Nobel winner Robert Shiller warns savvy investors that only one aspect is keeping today’s high-flying stock market from crashing like it did in 1929.
The Yale University economics professor explained to CNBC that there's one vital characteristic protecting investors from losing their nest eggs: Market psychology.
"It's not just a matter of low interest rates, it's something about the American atmosphere. It's partly the Trump atmosphere,” said Shiller, who was awarded the Nobel Prize in Economic Sciences with Eugene Fama and Lars Peter Hansen in 2013.
"The market is about as highly priced as it was in 1929," said Shiller, who's been arguing valuations are extremely expensive.
"In 1929 from the peak to the bottom, it was 80 percent down. And the market really wasn't much higher than it is now in terms of my CAPE [cyclically adjusted price-to-earnings] ratio. So, you give pause when you notice that," said Shiller, who also helped develop the widely-followed S&P/Case-Shiller Home Price Indices.
Shiller developed the cyclically adjusted price-earnings (CAPE) ratio market valuation measure, which is calculated using price divided by the index's average historical 10-year earnings, adjusted for inflation.
“Investors love this. I can't exactly explain – maybe it has something to do with prospective tax cuts. But I don't think it's just that. It's something deeper, and it's pushing the American market up," he added.
However, Shiller is far from becoming a market bull.
"I don't want to encourage people too much to put a lot into the most expensive market in the world," said Shiller. "The U.S. has the highest CAPE ratio of 26 countries. We are number one," he said.
"I wouldn't call it healthy, I'd call it obese. But you know, some of these obese people live to be 100 years, so you never know," said Shiller.
Meanwhile, uncertainty about how the United States will cope with growing tumult in the world has not dampened Warren Buffett's optimism for the country's prospects over the long term -- even 100 years into the future.
"Whenever I hear people talk pessimistically about this country, I think they're out of their mind," Buffett, the chairman of Berkshire Hathaway Inc, said Tuesday night.
Buffett said he expects the Dow Jones Industrial Average to be "over 1 million" in 100 years, up from Tuesday's close of 22,370.80. He said that's not unreasonable, given how the index was roughly 81 a century ago, Reuters reported.
Buffett said long-term investing remains the way to go.
He noted that since Forbes created its first list of the 400 richest Americans in 1982 — Buffett was worth just $250 million then — some 1,500 different people have been included.
All with one thing in common.
"You don't see any short sellers," he said, referring to people who bet stock prices will fall.
"It has been 241 years since Thomas Jefferson wrote the Declaration of Independence," he said. "Being short America has been a loser's game. I predict to you it will continue to be a loser's game."
(Newsmax wires services contributed to this report).
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