Robert Shiller: the stock market could collapse by 50%

The well-known economist and Nobel laureate Robert Shiller gave an interview to the German newspaper Handelsblatt which is quite interesting because it presents his views on market expectations and the economy in general. Before giving you an extract of his thought, I want to warn you that Robert Schiller has always had a realism bordering on pessimism.

MARKETS: Robert Shiller is an expert on markets, especially, indeed, real estate. Two years ago he claimed that the stock market was overvalued by 40%, but subsequently the values ​​did not collapse, despite the covid-19. This has left a little surprised by this resistance, mainly due to the intervention of central banks. However, according to Shiller, the current value is the highest in the last 100 years, reached only briefly during the Dot-Com bubble. So a strong correction is inevitable, and Shiller sees it as between 33% and 50% in size. And as in 1929, now we are starting to talk about overvaluation and this makes the moment of rupture closer.

“COMPLICATED” MARKETS A further problem in evaluating today's markets, however, comes from the fact that there are no longer institutional investors who have the function of leading the market. As Robinhood and GameStop demonstrates, there are now a flood of greed-driven private investors who take advantage of modern means of communication. This profoundly changes the perception of values ​​and prices.

CRYPTOCURRENCIES: Shiller reveals that he even thought about buying Bitcoin, impressed by the technology, but he gave up on it due to the volatility;

INFLATION: Inflation could become the heart of the economic narrative, like in wartime, but here inflation is caused not by bombs, but by the breaking of logistic chains. We would say that the accumulation of deflation linked to the decentralization of production and from long and risky supply chains has suddenly stopped. Prices are simply returning to levels more consistent with a normal level of globalization.

DEBT OF STATES: Shiller sees a dark from the crisis with very high public debts, both in advanced and developing countries. He does not see this as a negative element if limited interest rates are used to increase productive investment.

ECONOMICS OF THE FUTURE. Shiller does not rule out a future in which consumption will also drop due to technology and AI. For example, the ability to work remotely will reduce the need to move. At the same time, however, this will cause economic upheavals that will be attributed to the AI ​​itself and to the current economic situation. Shiller sees a stronger protectionist and nationalistic push more likely.

CHINA Vs USA Shiller sees a far greater danger than inflation in the confrontation between the West and China;

TRUMP vs BIDEN: Shiller doesn't see Trump's return to presidency impossible after Biden's failed attempt to pacify society.

Shiller has a vision consistent with the general progressive US academic policy, but presents, at least from an economic point of view, some interesting ideas. If nothing else, it does not see a distress from debt or inflation, but from a financial bubble.

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This is a machine translation of a post published on Scenari Economici at the URL on Fri, 14 Jan 2022 15:22:59 +0000.