Why Robert Shiller Is Worried About The Market

Tyler Durden's picture

The last time Robert Shiller heard stock-market investors talk like this in 2000, it didn’t end well for the bulls.

As Bloomberg reports, Shiller says when markets are as buoyant as they are now, resisting the urge to pile in is hard regardless of what else might be happening in society.

“I was tempted to do it, too,” he says. “Trump keeps talking about a new spirit for America and so you could (A) believe that or (B) you could believe that other investors believe that.”

What Shiller will say now is that he’s refrained from adding to his own U.S. stock positions, emphasizing overseas markets instead. One factor that makes him cautious on American shares is the S&P 500’s cyclically-adjusted price-earnings ratio: While the metric is still about 30 percent below its high in 2000, it shows stocks are almost as expensive now as they were on the eve of the 1929 crash.

Shiller is not alone.

“I don’t generally call the entire market wrong -- investors are very smart, highly motivated individuals -- but I find it hard to say why stock markets are so un-volatile right now," says Nicholas Bloom, a Stanford University economist who co-designed the uncertainty gauge with colleagues from the University of Chicago and Northwestern University.


For Hersh Shefrin, a finance professor at Santa Clara University and author of a 2007 book on the role of psychology in markets, the rally is just another example of investors’ remarkable penchant for tunnel vision. Shefrin has a favorite analogy to illustrate his point: the great tulip-mania of 17th century Holland. Even the most casual students of financial history are familiar with the frenzy, during which a rare tulip bulb was worth enough money to buy a mansion. What often gets overlooked, though, is that the mania happened during an outbreak of bubonic plague.

“People were dying left and right,” Shefrin says. “So here you have financial markets sending signals completely at odds with the social mood of the time, with the degree of fear at the time.”

But while the academics can look back and study and reflect on the nature of bubbles, the Wall Street types will always find excuses:

“It’s been a period of repeated shocks, and I think people get toughened against that,” Ethan Harris, Bank of America Merrill Lynch’s global economist in New York, says. “It seems like uncertainty is the new norm, so you just learn to live with it.”

We leave it to Mr. Shiller to sum it all up...

“The market is way over-priced," he says. "It’s not as intellectual as people would think, or as economists would have you believe."

Trade accordingly.

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Goofball's picture

Great chart--the Cyclically-Adjusted one!!!

highwaytoserfdom's picture


This yale professor has no credibility.  In particular the Case shiller housing index he never opened his mouth about the

http://fanniefreddiesecrets.org/   where Mel Watts, Dodd, Frank, Jack Lew, Obama and 2/3 AlanBenFelon real terror..criminal fraud.


Not a peep from Schiller....    GSE swindle

Sledge-hammer's picture
Sledge-hammer (not verified) Mar 14, 2017 1:57 PM

I do not pretend to understand the esoteric world of big-time economics and finance.  Keynes vs Von Mises is Greek to me.  What I do know is that it is all a clever little made-up world (kind of like a make-believe world created for a Dungeons and Dragons game) in which (((the players))) have made the rules and in which only (((they))) get to play and manipulate the rules to their advantage in their made-up world but to our detriment.  The rest of us (commonly referred to as goyim))) are shut out of this made-up world, but we get to pay for it.  It's a big club, and we ain't in it.  Like the W.O.P.R. computer said, "The only way to win the game is to not play."  

Chairman Meow's picture

I sold everything when the market passed 20k. I think buying here is "picking up quarters in front of a steamroller." Might take until May to crash though