's dick up the market's ass.
Shiller got 25% of the way to something interesting, the bank gave him their Nobel Prize and he stopped...
Perhaps all those participation trophies given out to Millenials are really just to get them from becoming dangerous to the status quo.
You just won a front row seat on the Titanic! (just for showing up)
Not as long as the Central banksters think they are the new gods. Having parties with high priced hookers. They have access to unlimited money.
[Waits until after market correction begins, then begins warning of market correction]
Academics.
Lulz
idiot
Mr. Shiller, this time it is different. In ZIRP what else would you expect. If you blow a balloon, you get a balloon. Mr. Shiller, did you just wake up from your sleep?
Did he get a Nobel Prize too?
So Bob, what's your view on Treasuries????????
I have been awake for 8 Years now. What I am really awake to is all these drop dead deadline most important weeks ever BS. I must have believed 99 of them only to be disappointed every single time. So fuck Thursday. Fuck Yellen. I will not be fooled a 100th time. Unless and until people are arrested or hanged for Treason, nothing changes. So this fucking Thursday is just another day that ends in Y
Thank you Captain Obvious...or should that be Captain Oblivious, if he's just now noticed a bubble?
Well if you'd get your ass out of academia you'd be able to see a little clearer Bob.
But ... but the last bubble was ... awesome!!!
The Banks got more free cash than ever!
Bigger than too big!
How long will it take theses "Experts" to see the bleeding obvious. This market is swinging around like to Tecoma Narrows bridge and we are all the dog in the car.
I have seen every market cycle since the 1960's it falls over every seven years or so and thats all there is to it.
You don't need a degree or a Noble prize but it does helo to be able to count to 7. A skill that is quite beyond e-con-o-mists on the Tell-lie-vision.
1967 -1968 Market Crashed
1973 - 1974 Market Crashed
1981-1982 Market Crashed
1987-1988 and again
1994 -1995 Market sold off
2001 - 2000 Market Crashed
2007 - 2008 and again
2015 - 2016 This time its different.
Why seven years because that's how long it takes for another group of suckers to come along.
+1. Like a new mini generation of investors - a 7 year investor birth machine.
"2015 - 2016 This time its different."
the equity side may be the same as all the other cycles - but the debt side is where the bomb resides - massive number of people have chased high yield that are old - coupled with Mutual funds doing the same and pension funds as well - implosions in muni's will be catastrophic
they and their bonds are going to get destroyed - more than stocks
Or every 7 years a new tranche of debt is written against your slave ID number to further the charade monopoly game we are all playing... so yes a sucker that doesn't even know what is happening.
“It looks to me a bit like a bubble again with essentially a tripling of stock prices since 2009 in just six years...”
Gosh, ya' think? Do we all get Super Duper Nobels for saying this for years?
Since the 2008 financial collapse, central banks (US FED, ECB, BOJ) have provided $ trillions of cheap money (QE) to keep insolvent banks going. Capital always searches for the highest rate of return and this cheap money has inflated asset (real estate and stocks) prices and distorted emerging market economies. This behavior has completely distorted/manipulated equity prices, or stated a different way- who knows what the actual price of stocks should be? This is why there so much market volatility. Actions can have unintended consequences.
Dow 6000 says the Dented one.
Sorry, but this guy was on cnbc a few weeks back before the sell off claiming that they were not in bubble territory (he said something like pockets are expensive).
Thanks, voice of reason. Ahh, all is well. Thanks to CNBC.
in other news Bankers are vastly over paid
http://www.history.com/this-day-in-history/mckinley-dies-of-infection-fr...
The American Guy Fawkes?
Duh