Robert Shiller interview: "Market could get a lot higher"

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CRTR
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Robert Shiller interview: "Market could get a lot higher"

Post by CRTR » Tue Sep 18, 2018 5:29 pm

Ran across this. Thought some might be interested in what the "guru" has to say. This sort of thing always cracks me up. Popularly, just about every pundit out there has been forecasting doom and gloom any day now for the equities and they typically base their predictions mostly on Shiller's CAPE ratio. I don't necessarily get sucked into the hysteria but it does give me some gas since I'm close to retirement. Well, here's Shiller saying he doesn't know what the heck's going to happen and that the market could very well go a LOT higher before it corrects . . . confirming that NO ONE has any idea what's coming . . . . just the sort of positive reinforcement I needed for my simple, moderately conservative, diversified portfolio as I cruise into retirement within the next year or so . . . . I'm feeling pretty good!

Here it is, straight from the horse's mouth:
https://www.fa-mag.com/news/nobel-laure ... -233367425

make_a_better_world
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by make_a_better_world » Tue Sep 18, 2018 6:27 pm

I heard him on YouTube the other day, and the main point he made regarding this, was that in 1996 pundits were saying we've had the longest bull run ever in history and it was about to crash and then the bull run continued for another 4 years. He also mentioned that the various ratios/markers are very poor predictors of what will happen next. Here's the video. Note whoever titled it on YouTube got what he said exactly opposite.
https://www.youtube.com/watch?v=ScgKpKuOAKU&t=264s

Alan S.
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by Alan S. » Tue Sep 18, 2018 7:19 pm

The best plan is to train yourself to entirely ignore all "gurus". Any gut feelings they have can always be supported by some chart or comparison to some point in market history.

Yes, almost anything "could happen". Everyone knows that, they just have no idea as to when. Neither do the gurus, few of which attempt anymore to be specific with dates and times. They have learned to be more general to avoid the appearance of being outright wrong.

The stopped clock analogy is appropriate.

jehovasfitness
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by jehovasfitness » Tue Sep 18, 2018 7:20 pm

It will go to 31k before a 30% drop.

Bookmark it

Eric76
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by Eric76 » Tue Sep 18, 2018 7:36 pm

He might just be right. Or not.

JBTX
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by JBTX » Tue Sep 18, 2018 10:16 pm

I actually view this as a negative. The biggest danger is when EVERYBODY thinks it will go up. Now you have people like Shiller say it could go higher, and for a while Jeremy Grantham has said he expects a "meltup" before in goes down. So even the people who think it is overvalued think it is going to go up before it corrects.

I don't do market timing, but sometimes I am motivated to rebalance faster than normal. With all of the positive rhetoric, predictions of rising markets, increasing interest rates, trade war, rapidly rising deficits, yada yada, and yet the market still goes up. It is kind of feeling late 90's-ish.

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Re: Robert Shiller interview: "Market could get a lot higher"

Post by stocknoob4111 » Wed Sep 19, 2018 12:16 am

I am not too concerned about a drop, 30-40% etc. if it recovers quickly like in 2008, it would suck though if the market drops 30% and then goes sideways for the next 10 years... or if it goes sideways for the next 10 years and then drops 30%, something like that.

Actually I am hoping the market drops so that I can pickup funds cheaper and lower my overall cost basis. During the accumulation phase you actually want the market to crash as it's an opportunity to get cheap prices.

evestor
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by evestor » Wed Sep 19, 2018 12:40 am

Market could get a lot higher...unless it doesn't. :D

jclear
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by jclear » Wed Sep 19, 2018 1:29 am

jehovasfitness wrote:
Tue Sep 18, 2018 7:20 pm
It will go to 31k before a 30% drop.

Bookmark it
You might just be right. I want to read that book: S&P 30,000

Freefun
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by Freefun » Wed Sep 19, 2018 5:00 am

I might start paying more attention to all these pundits if they reveal where theyre allocating their money to. I’m not saying I would copy their strategy but at least I would take them more seriously.
Remember when you wanted what you currently have?

Ron Scott
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by Ron Scott » Wed Sep 19, 2018 5:26 am

It amazes me that while everyone knows no one can predict the future, everyone can predict average real returns over a 25 to 30 year period and knows there will be no black swans to upset the longer term.

Dow up 8% in ‘19 and 25X at 62 is the magic number!

Next...
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

3funder
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by 3funder » Wed Sep 19, 2018 7:43 am

People give Shiller quite a hard time, but I've never interpreted any of his comments as specific predictions or market-timing recommendations. He's not wrong; quite literally, the higher the market is at any given point in time, the lower the forward returns will be for a fixed period of time (end date can always be cherry-picked, of course). He doesn't even say what he thinks average real returns will be. I'll bet you Jeremy Siegel and he agree on 99% of what the other says (but definitely NOT 100%). I think they both are very smart and worth listening to in a general sense.

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Re: Robert Shiller interview: "Market could get a lot higher"

Post by prudent » Wed Sep 19, 2018 1:15 pm

Topic moved to Investing - Theory, News & General.

kaeltor
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by kaeltor » Wed Sep 19, 2018 1:16 pm

Alan S. wrote:
Tue Sep 18, 2018 7:19 pm
The best plan is to train yourself to entirely ignore all "gurus". Any gut feelings they have can always be supported by some chart or comparison to some point in market history.

Yes, almost anything "could happen". Everyone knows that, they just have no idea as to when. Neither do the gurus, few of which attempt anymore to be specific with dates and times. They have learned to be more general to avoid the appearance of being outright wrong.

The stopped clock analogy is appropriate.
Shiller is anything BUT a guru.

gregwils
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by gregwils » Wed Sep 19, 2018 7:56 pm

JBTX wrote:
Tue Sep 18, 2018 10:16 pm
I don't do market timing, but sometimes I am motivated to rebalance faster than normal.
This is me too, especially in tax deferred accounts.

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Re: Robert Shiller interview: "Market could get a lot higher"

Post by peterinjapan » Wed Sep 19, 2018 8:45 pm

When I want to feel good about my investments I watch youtube videos by Ciovacco Capital, who is always super bullish and gives lots of info for why things will be better https://www.youtube.com/channel/UC_ywfv ... uZt33y7QYQ

If I want to feel bad about my investments, I read the Felder Report, who actually shows the Hindenberg on fire on his blog https://thefelderreport.com/blog/

The only thing I know is that not only does no one know, no one appears able to "accidentally be right" even 1/10 of the time. You'd think someone would be right just through dumb luck but we don't even get that.

tesuzuki2002
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by tesuzuki2002 » Wed Sep 19, 2018 8:57 pm

make_a_better_world wrote:
Tue Sep 18, 2018 6:27 pm
I heard him on YouTube the other day, and the main point he made regarding this, was that in 1996 pundits were saying we've had the longest bull run ever in history and it was about to crash and then the bull run continued for another 4 years. He also mentioned that the various ratios/markers are very poor predictors of what will happen next. Here's the video. Note whoever titled it on YouTube got what he said exactly opposite.
https://www.youtube.com/watch?v=ScgKpKuOAKU&t=264s
Sounds about right... they guys that predicted 2008... also followed up and have said the DOW is going to 36,000 ... we have some room to run and a few more years so I'd say it is tracking to those predictions.

wootwoot
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by wootwoot » Wed Sep 19, 2018 9:45 pm

JBTX wrote:
Tue Sep 18, 2018 10:16 pm
I actually view this as a negative. The biggest danger is when EVERYBODY thinks it will go up.
This is the first person I've heard in a long time predicting the market will go up, most prediction threads discuss "lower expected returns over the next decade". Where is this EVERYBODY you are referring to?

JBTX
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by JBTX » Wed Sep 19, 2018 9:53 pm

wootwoot wrote:
Wed Sep 19, 2018 9:45 pm
JBTX wrote:
Tue Sep 18, 2018 10:16 pm
I actually view this as a negative. The biggest danger is when EVERYBODY thinks it will go up.
This is the first person I've heard in a long time predicting the market will go up, most prediction threads discuss "lower expected returns over the next decade". Where is this EVERYBODY you are referring to?
lower returns over the next decade is not the same thing is the market is going to go up in the near term. Even some people who expect those lower returns think the market is going to go up more in a heated frenzy before it goes back down.

2015
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by 2015 » Thu Sep 20, 2018 12:13 am

Marketing disguised as "information." Next he'll be writing for etf.com.

m@ver1ck
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by m@ver1ck » Thu Sep 20, 2018 12:18 am

we do have the govt to thank for this.
401Ks, 529s, Roth plans etc. all ensure $$ gets invested in the stock market every month.

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Re: Robert Shiller interview: "Market could get a lot higher"

Post by nisiprius » Thu Sep 20, 2018 6:03 am

tesuzuki2002 wrote:
Wed Sep 19, 2018 8:57 pm
...Sounds about right... they guys that predicted 2008... also followed up and have said the DOW is going to 36,000 ... we have some room to run and a few more years so I'd say it is tracking to those predictions...
See if you can find names, I'm really curious to read the actual words of someone, some single guru, who both predicted a crash in 2008-2009 and then said the Dow would go to 36,000.

The most conspicuous gurus who cited the number 36,000 would be the authors of the book "Dow 36000," and they never predicted the crash--they are were and permabulls (and by the way permabulls associated with a political agenda). And their words, verbatim, were:
Glassman and Hassett wrote:A sensible target date for Dow 36000 is early 2005, but it could be reached much earlier.
They were grotesquely wrong and they will still have been wrong when the Dow reaches 36,000, not only because of being off by more than a decade, but also because it won't be for the reasons they stated. Their premise was crystal clear: thanks to the work of Jeremy Siegel et. al., they said, it was now clear that stocks were no riskier than bonds, and the 2005 date was their estimate of how long it would take for this knowledge to diffuse throughout the investment community and lead to the disappearance of the equity risk premium. 36,000 was the difference between 1999 stock prices, which were based on a pessimistic overestimate of stock risk, and the "perfectly reasonable price," based on the (supposed) fact that stocks are no riskier than bonds and were therefore intrinsically worth several times their 1999 prices.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

jehovasfitness
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by jehovasfitness » Thu Sep 20, 2018 6:35 am

m@ver1ck wrote:
Thu Sep 20, 2018 12:18 am
we do have the govt to thank for this.
401Ks, 529s, Roth plans etc. all ensure $$ gets invested in the stock market every month.
Not sure I understand your main point but it does remind me of a thought I've had where if so many people automatically invest in the broad market doesnt that inflate value to a degree?

Snowjob
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by Snowjob » Thu Sep 20, 2018 7:02 am

jehovasfitness wrote:
Thu Sep 20, 2018 6:35 am
m@ver1ck wrote:
Thu Sep 20, 2018 12:18 am
we do have the govt to thank for this.
401Ks, 529s, Roth plans etc. all ensure $$ gets invested in the stock market every month.
Not sure I understand your main point but it does remind me of a thought I've had where if so many people automatically invest in the broad market doesnt that inflate value to a degree?
Yes prices are set by supply and demand. If everyone thinks stocks are going up, there is usually great demand for stocks and they will increase in value. If we think the wolf is ending and everyone wants out there is more demand for cash and excess sellers push prices lower. The automatic 401k contributions do represent a constant buy order over most periods so that is a force you can’t ignore perhaps offset by distribution phase people / entities selling.

m@ver1ck
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Re: Robert Shiller interview: "Market could get a lot higher"

Post by m@ver1ck » Thu Sep 20, 2018 8:41 am

jehovasfitness wrote:
Thu Sep 20, 2018 6:35 am
m@ver1ck wrote:
Thu Sep 20, 2018 12:18 am
we do have the govt to thank for this.
401Ks, 529s, Roth plans etc. all ensure $$ gets invested in the stock market every month.
Not sure I understand your main point but it does remind me of a thought I've had where if so many people automatically invest in the broad market doesnt that inflate value to a degree?
I'm not sure I had a point. Well, in some sense I think Wall Street lobbysts have legislated a constant influx of funds into the stock market by making the stock market a retirement vehicle. I'm not sure when this happened, but would like to see if there is any correlation here. Otoh, it's only a small minority of the us population that contributes to the 401K today. Somehow, it feels like a pyramid scheme....

Maybe once disbursements from these funds start we'll have more of an equilibrium.

If the US population goes down, and there are more retirees than contributors into the 401K system, prices will start going down. However that could have a nasty snow ball effect - folks paying into the 401K system will see stocks only going down, causing them not to invest, causing 401K values goibg down even further.

Sure, other investors will step in - however the 401K system seems to be a powerful force keeping the stock market up.

Maybe I'm 100% wrong - would love to see data to prove me wrong (or right). ...

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Re: Robert Shiller interview: "Market could get a lot higher"

Post by gmaynardkrebs » Thu Sep 20, 2018 9:55 am

m@ver1ck wrote:
Thu Sep 20, 2018 8:41 am
jehovasfitness wrote:
Thu Sep 20, 2018 6:35 am
m@ver1ck wrote:
Thu Sep 20, 2018 12:18 am
we do have the govt to thank for this.
401Ks, 529s, Roth plans etc. all ensure $$ gets invested in the stock market every month.
Not sure I understand your main point but it does remind me of a thought I've had where if so many people automatically invest in the broad market doesnt that inflate value to a degree?
I'm not sure I had a point. Well, in some sense I think Wall Street lobbysts have legislated a constant influx of funds into the stock market by making the stock market a retirement vehicle. I'm not sure when this happened, but would like to see if there is any correlation here. Otoh, it's only a small minority of the us population that contributes to the 401K today. Somehow, it feels like a pyramid scheme....

Maybe once disbursements from these funds start we'll have more of an equilibrium.

If the US population goes down, and there are more retirees than contributors into the 401K system, prices will start going down. However that could have a nasty snow ball effect - folks paying into the 401K system will see stocks only going down, causing them not to invest, causing 401K values goibg down even further.

Sure, other investors will step in - however the 401K system seems to be a powerful force keeping the stock market up.

Maybe I'm 100% wrong - would love to see data to prove me wrong (or right). ...
My gut tells me you are right, but my right brain insists that because passive investors are merely price takers (prices discovery is made by active traders), passive investors have no effect on price.

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Re: Robert Shiller interview: "Market could get a lot higher"

Post by HomerJ » Thu Sep 20, 2018 10:20 am

make_a_better_world wrote:
Tue Sep 18, 2018 6:27 pm
I heard him on YouTube the other day, and the main point he made regarding this, was that in 1996 pundits were saying we've had the longest bull run ever in history and it was about to crash and then the bull run continued for another 4 years. He also mentioned that the various ratios/markers are very poor predictors of what will happen next. Here's the video. Note whoever titled it on YouTube got what he said exactly opposite.
https://www.youtube.com/watch?v=ScgKpKuOAKU&t=264s
He, at least, learns from his mistakes. He was one of those pundits.

Shiller, in 1996, wrote a paper where he predicted 10-year 0% real returns going forward based on CAPE. This was when the DOW was in the 5000s. Instead the market more than doubled before crashing 40%. In fact, the market never got as low as it was in 1996 when he wrote his paper. With valuations near all-time highs (at the time), and after the longest bull market in history, it was actually a very good time to buy stocks.

Instead of 0% real, stocks returns 8.5% nominal (So 5.5% or 6% real?) over the next ten years.

Stocks have returned 9% nominal over the past 22 years from 1996-2018. Highest valuations seen in nearly 70 years in 1996, and you still got 9% long-term returns.

He did have a major disclaimer in that paper, and I respect him greatly for it.
The conclusion of this paper that the stock market is expected to decline over the next ten years and to earn a total return of just about nothing has to be interpreted with great caution.

Our search over economic relations that us to study the price divided by 30-year moving average of earnings may have stumbled upon a chance relation with no significance. In other words, the relation studied here might be a spurious relation, the result of data mining. Neither the statistical tests nor the monte carlo experiments take account of the search over other possible relations.

It is also dangerous to assume that historical relations are necessarily applicable to the future. There could be fundamental structural changes occurring now that mean that the past of the stock market is no longer a guide to the future.
So now he's smart enough to say "No one knows enough to predict what's going to happen." Yet, we still constantly have people on these boards telling us how important CAPE is and how it's 40% predictive, and just ignore that other 60%, and they never ever mention the disclaimer above...
The J stands for Jay

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Re: Robert Shiller interview: "Market could get a lot higher"

Post by nedsaid » Thu Sep 20, 2018 10:38 am

The Shiller P/E 10 or CAPE is a good idea. Benjamin Graham discussed the idea of smoothing out earnings way back when. It is a good idea to look to the past to get an idea of what might happen in the future.

Problem is, nothing is foolproof. For one thing, changes in Generally Accepted Accounting Principles have made the definition of earnings more conservative. A P/E of 16 back in 1970 might be comparable to a P/E of 20 today. Another thing is that market perceptions of such things as risk change. There was a time when stocks yielded more than bonds because, well, stocks were riskier and thus should have a bigger yield. That hasn't been true since the 1950's. Stock investors became more interested in capital gains than dividend yield.

So I view P/E 10 as a flashing yellow light, indicating that valuations are higher than they have been historically. Not really a yellow light before a red or a red light itself. Pretty much telling us we ought to be cautious. I am saying that this is a useful indicator but you need to look at it in a broader context and take into account other market metrics. I wouldn't base my decisions upon just one indicator.
A fool and his money are good for business.

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Re: Robert Shiller interview: "Market could get a lot higher"

Post by marcopolo » Thu Sep 20, 2018 10:42 am

HomerJ wrote:
Thu Sep 20, 2018 10:20 am
make_a_better_world wrote:
Tue Sep 18, 2018 6:27 pm
I heard him on YouTube the other day, and the main point he made regarding this, was that in 1996 pundits were saying we've had the longest bull run ever in history and it was about to crash and then the bull run continued for another 4 years. He also mentioned that the various ratios/markers are very poor predictors of what will happen next. Here's the video. Note whoever titled it on YouTube got what he said exactly opposite.
https://www.youtube.com/watch?v=ScgKpKuOAKU&t=264s
He, at least, learns from his mistakes. He was one of those pundits.

Shiller, in 1996, wrote a paper where he predicted 10-year 0% real returns going forward based on CAPE. This was when the DOW was in the 5000s. Instead the market more than doubled before crashing 40%. In fact, the market never got as low as it was in 1996 when he wrote his paper. With valuations near all-time highs (at the time), and after the longest bull market in history, it was actually a very good time to buy stocks.

Instead of 0% real, stocks returns 8.5% nominal (So 5.5% or 6% real?) over the next ten years.

Stocks have returned 9% nominal over the past 22 years from 1996-2018. Highest valuations seen in nearly 70 years in 1996, and you still got 9% long-term returns.

He did have a major disclaimer in that paper, and I respect him greatly for it.
The conclusion of this paper that the stock market is expected to decline over the next ten years and to earn a total return of just about nothing has to be interpreted with great caution.

Our search over economic relations that us to study the price divided by 30-year moving average of earnings may have stumbled upon a chance relation with no significance. In other words, the relation studied here might be a spurious relation, the result of data mining. Neither the statistical tests nor the monte carlo experiments take account of the search over other possible relations.

It is also dangerous to assume that historical relations are necessarily applicable to the future. There could be fundamental structural changes occurring now that mean that the past of the stock market is no longer a guide to the future.
So now he's smart enough to say "No one knows enough to predict what's going to happen." Yet, we still constantly have people on these boards telling us how important CAPE is and how it's 40% predictive, and just ignore that other 60%, and they never ever mention the disclaimer above...
Correct me if i am wrong, but i believe that 40% predictive power that gets quoted is based on including historical data that was available at the time CAPE was introduced. My understanding is that the predictive power of CAPE AFTER it's introduction has been quite a bit lower. Even he admits there was a lot of data mining going on to "find" CAPE as a predictive metric.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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