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Posts Tagged ‘Shiller’

Was the Stock-Market Boom Predictable?

Posted by hkarner - 1. April 2019

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

While the conventional wisdom holds that it is never possible to „time the market,“ it might seem that major shifts – like the quadrupling of the US stock market over the last decade – should be at least partly foreseeable. Why aren’t they?

NEW HAVEN – Should we have known in March 2009 that the United States’ S&P 500 stock index would quadruple in value in the next ten years, or that Japan’s Nikkei 225 would triple, followed closely by Hong Kong’s Hang Seng index? The conventional wisdom is that it is never possible to “time the market.” But moves as big as these, it might seem, must have been at least partly foreseeable.

The problem is that no one can prove why a boom happened, even after the fact, let alone show how it could have been predicted. The US boom since 2009 is a case in point. Den Rest des Beitrags lesen »

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Morality and Money Management

Posted by hkarner - 25. Januar 2019

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

Following his recent death, Vanguard Group founder Jack Bogle was widely and generously eulogized – and justifiably so. But if everyone followed Bogle’s investment strategy, market prices would turn into nonsense and would provide no direction to economic activity.

NEW HAVEN – The death on January 16 of Jack Bogle, the founder of the investment company Vanguard Group, was met with a slew of flattering obituaries. Of course, obituaries often praise their subjects. But Bogle’s seemed more laudatory than usual. And I think there is a reason: Bogle was an unusually morally directed man.

Of course, we cannot judge his success by his personal wealth. When Bogle established Vanguard in 1975, he set it up as a nonprofit. The company has no outside shareholders; all profits are reflected in lower fees, not dividends.

By metrics other than founder wealth, the Vanguard Group is a huge success. It invests for 20 million people in 170 countries. It has $4.9 trillion in assets under management. It may be the world’s most significant investment company. Den Rest des Beitrags lesen »

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Silent Inflation

Posted by hkarner - 26. November 2018

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

Inflation targeting is supposed to reduce uncertainty about prices. But keeping the inflation target at 2% or more, might actually increase a sense of uncertainty about real things like home values or investments.

NEW HAVEN – In many countries, inflation has become so low and stable in recent decades that it appears to have faded into the woodwork. Whereas galloping inflation was once widely viewed as the number one economic problem, today most people – at least in the developed countries – hardly ever talk about it or even pay attention to it. But “silent inflation” still has subtle effects on our judgment, and it may still lead to some consequential mistakes.

Since New Zealand’s central bank set the first example in 1989, monetary authorities around the world have increasingly pursued a policy of setting inflation targets (or target ranges) that are substantially above zero. That is, policymakers plan to have inflation, but steady inflation. What used to be a dirty word is now announced publicly, and moderation is enforced. Den Rest des Beitrags lesen »

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Do Spectacular Earnings Justify Spectacular US Stock Prices?

Posted by hkarner - 25. September 2018

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

With share prices and corporate earnings moving together on a nearly one-for-one basis, one might conclude that the US stock market is behaving sensibly, simply reflecting the US economy’s growing strength. But the stock market has not always been so dismissive of the volatility of earnings.

NEW HAVEN – The US stock market, as measured by the monthly real (inflation-adjusted) S&P Composite Index, or S&P 500, has increased 3.3-fold since its bottom in March 2009. This makes the US stock market the most expensive in the world, according to the cyclically adjusted price-to-earnings (CAPE) ratio that I have long advocated. Is the price increase justified, or are we witnessing a bubble?

One might think the increase is justified, given that real quarterly S&P 500 reported earnings per share rose 3.8-fold over essentially the same period, from the first quarter of 2009 to the second quarter of 2018. In fact, the price increase was a little less than equal to earnings.

Of course, 2008 was an unusual year. What if we measure earnings growth not from 2008, but from the beginning of the Trump administration, in January 2017? Den Rest des Beitrags lesen »

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Wie man Arbeitnehmer ohne Handelszölle schützen kann

Posted by hkarner - 20. Juli 2018

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

NEW HAVEN – Laut einer am 11. Juli veröffentlichten Meinungsumfrage der Washington Post und der Schar School unter US-Amerikanern stimmten nur 39% der Umfrageteilnehmer der Verhängung von Zöllen gegenüber anderen Ländern durch US-Präsident Donald Trump zu; 56% waren dagegen. Doch während es eine gute Nachricht ist, dass die Mehrheit der Amerikaner sich in dieser entscheidenden Frage gegen ihren Präsidenten stellt, zeigt sich Trump unbeirrt; er glaubt anscheinend, dass die Bevölkerung die Zölle besser finden wird, wenn sie erst einmal eingeführt sind.

Es ist ein Rätsel, warum selbst 39% diese Politik unterstützten. Seit der Großen Depression und dem Zweiten Weltkrieg, und dem Allgemeinen Zoll- und Handelsabkommen von 1947, haben die USA – und zwar Regierung wie Bevölkerung – konsequent den freien Handel unterstützt.

In seinem Buch Der Wohlstand der Nationen aus dem Jahr 1776 argumentierte Adam Smith in beredsamer und überzeugender Weise für den Freihandel und gegen handelsverzerrende Zölle: Beim Freihandel prosperiere die Wirtschaft, weil Waren und Dienstleistungen aus den Ländern bezogen werden, die bei ihrer Erzeugung am produktivsten sind. Den Rest des Beitrags lesen »

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The Old Allure of New Money

Posted by hkarner - 23. Mai 2018

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

Practically no one, outside of computer science departments, can explain how cryptocurrencies work, and that mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal. None of this is new, and, as with past monetary innovations, a seemingly compelling story may not be enough.

NEW HAVEN – The cryptocurrency revolution, which started with bitcoin in 2009, claims to be inventing new kinds of money. There are now nearly 2,000 cryptocurrencies, and millions of people worldwide are excited by them. What accounts for this enthusiasm, which so far remains undampened by warnings that the revolution is a sham?

One must bear in mind that attempts to reinvent money have a long history. As the sociologist Viviana Zelizer points out in her book The Social Meaning of Money: “Despite the commonsense idea that ‘a dollar is a dollar is a dollar,’ everywhere we look people are constantly creating different kinds of money.” Many of these innovations generate real excitement, at least for a while.

As the medium of exchange throughout the world, money, in its various embodiments, is rich in mystique. We tend to measure people’s value by it. It sums things up like nothing else. And yet it may consist of nothing more than pieces of paper that just go round and round in circles of spending. So its value depends on belief and trust in those pieces of paper. One might call it faith. Den Rest des Beitrags lesen »

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Making the Case for Sovereign GDP-Linked Bonds

Posted by hkarner - 20. März 2018

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

The crises that erupted in countries like Ireland and Greece a decade ago would not have been so severe had their debt been linked to their economic performance. And the same is true today: Investors around the world will continue to accept the risk, given the unlimited upside to investing in entire economies.

LONDON – The time has come for national governments around the world to start issuing their debt in a new form, linked to their countries’ resources. GDP-linked bonds, with coupons and principal that rise and fall in proportion to the issuing country’s GDP, promise to solve many fundamental problems that governments face when their countries’ economies falter. And, once GDP-linked bonds are issued by a variety of countries, investors will be attracted by the prospect of high returns when some of these countries do very well.

This new debt instrument is especially exciting because of its monumental size. Although issues may start out small, they will be very important from the outset. The capitalized value of total global GDP is worth far more than the world’s stock markets, and could be valued today in the quadrillions of US dollars. Den Rest des Beitrags lesen »

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Der teuerste Aktienmarkt der Welt

Posted by hkarner - 24. Januar 2018

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

NEW HAVEN – Das Niveau an den Aktienmärkten unterscheidet sich deutlich von Land zu Land. Und augenblicklich ist es in den USA weltweit am höchsten. Was alle wissen wollen, ist warum – und ob das aktuelle Niveau des US-Aktienmarktes gerechtfertigt ist.

Eine simple, intuitiv verständliche Messgröße für die Unterschiede zwischen Ländern erhalten wir, wenn wir uns die Kurs-Gewinn-Verhältnisse ansehen. Ich bin schon seit langem ein Fürsprecher des zyklisch bereinigten Kurs-Gewinn-Verhältnisses (CAPE), das John Campbell (heute an der Universität Harvard) und ich vor 30 Jahren entwickelt haben.

Das CAPE-Verhältnis bezeichnet den realen (inflationsbereinigten) Kurs einer Aktie geteilt durch den Zehnjahresdurchschnitt der realen Erträge pro Aktie. Die Barclays Bank in London erstellt die CAPE-Verhältnisse für 26 Länder (ich berate Barclays zu seinen mit dem CAPE-Verhältnis verbundenen Produkten). Mit Stand 29. Dezember war das CAPE-Verhältnis für die USA am höchsten. Den Rest des Beitrags lesen »

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Another Nobel Surprise for Economics

Posted by hkarner - 10. Oktober 2017

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

Richard Thaler has shown in his research how to focus economic inquiry more decisively on real and important problems. His research program has been both compassionate and grounded, and he has established a research trajectory for young scholars and social engineers that marks the beginning of a real and enduring scientific revolution.

NEW HAVEN – The winner of this year’s Nobel Memorial Prize in Economic Sciences, Richard Thaler of the University of Chicago, is a controversial choice. Thaler is known for his lifelong pursuit of behavioral economics (and its subfield, behavioral finance), which is the study of economics (and finance) from a psychological perspective. For some in the profession, the idea that psychological research should even be part of economics has generated hostility for years. 

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The Coming Bear Market?

Posted by hkarner - 22. September 2017

The US stock market today looks a lot like it did at the peak before all 13 previous price collapses. That doesn’t mean that a bear market is imminent, but it does amount to a stark warning against complacency.

NEW HAVEN – The US stock market today is characterized by a seemingly unusual combination of very high valuations, following a period of strong earnings growth, and very low volatility. What do these ostensibly conflicting messages imply about the likelihood that the United States is headed toward a bear market?

To answer that question, we must look to past bear markets. And that requires us to define precisely what a bear market entails. The media nowadays delineate a “classic” or “traditional” bear market as a 20% decline in stock prices. Den Rest des Beitrags lesen »

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