March 30, 2006

Checking in with bubble guru Robert Shiller

Seems Mr. Shiller, like Michael Jackson "gets it" when it comes to Bubbles.

Bottom line, he got the .com bust right, he got the housing bubble bust right, and he'll get the next bubble right too. It's not rocket science, it's just the way it is.

Robert Shiller, the Prophet of House Prices

If a prophet is only as good as his last prophecy, then you'd be wise to listen to Robert Shiller. On "Nightline," Shiller offered his considerable analysis of the current real estate market ... and he doesn't bring good news.

It was back in the heady stock market days of 1996 that Shiller, an economics professor at Yale University, gave voice to his first prophecy. He warned that the stock market was overheating and that investment had risen to what he described as irrational levels. The stock market crash that followed was no surprise to Shiller and proved that he had called it right.

Now he's warning that a similar collapse may soon apply to the real estate market. And there's evidence that he may be right here, too.

Shiller said that the same psychology that applies to stock market investors now drives the real estate boom. He called it irrational exuberance, coincidentally the title of his 2000 book about the stock market.

He argues that many first-time buyers pay inflated prices simply because they fear they'll be left behind.

14 comments:

silverisgood said...

test

silverisgood said...

The U.S. military plans to detonate a 700 ton explosive charge in a test called “Divine Strake” that will send a mushroom cloud over Las Vegas, a senior defense official said March 30.
”I don’t want to sound glib here but it is the first time in Nevada that you’ll see a mushroom cloud over Las Vegas since we stopped testing nuclear weapons,” said James Tegnelia, head of the Defense Threat Reduction Agency.
Tegnelia said the test was part of a U.S. effort to develop weapons capable of destroying deeply-buried bunkers housing nuclear, chemical or biological weapons.
”We have several very large penetrators we’re developing,” he told defense reporters.
”We also have — are you ready for this — a 700-ton explosively formed charge that we’re going to be putting in a tunnel in Nevada,” he said.
”And that represents to U.S. the largest single explosive that we could imagine doing conventionally to solve that problem,” he said.
The aim is to measure the effect of the blast on hard granite structures, he said.
”If you want to model these weapons, you want to know from a modeling point of view what is the ideal best condition you could ever set up in a conventional weapon — what’s the best you can do.
”And this gets at the best point you could get on a curve. So it allows U.S. to predict how effective these kinds of weapons ... would be,” he said.
He said the Russians have been notified of the test, which is scheduled for the first week of June at the Nevada test range.
”We’re also making sure that Las Vegas understands,” Tegnelia said.


run, no hurry and grab a new condo for the view, should be quite the mushroom cloud. Never mind housing just hope next year we are even owning anything is this country.

jeffolie said...

US lenders do not care much about the cost of funds because they make profits originating the loans and selling the loans to the government sponsored entities (GSEs) Fannie Mae and Freddie Mac. The GSEs make profits sell the loans in pools of mortgage backed bonds (MBSs) which can become collateralized debt obligations (CDOs) and derivatives. Who buys the MBSs, CDOs and derivatives? Most are bought by high yield seek overseas buyers!!! They take the risk that the mortgages will be paid and suffer when the mortgages do not pay or are paid off early. Some buyers are here in the US.

The biggest losses will not be in the US, it will be overseas holders of the highly leveraged MBSs, CDOs and derivatives.

Those who can not pay their mortgages will not pay and the owners of these highly leveraged MBSs, CDOs and derivatives will be foreclosing. The GSE are explicitly not backed by the US government. Tax revenues will fall and government will be forced to make changes.

Dave Barnes said...

You wrote: "heady stock market days of 1996 that Shiller...warned that the stock market was overheating...The stock market crash that followed"

Yes, the crash began in April of 2000. Four years after Shiller's warning.

Any idiot can forecast crash that won't happen for 4+ years.

I am not saying that we don't have a housing price crashing coming in the near (less than one year) future, but I am saying that quoting Shiller's dot.com prediction is a very weak arguement.

,dave

Pootie said...

Corporate profits are at their highest level in 40 years. By some amazing coincidence, wages and salaries are at their lowest point in 40 years.

link

gerlando_sciascia said...

You damn fool, if someone had followed Shiller's advice, they would have gone broke shorting the market from 1996-2000.

Ian Toll said...

Shiller's been flogging a real estate crash for 4 years, so we are right on schedule.

DC_Too said...

It was actually the Mighty Greenspan that coined "irrational exuberance," in late 1996, with respect to stocks, not Robert Shiller. Pinpointing the top is impossible, absent dumb luck. Any drooling idiot can see a bubble right up in the face - see Exhibit 1, Greenspan '96.

What no one can know is when the music will stop, or the pin will burst the bubble (insert your favorite metaphor here).

Shiller's point is that this will end badly. And he never suggested anyone short stocks, only that the party would end in pain for many. He was right then, and he is right now. Good luck with your real estate empires.

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