robert shiller

This week Consuelo Mack WealthTrack features a new interview with visionary Yale economist and author Robert Shiller, premiering nationwide beginning Friday, March 29 and on Monday, April 1. We got a preview of the full interview with Robert Shiller and have some highlights below:

Consuelo begins this wide ranging interview by asking Robert Shiller to assess the stock market’s current value and why investors should still tilt toward stocks in their portfolios. The sectors he currently sees as most undervalued are financials, healthcare, industrials, and energy- they are below average, historically, and investors could find value in these areas. Shiller will also explain why investors shouldn’t get too excited about the upticks in the housing market-housing is a still a risky investment like anything else.

Rober Shiller on CAPE

S&P 500 CAPE now at 23, which is high but not super high. It was double that number at the peak of the tech bubble. That was followed by 13 years of no returns.

Profit Margins

Profit margins have surged since 2009, but most has come from cost cutting. The market is ignoring the fact that earnings cannot continue growing at such a high rate. Shiller thinks that even at these levels if someone has no money in the market they should have some exposure, because the market could continue to go up.

Cheapest Sectors

The cheapest sector is finance, the CAPE ratio is only 14. Shiller believes that investors have over-reacted to the financial crisis, and financials are likely the best sector to find value in. Additionally, some other sectors to look at…. Healthcare, industrials, and energy, which are all below their long term CAPE average. Shiller recommends sector ETFs with low CAPEs, such as the financial sector ETF, XLF.

Via “Consuelo Mack WealthTrack on public television”

Robert Shiller on the housing market

ROBERT SHILLER: “In some cities, it looks like we’re back to the races. Phoenix is the best example. And some California — Los AngelesSan Francisco — so…and Las Vegas. There are booming areas. The bigger question though is how long will it last? You know, bubbles do come to an end. And secondly, how pervasive is it? If you’re living in Detroit or St. Louis, do you think, ‘is this relative to me?’ so I’m careful about making any general remark. But I think that the general perception you get from reading newspapers or watching TV is a little bit too optimistic. I don’t think that we’re off to the races again in most places and I think there’s still a risk of declines.


CONSUELO MACK: “So that’s interesting, because I know you wrote a New York Times editorial recently, and it was “New Housing Boom: Don’t Count On It.” So what do you think we can count on, considering that’s still the biggest investment for most of us?

ROBERT SHILLER: “That’s a nice question. In finance, you should never count on any newspaper account on a new boom coming. They don’t mean much of anything. That’s one thing I’ve learned. Now the housing market is little different than the stock market because it has more momentum and once it gets going, it goes for a while. Maybe another year or more in the same direction, or it could even be longer. But don’t count on it — that’s absolutely the most important investment advice. Don’t get carried away by some sense that everybody knows the market is going to go up. If everybody knew it was going to go up, it’d go up immediately. It’s not so sure, not so secure. And at this point, I like to remember with regard to the housing market that something like 90% of our new mortgages are guaranteed by the government through Fannie Mae, Freddie Mac, or FAA. And the government is also supporting housing with a mortgage interest deduction that’s under attack. So we don’t know how long these supports are going to continue.”

Shiller says that he does not mean to scare people but it is ‘entirely possible that in 5-10 years from now home prices could be lower in real terms then today.’

We have a budget crisis — Congress can’t seem to agree on what to do. So this is another uncertainty. From my mind, the uncertainties are very real and I think it is not impossible that home prices five or ten years from now could be lower in real terms than they are now. Entirely possible.It’s a risky investment, like anything else. But I don’t mean to scare people away from taking risk. It is America, this is a country of entrepreneurs, and I think it’s okay to buy a house now. Mortgage rates are very low. But just don’t count on it.

Bond Market

Shiller believes that there may be a bond market bubble but says that it goes back 30 years. He notes that interest rates have been going down for 30 years since the Paul Volcker days.