Nobel laureate Robert Shiller, Yale University professor of economics, discusses the outlook for Federal Reserve monetary policy with Bloomberg’s Scarlet Fu and Caroline Hyde on “Bloomberg Markets: The Close.” (Source: Bloomberg)
Nobel Laureate Robert Shiller Says ‘Risky’ Stock Market Could Get a Lot Higher
Mangrove Partners Narrowly Avoids “Extinction-Level Event”
Clearly the Fed is going to move ahead with a rate increase at its next meeting. But how should policymakers frame the path of rate hikes for 2019. Well I think that the Fed has been both under Yellen and.
Now with our new chairman. They are very careful and not a provocative organization and they've already given forward indications of further rate hikes. So we're kind of tipping toward inverted yield curve which causes a lot of people panic but I think it's it's been anticipated for years now and it won't be a big event.
OK. Why then. I mean when you say that perhaps the Fed pays safe and we suddenly got another part of the American system that perhaps is a little bit more volatile when you look at the tweeter in chief. What do you think with China in terms of the lack of volatility that are in the markets. Maybe the Fed is signaling correct correctly but we are still not a very market to market highs. You yourself wrote a book saying talking about market volatility and you worry about the lack of volatility.
Yeah I wrote a whole book on market volatility a long time ago. Volatility tends to suddenly shoot up when the market tops you know 1929 volatility was not high and then it suddenly shot up to all huge levels during the Depression. It's it's not really a leading indicator. Not not reliably. And so I don't take much comfort from the low volatility in the stock market recently as we mark. Go ahead. It's highly priced. That's what impresses me. But even it's that it could get much more highly prized. I think it's kind of a risky market now and I wouldn't over expose myself to it but it it is very high.
A risky market. Right. So as we mark the 10 year anniversary this week of Lehman's collapse the start of the financial crisis everyone's trying to pick the point at which we're seeing markets turn south or at least when people should get out on the precipice of another downturn I mean how much higher can it get before the Catalyst comes to bring us down.
Well I think the stock market could get a lot higher before it comes down. Notably I have a ratio of price earnings we recall the cape ratio us which is currently in the low 30s. But in the year 2000 it got up over 45. So that's like a 50 percent higher than it is now and that can happen. There's something going on with market psychology now it seems. Know I think it has something to do with our president who is. An exceptionally business oriented president and who wants to deregulate and who favors lower taxes. That that has an effect on the market. But I think it goes beyond the rational logical effect and it has something to do with our animal spirits and theU.S. is doing great right now in terms of the strength of the economy and the stock market. But you use and you said I was a behavioral economist. I tend to think it is. Kind of a psychological kind of built around the Trump story at this point in history.
What missional will therefore be the tipping point. What will take home those animal spirits what will cause the next shoe to go down the spine.
Well usually these tipping points are an even identifiable until after the fact. I mean the Lehman Brothers thing is an important milestone but it wasn't that the overall tipping point we saw problems a year earlier. Our housing market peaked in 2006 it's like two years earlier. So there isn't a clear tipping point in history generally. I thought you know a lot of people thought that in January February of this year when we market correction that that might be a tipping point. It was a tipping point for emerging markets. But now the United States were doing strong. Psychology is hard to summarize and hard to predict.