Tags: Harvard | Guru | Stock | Bubble

Harvard Guru Says No Stock Bubble — Yet

Friday, 30 March 2012 01:12 PM

The Harvard economist who called the tech stock bubble in advance now thinks stocks are overpriced — but just barely.

John Campbell, the chairman of Harvard’s Department of Economics, tells financial newsletter tracker Mark Hulbert that stocks are “slightly expensive relative to their long-term average,” despite rising 30 percent since October and more than doubling over the past three years.

Campbell, Hulbert points out, co-authored the paper with Yale’s Robert Shiller that later caused Fed Chairman Alan Greenspan to famously warn of “irrational exuberance” in the stock market.

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Soon after, the tech bubble popped and stocks cratered.

“That is the surprising judgment of one of academia’s leading experts on stocks’ valuation,” Hulbert writes for MarketWatch.com. ”I fully expected him to think stocks were, once again, at least within shouting distance of such bubble territory.”

The reason is CAPE — the cyclically adjusted price-earnings ratio. This measure tracks stocks over longer periods than the normal P/E ratio you find. While high now, it’s nowhere near the level of the tech stock boom, Hulbert points out.

Shiller himself made this point in an Associated Press interview earlier in March.

Asked if he thought stocks were overpriced, Shiller generally declined to pick directions of anything, including the housing index with which he is widely identified.

However, he said, the environment for stocks now is not really comparable to the tech bubble days.

“It doesn't seem to me that we're in a bubble situation as we were, say, in the 1990s. In the 1990s, there was just a general mood that we're entering a new millennium, with Internet technology and advanced technology and America soaring,” Shiller said.

“It was a bubble all over the world, really. I don't know that we're in that state of confidence now.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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Friday, 30 March 2012 01:12 PM
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