In this special episode of Behind the Markets hosts Jeremy Schwartz and Jeremy Siegel talk to top economists at the Jacobs Levy Conference. They give their take on market outlook incorporating everything from robots and tech to health care. Tune in!
Robert Shiller – Nobel Prize winning economist
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Robin Greenwood – the George Gund Professor of Finance and Banking at Harvard Business School
Behind The Markets Podcast: Robert Shiller & Robin Greenwood
Today you talked about well earnings have been very good. What are the reasons you said. Because we have Trump. But then you asked is Is Trump permanent. Was it was the question you asked what any thoughts on just where we are in this market cycle the earnings growth that we've had.
Well we have an unusual event this year which is the cut in corporate profits that went into effect this year. When you cut that corporate profits tax. From 35 to 21 percent. That's a major one time only. You think. There might be further cuts. You might also think it's one time only. I don't think we want to just think that people are. Calculating what earnings path will be. There are others that are doing that. Many of them are. But there's other factors that affect the market. That are more psychological. Are not tied closely to the earnings number. It's the general angst that we have at this point with the Trump administration and that sense that he has support this is support for a capitalist more capitalist economy where. We reward the winners info. And that psychology I think has an effect on our impressions of where the market is going and how how dangerous the market is. It feels pretty safe now. Most people.
It's interesting. We have some behavioral finance experts here Rob and you do a lot of work in behavioral finance and the psychology of the market is interesting from everybody studying here and it's an interesting question professor. You've talked about if you know ruby eyes if Trump impeached what would happen you know in these midterm elections. Is it a positive negative spots. Presentencing Trump as you say he's good for the markets.
Bob's point during his presentation he gave this beautiful example of World War 1 and growth in earnings. An example I hadn't heard before about growth and earnings. That was just a very quick pop at the market recognize that it wasn't permanent. And if you look back over history that's actually turns out to be the exception with most examples of earnings pops being accompanied by higher increases in prices and certainly that's what we're seeing today. And so when you see that I think then you want to start looking for other things in investor behavior whether it's issuance whether it's the high turnover or whether it's things that people say in the press that kind of buttress a period of high sentiment.
I think also you know Bob meant we had a one time tax cut. That's true. No one's expecting a tax cut again although the Republicans won another personal tax cut but not on the business side. There's no question is is the tax rate going to go back if the Democrats get the president and not this this coming year election obviously but in 2020 if they get the presidency and control of the Senate and the house they theoretically have the ability to undo the corporate tax cut that that that the Republicans pushed through. I do like to emphasize that we had just about the highest corporate tax rate in the world before we had this cut. And really even after this cut we're only I think slightly below the average of the European Union. Secondly Democrats had agreed we needed corporate tax reform. Now they may not have gone as far as Trump and the Republicans went on that because they didn't like certain other aspects but even if the Democrats regain it there may be some somewhat upward adjustment. But I definitely do not think we're going back to that 35 per.