Nobel Laureate Richard Thaler: "We Seem To Be Living In The Riskiest Market Of Our Lives"

Tyler Durden's picture

Robert Shiller isn’t the only Nobel Laureate who’s worried the US stock market is sleepwalking toward disaster.

In an interview with Bloomberg’s Jeanna Smialek, Thaler, who was awarded the Nobel Memorial Prize in Economic Sciences on Monday for his pioneering work in establishing that humans are “predictably irrational”, said that the stock market’s complacency in the face of the North Korean nuclear threat and political uncertainty at home is disconcerting.

“We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping,” Thaler said, speaking by phone on Bloomberg TV. “I admit to not understanding it.”

Adding his voice to a growing chorus of Wall Street analysts who suspect that the Trump administration’s tax reform ambitions will be dashed by a handful of intransigent senators, Thaler said any investors who’ve been paying attention should have “lost confidence” by now.

“I don’t know about you, but I’m nervous, and it seems like when investors are nervous, they’re prone to being spooked,” Thaler said, “Nothing seems to spook the market” and if the gains are based on tax-reform expectations, “surely investors should have lost confidence that that was going to happen.”

US stocks have continued to hit a string of records since President Donald Trump’s upset victory over Hillary Clinton in November while volatility has plunged, with realized vol reaching its lowest level on record in October.

As Bloomberg points out, Thaler, who has made a career of studying irrational and temptation-driven actions among economic actors claimed that the market’s complacency was fundamentally misguided.

Thaler’s comments echoed comments from Shiller, a professor at the Yale School of Management who won his economics Nobel in 2013, who warned during a July interview with CNBC, Shiller expressed concern that his Shiller CAPE ratio had crossed above 30, signaling that equity valuations were dangerously stretched. During the history of the stock market, stocks have only traded at richer valuations during one period - June 1997 to September 2001 - as the dotcom farce blew and burst. Historical data for the index is available going back to 1881.

Thaler also took a shot at President Donald Trump, mocking the president’s fondness for bluster and notorious aversion toward reading books.

“His ratio of certitude to knowledge is nearing record highs,” Thaler said on Bloomberg Radio with Tom Keene and David Gura. “We all need a lot of humility, and especially about the economy.”

He also added that the UK’s vote to leave the European Union was decision based on emotions, not rationality.

“I don’t think that the leave votes were based on any implicit spreadsheet running in people’s heads - it was just like, ‘I’m angry, and I’m voting no,’” he told Bloomberg TV’s Vonnie Quinn and Mark Barton. Of the Brexit process, he said: “It doesn’t seem to be headed in any productive direction.”

Thaler was perhaps one of the world’s best-known contemporary economists before receiving his award. His theory of "nudge" economics,  where humans are subtly guided toward beneficial behaviors without heavy-handed intervention, was the theme of a 2008 book that was well received around the world.

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Max Damage's picture

Dot Com bubble CAPE was based on GAAP accounting. Todays CAPE is based on NON GAAP lies. Real CAPE for direct comparison is the highest in history ever. Companies are lieing their fucking arses off

StackShinyStuff's picture

What he's really trying to say is BTFD

yogibear's picture

No risk in a central bank rigged market. Limited downside. 

This time we will surpass all average real PEs of all times as companies get cheap Fed money to buy-back ever more shares.

Buy-back games still continue, with money sooooo cheap.

Giant Meteor's picture

When things become serious, you have to lie ..

Liar, liar pants on fire scale is off the fooking charts ..

BennyBoy's picture


Thalers “predictably irrational”:

Fear and Greed.

Buy low, sell high.

Overconficence in predicting the future.

Humans are emotional creatures.

Where's my fucking Nobel prize?

johngaltfla's picture

For us older farts this market has that "it will never go down again" feeling. Of course we had the same perception in October of 1987 also.

A. Boaty's picture

It may look obvious to you, but Thaler deserves credit for moving economics away from esoteric math models and toward analyzing how economic actors actually behave.

FORD_FIESTA's picture

""The five real Nobel Prizes—physics, chemistry, literature, peace, and medicine/physiology—were set up in the will left by the dynamite magnate when he died in 1895. The economics prize is a bit different. It was created by Sweden’s Central Bank in 1969, nearly 75 years later. The award’s real name is the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.” It was not established by Nobel, but supposedly in memory of Nobel. It was done completely against the wishes of the Nobel family.""


ACP5gTG's picture

He's still a freaking fake science economist . . .

SeuMadruga's picture

And perhaps Daniel Kahneman too.

BTW, Mr Mario Rizzo has been doing Interesting critics against this "behavioral economics".

Xanadu99's picture

Good point. But even still the way accounting is done is not directly relative to market fluctuation.s In other words actual valuations do not affect emotions when it comes to the buying and selling of stocks.  PLUS IT IS ALL MANIPULATED ANYWAY. 

BandGap's picture

Max, they have been allowed to lie. It is encouraged which is even a bigger problem.

Who they going to blame when this shit implodes?

VD's picture

and current CAPE does not factor in outrageous global QE, which dot com bubble didn't have, nor did it have what is, inflation adjusted, NIRP. So it's far worse than even non-gaap.


also, we have "traders" that started their careers at ZIRP (really NIRP) and don't know any better, nor care to. i'd call it "irrational paralysis" and complexity front-running catastrophe.


it ends with S&P500 going below 666. possibly well below.

Xanadu99's picture

As long as all of these speculators are looking for the markets to crash they will keep going up.  That is why a lot of us here use the market buy and sell signals from SHEPWAVE.  It is really that simple. 

The Real Tony's picture

Only fuckwits use SHEPWAVE.

MortimerDuke's picture

Apparently it only appeals to those who are most likely to join a cult.

Not Goldman Sachs's picture

Strong wave of schlongs forthcoming.

BadKiTTy's picture

"Nudge" .... I get that bit....."beneficial" ?? for the few, definately, for the many - not so much 

Xanadu99's picture

Thaler has been saying this for a long time so there is absolutely no credibility here.  Any real investor only listens to market pundits who have a good track record of calling market fluctuations before they happen, and they actually do happen.

Zerohedge has had a lot of Shepwave trades on the comments here and so far so good with the calls in the stock markets, oil and gold markets.  Keep it up. 

Irvingm's picture

According to them the next big move will begin soon. Their call in August nailed the rally. Let's see how this next one goes.

Fundies's picture

No comment....given up.

Dragon HAwk's picture

We have allowed people to Massively Bet against Reality and profit from that.  Gonna Suck when somebody knocks off the Rose Colored Glasses.

topspinslicer's picture

One too many nudges?

Falconsixone's picture

I hope your not waiting on me to invest in "Thw Market".

Berspankme's picture

Ben Shalom Bernanke can explain it to Thaler. Fuck you Bernanke

dbsanfte's picture

Everyone's passively investing. Passive funds churn in the monthly rebalancing, but they don't really sell. They just buy. 

The momentum of a thousand passive funds buying everything up is unstoppable. It creates a price floor. Moreso when the buyers are long holders who won't sell until retirement.

Passive investing is slowly breaking the market. 

yogibear's picture


All ETFs now. Just keep riding them. 

Who cares if average PEs go past 100.

They just keep going up.


Jtrillian's picture


Where's my Nobel Prize???

Last of the Middle Class's picture

If you have a job and pay taxes, you have to invest. That, my friend, is a very large part of the problem.

I woke up's picture

What does Selena Gomez have to say?

Ban KKiller's picture

Even smart guys are confused. Meanwhile Banksters laugh. As usual. 

Watching George Webb on YouTube? Imran Awan...spies in congress. Michelle Lujan Grisham compromised? 

Muppet's picture

What's the risk? Money no longer means anything. Money is just a concept now.... Nothing tangible.

Grandad Grumps's picture

These days a Nobel Prize is the "Badge of Shame" that complete sellouts wear!

Son of Captain Nemo's picture

No "Dick"...

We're actually living in the riskiest market in "Human history"!

Fixed it.

Seychelles's picture

Just another opportunity for the media to talk up the "we're smarter than you" achievements of a tribe member, one coming from the U of C which has caused so much goodness for the world after implementation of con jobs dreamed up by their neoliberal neoZioBolshevik economics academics.  Nobel Prize stature reached zero when Obama got the PP, merely another payoff mechanism for people the Zioglobalists find useful.

DOGGONE's picture

Markets are certainly rigged, to give overpricing. Look at the Dow:

I do'nt know if/when the rig is limited. The stock market was closed for a while during WW1.