Nobel Prize-winning economist Robert Shiller fears a bubble is forming in some of the hottest trades in the market.
He is particularly concerned about real estate, stocks, and cryptocurrencies, where he sees a “wild west” mentality among investors.
“I didn’t do that in print. I said that,” the Yale University professor told CNBC’s “Trading Nation” on Friday.
Although the stock and crypto record has paused in recent weeks, Shiller is concerned. He is particularly concerned about the recent real estate boom.
“The reality is that house prices have never been this high. My data goes back over 100 years, so that’s something,” said Shiller, co-founder of the S&P CoreLogic Case-Shiller House Price Index. “I don’t think central bank policies explain the whole thing. There’s something about the sociology of markets that is happening.”
For the past three decades, Shiller has found that house prices seem to be driving starts for housing. He sees the pattern reappear and highlights it in a special diagram.
“We have a lot of upside momentum now, so if we wait a year, house prices are unlikely to go down,” Shiller said.
According to Shiller, the current real estate price movement is also reminiscent of 2003, two years before the slide began. He notes that the slump was gradual and eventually collapsed around the 2008 financial crisis.
“If you go out for three or five years, I imagine you would [prices] be a lot lower than it is now, and maybe that’s a good thing, “he added.” Not from the point of view of a homeowner, but from the point of view of a potential homeowner. It is a good thing. If we have more houses, we are better off. “
Shiller, an expert on how our emotions affect financial decisions and author of “Narrative Economics: How Stories Go Viral and Drive Major Economic Events,” sees mass psychology also playing a large role in the epic rebound in stock markets.
Since the March 2020 low, the S&P 500 and Dow are up nearly 90%, while the tech-heavy Nasdaq is up just over 100%.
Shiller, who viewed stocks as high-priced earlier in the year, warns that fears of inflation could ultimately lower long-term assets.
Cryptos ‘ultimate source of value is so ambiguous’
The market for cryptocurrencies is also putting Shiller on alert.
“It’s a very psychological market. It’s amazing technology,” Shiller said. “But the ultimate source of value is so ambiguous that it has a lot to do with our narratives and not with reality.”
Even Shiller was tried.
“I thought about buying them to experience the effect. A lot of people actually do,” he said. “I never bought Bitcoin. Maybe I should be active in this market.”
Based on Bitcoin’s latest wild swings, some of the buzz may wear off. At the close of trading on Friday, it’s down more than 30% in the past two weeks.
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