Robert Shiller, Nobel laureate and professor of economics at Yale University, discusses valuations and draws parallels to a perilous time in the market with Mike Santoli.
Robert Shiller Draws Troubling Parallels Between The Market Today And The Late 1920s
Q2 hedge fund letters, conference, scoops etc
Transcript
Welcome to trading nation. Mike Santoli stocks ending the month near records. Consumer confidence at 18 year highs and corporate profits are surging. But one Nobel Prize winning economist hears some echoes in the late 1920s and all this we're joined now by Professor Robert Shiller he's Yale professor of economics and Professor Shiller. Great to have you here. I know you look at financial markets through a bunch of different windows valuations sentiment exactly what the kind of prevailing storyline of the market is. What is it about right now that maybe reminds you a little bit of the 1920s.
1920s is quite a legend that people are often thinking about it's become part of our culture. But look at 1929 particularly as the end of the Roaring 20s and ended in a bout of speculation in the last between May and September of 29 the stock market went up over 30 percent in just a few months. And at that time it seemed like it was a it was a kind of gambling. The word gambling was used a lot to describe the market at that time. So it became vulnerable. Now I'm not sure exactly and they were not exactly in that circumstance but we do have the market which has surged since 2009 and there is something of that spirit today.
Yes something of that spirit of this feeling that a lot of things are working in favor of investors I suppose but of course the market itself has been in a much more I guess orderly uptrend right. I mean the S&P up about 9 percent so far this year. There's that sort of change the picture in terms of determining whether it's a very risky situation. Well we did have at the beginning of this year we had a correction.
And it kind of stands out on a plot. But it didn't develop into a narrative that I would say that encourages more selling. Why didn't it. See this is something that I think economic science has yet to resolve. We need to work on this but there was something I would say having to do with the Trump story which has dominated our thinking for ever since the election year. And it's something about capitalism and the advancement of people who. Are willing to take risks. We have a role model in the White House who models that something like that has driven not just the stock market but the whole economy of the United States and makes the United States the most expensive stock market in the world.
Yeah that is a pretty stark relationship when you do look at theU.S. stock performance and valuation relative to the rest of the world. And it's interesting that you focus in on this this narrative idea. So in other words we're not really necessarily talking about Well GDP is going in the right direction reported corporate profits look good a lot of tangible things that seem to be working in favor of investors you actually think there's a bit of a kind of collective belief in something bigger going on.
I believe so. That's right. Economics has to get to looking at people's beliefs more than they have. And the 1920s was in the Roaring 20s was a time that people thought was remarkable unbelievable. We go back to the year the late 1990s with the dotcom boom it was a similar story that was boosting the market. But they don't last forever and eventually the story starts to wilt.
Do you think that we are in a kind of a phase here whenever it does perhaps come to a peak that it will require something as dramatic as one of those crashes or is there anything any more such a thing as a garden variety downturn.
