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Yale's Robert Shiller: 'Markets Are Inherently Filled With Tricks and Traps'

Image: Yale's Robert Shiller: 'Markets Are Inherently Filled With Tricks and Traps'

(Dollar Photo Club)

By    |   Thursday, 05 January 2017 08:05 AM

Yale economist and Nobel laureate Robert Shiller admits that although he doesn't know "what to make" of surging U.S. stocks right now, it is time for interest rates to rise.

He also offers some sage advice to savvy investors: "Markets are inherently filled with tricks and traps," so be careful.

"I don’t know what to make of U.S. stocks right now. President-elect Trump might actually boost the market even further," Shiller told Swiss Business newspaper Finanz und Wirtschaft.

"First of all, he wants to cut the corporate profits tax. That’s an immediate direct feed into the stock market. Secondly, he doesn’t care about the environment or other quality of life things. He just wants corporations to succeed. That’s also bullish for the stock market," Shiller said. 

"And then thirdly, he is an inspiration to many people. So maybe they start spending more and maybe someone will try businesses that were considered too risky before," Shiller said.

"So I’m tempted to be optimistic for the short run and I can I imagine that U.S. stocks go up from here for a while even though valuations are at a high level."

Shiller explained that although interest rates are starting to climb,historically they’re still low.

"There isn’t any received wisdom about just exactly why they are so low. It’s natural to put it on to the financial crisis of 2007/08. That’s because it’s a dominant narrative that everything today must be due to the financial crisis," he said.

"That’s why I’m inclined to think that is has something to do with technology. We are living in a time where we are worried about our future because of rising inequality and jobs being replaced by robots. So people want to save but they don’t actually end up saving because they bid up prices of assets like bonds that look safe," he said.

"It’s been a surprise that these low interest rates lasted as long as they did. So you might think it’s time – even without Trump – for interest rates to start going up. For instance, in the U.S., the Federal Reserve was already talking about raising rates even before the election," he said.

"Another thought is that there is more worry about a possible default on U.S. debt. I don’t think that’s very likely but there might be some concern because Donald Trump had bankrupt businesses many times. So he doesn’t look like someone who would go to the wall to defend the integrity of the U.S. debt," he said.

Shiller isn't the lone economic guru to recently warn about market risks.

Newsmax Finance Insider Hans Parisis regularly cautions savvy investors to stress-test political talking heads and "official" government data for signs others may miss.

"For long-term investors this means, in simple words, the resiliency the markets are demonstrating at present is one-directional, which has always implied that the risks under the surface are on the rise, albeit slowly," he recently wrote.

(Newsmax wire services contributed to this report).

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Robert Shiller, Professor of Economics at Yale University, is concerned about the rise of populism and thinks that the era of super low interest rates could finally be over.
robert shiller, markets, rates, traps
Thursday, 05 January 2017 08:05 AM
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