Joe LaVorgna, chief economist at Natixis, and Robert Shiller, professor of economics at Yale University, discuss what is causing the recent market correction. Shiller says that he doesn’t expect a sharp turn in the housing market at this point.
Robert Shiller: I don’t expect a sharp turn in the housing market
Q3 hedge fund letters, conference, scoops etc
Transcript
Joe LaVorgna: Yes it is partly a fact that rates are going up. It is uncertainty around the midterms and probably a little bit to do with the tariffs. But I don't think a lot most of this market correction is fed related. Kenny talked about October 3 or thereabouts is when the market move lower October 2nd. Powell gave his talk in Boston. The market woke up to the fact the Fed is more intent on raising rates. And when you looked at their forecast that they gave us in September they basically added a rate hike. So to me this is very simple it's all Fed driven.
You don't think the Fed should raise beyond December at least that they would have a pause.
I wrote a piece for CNBC back in February saying the Fed should stop at 2 percent let the balance sheet do the work. Let's get some price discovery in markets. Let's try to steep in the curve will be healthy for the banks and help take some of the air and steam out of the equity market. But that's not their approach.
Professor Shiller you're one of the fathers of the Case Shiller Index and what we've seen at least in the stock market the stock market tells us that housing is terrible I mean the homebuilders have been you know bumping around Lowe's car sales. Automakers are doing terribly also. We have this latest data point about a slowdown in business investment in the third quarter. Are you concerned at all that perhaps there is a slowdown brewing.
Robert Shiller: Yeah well it's a mixed bag. I don't know if I can identify any clarity here. Consumer confidence has been strong but on the other hand I think it is possible that people are pulling back a little bit. They don't have the same desire to get a new house or new furniture or new car. And that you know ultimately when we say strong economy I'd like to use instead the term exuberant economy. And I think some of the things that Joe you just mentioned are factors and it's just also the over this boom has been going on for a long time and people are getting antsy and starting to pull back.
Whether it's a real correction or a bear market I don't know what's happening in housing Professor Shiller as sales seem to be declining as interest rates rise and affordability becomes a lot tougher. I think a lot of people remember 2007 to really 2012 when it turned back up as a period where they lost money for the first time ever in this country on the value of their homes. You expect that this time.
Robert Shiller: Yeah, now the the housing the subprime crisis was a history making event. The up and down of home prices was the sharpest we've ever seen. Moreover if you look at what people were saying at various points along that time. The word housing bubble suddenly entered our vocabulary. A lot of people thought in 2005 2006 that some disaster was coming and that affects the psychology of the market. If you look for the near term housing bubble now it's not much in evidence. So it's not the same mood even though you could call it a bubble because home prices have been going up now ever since 2012. But it's not the same. It's more placid. You know I don't expect a sharp turn in the housing market at this point.
