Tags: Shiller | stocks | market | invest

Nobel Winner Robert Shiller: Whistling Past the Graveyard With Stocks

By John Morgan   |   Thursday, 23 Jan 2014 07:16 AM

Nobel prize-winning economist Robert Shiller said he is still investing in the stock market despite warning recently of bubble-like conditions that he viewed as especially worrisome in U.S. stocks.

In an interview with CNBC, the Yale economist demonstrated that even distinguished experts can be uncertain when it comes to what direction equities are headed at a given time.

On the one hand, he said that his proprietary long-term valuation metric for stock markets, which measures earnings based on inflation-adjusted results over 10 years, stands at 25 — high, but still considerably below the record of 46 that it hit in 2000.

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"What's it's predicting, based on a simple analysis, is that the market will outperform the inflation index in real terms, but not great. It's middling right now; it's not super high."

He added, "I'm still investing in the stock market. And I still think people should have part of their portfolio in [stocks]. On the other hand, it's looking a little high."

Shiller noted that after the U.S. markets crash and its aftermath in the 1930s, stocks did not get back to break even, in real dollar terms, until the 1960s.

"I'm not as optimistic based on history. There's a potential for another collapse, definitely."

Last month, Shiller warned in an interview with Germany's Der Spiegel magazine that an investment bubble could be forming in global markets.

"I'm not sounding the alarm yet. But in many countries, the stock price levels are high, and in many real estate markets prices have risen sharply . . . that could end badly," he said then. "I find the boom in the U.S. stock market most concerning."

As we all know, experts aren't always correct. A recent eight-year study of 68 stock-market experts by CXO Advisory tracked 6,582 predictions over several years and found the experts to be much less than perfect, The Wall Street Journal reported.

The study found that the experts' collective accuracy was 47.4 percent — worse than a random coin flip.

The 2014 consensus of the Wall Street experts is for a 7 percent gain in stocks, according to The Journal.

In addition, two prominent stock forecasters who were "remarkably accurate" about 2013's heady stock gains — Abby Joseph Cohen of Goldman Sachs and Bill Miller of Legg Mason — said double-digit gains again this year would not be surprising, The New York Times reported.

In particular, Miller sounded an upbeat note.

"We could easily see gains of more than 20 percent" in stocks, Miller told The Times. "And the market wouldn't be overpriced at that level."

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