When Nobel Laureate and "Irrational Exuberance" author Robert Shiller says he sees bubbles in the financial markets — you'd better listen up. He literally wrote the book on stock market crashes and bubbles after all.
"I see bubbles everywhere," Shiller, economics professor at Yale University and author of just-published "Narrative Economics" told investors gathered in Los Angeles Wednesday. "There's no place to go. You just have to ride it out. You invest even though you expect the price to decline." Shiller famously predicted the 2000 stock market crash and the 2007 crash of the housing market.
Shiller says the housing market is in a bubble phase, not unlike 2005. That was the point the housing bubble was inflated, but yet to go parabolic. "It's like 2005 again," Shiller said. "San Francisco and L.A. are already slowing down." That's a "bad indicator," he said, as those markets have been going up for years.
No Place to Go?!
I do not care about books or past predictions.
I care about logic of the moment.
For starters, if housing was like "2005 again", San Francisco and LA would not be "already slowing down." But that is nitpicking.
Here's the important issue: On an individual basis, It is absurd to say there is "no place to go".
Places to Hide
- US Dollar
- Foreign Currencies
- US treasuries 5-year or less
It is impossible for all of those to decline at the same time. Heck it is impossible for 2 and 3 to decline at the same time except compared to gold or some other asset, which of course implies somewhere else to hide.
Bubbles B. Goode: Musical Tribute to the Fed
It's true that someone must hold every stock and every bond. However, Shiller's statement "You just have to ride it out" is nonsense at the individual "you" level.
Choose wisely where to hide.
Mike "Mish" Shedlock