Nobel Prize economist warns U.S. stock mkt bubble

oldpigwang

I like this "May end badly"!


Reuters

December 1, 2013 11:50 AM

BERLIN (Reuters) - An American who won this year's Nobel Prize for economics believes sharp rises in equity and property prices could lead to a dangerous financial bubble and may end badly, he told a German magazine.

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Robert Shiller, who won the esteemed award with two other Americans for research into market prices and asset bubbles, pinpointed the U.S. stock market and Brazilian property market as areas of concern.

"I am not yet sounding the alarm. But in many countries stock exchanges are at a high level and prices have risen sharply in some property markets," Shiller told Sunday's Der Spiegel magazine. "That could end badly," he said.

"I am most worried about the boom in the U.S. stock market. Also because our economy is still weak and vulnerable," he said, describing the financial and technology sectors as overvalued.

He had also looked at "drastically" higher house prices in Rio de Janeiro and Sao Paulo in Brazil in the last five years.

"There, I felt a bit like in the United States of 2004," he said, adding he was hearing arguments about investment opportunities and a growing middle class that he had heard in the United States around the year 2000.

The collapse of the U.S. housing market helped trigger the 2008-2009 global financial crisis.

"Bubbles look like this. And the world is still very vulnerable to a bubble," he said.

Bubbles are created when investors do not recognize when rising asset prices get detached from underlying fundamentals.

(Reporting by Madeline Chambers; Editing by Mark Potter)

oldpigwang

The sound of Nobel Prize-winning bubble alarm
Published: CNBC  Monday, 2 Dec 2013 | 4:48 PM ETBy: Jeff Brown, Special to CNBC.com

The good news: U.S. stocks have had a stupendous year.

The bad news: U.S. stocks have had a stupendous year.

Nobel laureate and Yale economist Robert Shiller says he's worried that stocks are edging toward bubble territory,
thanks to Fed stimulus and speculation. The S&P 500 is up nearly 27 percent this year.
Although many experts think stocks can rise more given projected corporate earnings,
Shiller worries that the stock gains are out of sync with the weak economy.

Another concern is the fast rise in real estate prices in the U.S. and elsewhere.

Oh, and what did Shiller win his Nobel in economics for this past October?

Work on forecasting asset prices.