Robert Shiller: Greater Than Average Chance Of Recession In Next 18 Months

Nobel Prize winning economist Robert Shiller says that the long expansion in the economy, housing and stock markets, combined with continued low interest rates, could mean the U.S. is due for a recession. However, he says that human behavior makes it very difficult to make such predictions. The Trump administration and extreme weather events haven’t affected markets…yet.

Army McCarthy hearings

Robert Shiller: Greater Than Average Chance Of Recession In Next 18 Months; Gets Reminded Of The Army McCarthy Hearings

[REITs]

Q4 hedge fund letters, conference, scoops etc

Transcript

Economists are like weather forecasters weather forecasters can go out a few days. Economists can go out months but going out a year or two they get really iffy.

We spend about a third of our time in recessions. So the probability going out 18 months must be something like that. I think a little bit higher than that maybe a half given the situation. But there’s so many factors that one can bring in. And I you know I am not. Confident in my ability to predict these things anymore. And I’m confident of anybody else the nominal home prices according to the S&P CoreLogic Case Shiller index that I’ve been talking about is essentially at a record high. If you don’t correct for inflation and if you do correct for inflation it’s not a record high. But it’s it’s pretty high. It’s gone up since 2012 at a good pace.

I count it as the third largest expansion of home prices since 1890. Late last year we got a lot of attention in the news media to the idea that we were in the longest bull market ever. We’ve had the longest period of near zero interest rate not quite near zero. They’re still on the low side according to the National Bureau of Economic Research. We will have set a record for the length of an expansion if there isn’t a recession by June of this year. So all of those things together suggest to me that a lot of people are thinking that this is getting late in the stages of a boom. And you know if history repeats we’re in for good chance of another recession.

Recessions are hard to predict until they are upon you. Remember we’re trying to predict human behavior and humans thrive on surprising surprising each other. And things like the election of Donald Trump. Nobody thought that would happen back in 2015. But here it is. We’ve got him and the same kinds of things can happen again just like wildfires in California appeared. We had a really bad year on that. That that’s just another example of surprises and history. But the problem is that we tend to magnify them. We may read into the California wildfires for example more than is justified. The other thing that hasn’t hurt us but in principle could is the kind of polarization around President Trump and the strong disagreements. And the hearings we’re hearing now that depending on your viewpoint are either proving he’s a criminal or are a vindictive conspiracy against a good man but it hasn’t affected the economy. You know I don’t think that it’s easy to piece out exactly why. So it may depend on how this hearings. I’m reminded of the Army McCarthy hearings when Senator Joe McCarthy who held hearings that were on television the first really big television extravaganza of hearing everybody watched it. And public opinion turned based on those hearings. So what happened after that in the stock market. It boomed. It was great but at the end of the Army McCarthy hearings discredited those hearings McCarthy ended up retreating because he didn’t look good in those hearings. The question is how do these hearings now that we’ve had for president Trump How do they ultimately affect public opinion. And I don’t I don’t know the answer. These things are hard to predict.



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver