Nobel laureate Robert Shiller cautions nervous investors that recessions normally aren’t that bad, and that the 2008 financial crisis was a very special exception to the rule as he sees it.
“It seems like recessions are generally short-term events. Typically a few quarters. The longest recession, by the way, historically, was 1873-1879 when the economy was going down for six years. But that hasn't happened since. It tends to be a short event. Usually they are not that bad,” the Yale University economics professor recently told Bloomberg Television.
“The financial crisis we just saw, 10 years ago, was unusually bad,” said Shiller, the co-founder of the Case-Shiller Index, which tracks home prices around the nation.
However, he didn’t specify exactly when the next recession will hit.
“It's very hard to predict the stock market. The talk about the longest bull market is something that petered last year, and it seemed to have a temporary effect on the market, but now that narrative is fading. We've gotten past that. We are now in record territory, and we are still going fairly well,” said Shiller, who was awarded the Nobel Prize in Economic Sciences with Eugene Fama and Lars Peter Hansen in 2013.
He advised investors to remain calm and to stay in the American market.
“I don't think that one should worry, but I think that one should lean against higher-priced countries or sectors. The U.S. is about the highest priced country in the world. I recommend investing in the U.S., but a lot of people are overweighted in the U.S., maybe out of patriotism. But there is a whole world out there and other asset classes,” said Shiller.
However, former Federal Reserve (Fed) Chair Janet Yellen recently warned that America’s corporate debt binge could end up sparking a deeper recession when the next downturn hits.
Rock-bottom rates and easy lending standards have allowed US companies to pile on record levels of debt, sparking concern from regulators about the risk the credit markets may pose to the U.S. economy, Reuters explained.
When asked about asset bubbles and potential fallout when the current US economic expansion cools down, Yellen singled out high corporate debt levels as a worry, according to a recording obtained by LPC/IFR, divisions of Refinitiv.
“I have expressed concerns about leveraged lending,” Yellen said during a keynote discussion that was closed to the press. “I do think non-financial corporations have run up, really, quite a lot of debt.”
The comments were made during a standing-room only panel at the annual Structured Finance Industry Group conference in Las Vegas.
“What I would worry about is if the economy encounters a downturn, we could see a good deal of corporate distress. If corporations are in distress, they fire workers and cut back on investment spending. And I think that’s something that could make the next recession a deeper recession,” said Yellen, who served as Fed Chair from 2014 to 2018.
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