Investment guru Robert Shiller warns that there is very high chance of a recession in the next 18 months and savvy investors best prepare for it.
The Nobel prize winner explained to CNBC that the long expansion in the economy, housing and stock markets, combined with low interest rates, is pushing the nation toward and economic downturn.
“Remember, we’re trying to predict human behavior, and humans thrive on surprising each other. Things like the election of Donald Trump; nobody thought that would happen back in 2015, but here it is, we’ve got him,” Shiller said.
“Unlike a weather man who can go out a few days, economists can go out months,” Shiller said. “But after about a year or two (projections) get iffy," he said.
“We spend about a third of our time in recessions, so the probability going out 18 months must be something like that, but I think a little bit higher, maybe even half, given the situation. But there are so many factors that one can bring in, and I’m not confident in my ability to predict these things like I’m not confident in anybody else.”
“The nominal home prices, referring to the S&P corelogic Case-Shiller index that I’ve been talking about, is essentially at a record high if you don’t correct for inflation,” he said. “If you do correct for inflation, it’s still really high. It’s gone up since 2012 at a good pace. I count it as the third-largest expansion of home prices since 1890,” said Shiller.
Shiller listed such recession omens as the longest bull market on record, followed by the lowest interest rates ever and a record expansion.
“Late last year we got a lot of attention in the news media to the idea that we’re in the longest bull market ever,” he said. “We’ve had the longest period of zero interest rates — though they’re not quite zero, they’re still on the low side. According to The National Bureau of Economic Research, we will have set a record for the length of expansion if there isn’t a recession by June of this year.
“So all of those things together suggest to me that a lot of people are thinking that this is getting late in the stages of a boom. And if history repeats, we’re in for a good chance of another recession,” he said.
“The only thing that hasn’t hurt us but in principle could, is the polarization around President Trump and the strong disagreements. The hearings that we’re having now, depending on your viewpoint, are either proving that he’s a criminal, or it’s a vindictive conspiracy against a good man. But it hasn’t affected the economy," he said.
"The questions is how these hearings now that we’ve had for President Trump, how do they ultimately affect public opinion? And I don’t know the answer. These things are hard to predict.”
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