Are Stocks, Bonds and Housing Overvalued?
22 December 2016 | Pago Pago, American Samoa
Shiller's view. There are many who think the market is overvalued including Shiller at Yale who argues this is the first time, unlike 1929, when stocks, bonds and housing are all overvalued at the same time.
His best guess is the boom in stocks will continue for a bit but a major correction is coming thereafter, if not a crash, a view shared by many.
There is a basis to being bearish currently. A three way mega crash is a possibility, as Shiller implies but dares not say.
Shiller correctly predicted the housing crash and the ensuing recession in 2007-8 when others said "impossible" and he won the Nobel Prize in economics for data methods and analysis techniques.
The truth is trillions have been poured into the economy by the Fed in recent years and much of that has been hoarded in passive investments in the secondary financial markets and in housing. Not much of it has been spent on more consumption or much more real investment.
The amount of cash in the hands of households, banks and corporations is at an all-time historic high, some $18 trillion in all, as anxious, uncertain citizens, bank execs and corporate treasurers hoard their cash until the future course of Fed policy and the direction of the U.S. economy become clearer. Balance sheets have been repaired and the cash being hoarded just might be the fuel for modest growth accelerating.
Much of the hoarding is by the rich and wealthy. As their incomes grow disproportionately, they hoard disproportionately more of national income so less is spent on consumption and real investment.
“It’s a real problem,” Michael Linden, the Center for American Progress’ managing director for economic policy, said of the wealthy’s propensity to save and not spend, “to the extent that more and more income is going to people at the top and more of that income is not going to places that are productive.”
Over the last few decades, the incomes of the top 1 percent of earners grew by about 275 percent,
The paradox of thrift is killing us.