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Shiller hypothesis, recession could be years away
Old 10-20-2019, 10:29 PM   #1
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Shiller hypothesis, recession could be years away

I've been reading Shiller's latest book Narrative Economics https://smile.amazon.com/Narrative-E...s%2C245&sr=8-1
It discusses how popular narratives can help drive an economic outcome.

In an interview he gives a reason why we may not see a downturn in the economy (stock market) any time soon. I found it an interesting interview but there are caveats and it's never a sure thing.

Quote:
Shiller, a behavioral finance expert who’s out with the new book
“Narrative Economics,” believes
Americans are still opening their wallets wide based on what President
Trump exemplifies: Consumption.

“I think that [strong spending] has to do with the inspiration for many
people provided by our motivational speaker president who models
luxurious living,” said Shiller.

Shiller emphasizes there’s still uncertainty and risk surrounding Wall
Street.
Link: https://www.cnbc.com/2019/10/20/shil...mp-effect.html
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Old 10-20-2019, 10:37 PM   #2
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All of a sudden every 5th house or so nearby seems to have a dumpster in the driveway with some kind of major renovation going on. People seem to be wanting to spend.
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Old 10-20-2019, 10:40 PM   #3
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The economy is good. Unemployment is at record lows. Corporates and personal taxes are at record lows. Corporate profits are doing well. The stock market is up. Interest rates are low. Boomers are passing record wealth to their heirs (who spend it like a drunken sailor).

How a recession could even be thought of with this environment I am not sure.
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Old 10-21-2019, 05:22 AM   #4
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I sleep better at night when everybody fears a recession. The masses, in aggregate, are always wrong

https://markets.businessinsider.com/...9-9-1028527863
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Old 10-21-2019, 06:35 AM   #5
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Originally Posted by nancyfrank232 View Post
I sleep better at night when everybody fears a recession. The masses, in aggregate, are always wrong

https://markets.businessinsider.com/...9-9-1028527863
Not always. Perfect example was the rush to bonds over the last year. One year return on the TLT was about 22%. SPY 8%. Sometimes the masses create their own self fulfilling prophecy.
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Old 10-21-2019, 08:39 AM   #6
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Let's not forget there is a difference between "would" and "could" be years away. Problems he mentioned to overcome are the higher CAPE ratio of the market, impeachment possibility, etc. I think he was emphasizing that there is a narrative out there supporting a longer expansion but there are also other factors to consider.

He is a smart and likeable guy. Shiller would not say he knows the direction of the market.
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Old 10-21-2019, 08:50 AM   #7
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The only function of economic forecasting is to make astrology look respectable.” -- economist Ezra Solomon (but often attributed to J.K.Galbraith)

For anyone who regularly reads this stuff (I don't) I strongly suggest Nate Silver's "the signal and the noise," specifically the chapter on economic forecasting.
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Old 10-21-2019, 12:02 PM   #8
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Quote:
Originally Posted by brewer12345 View Post
All of a sudden every 5th house or so nearby seems to have a dumpster in the driveway with some kind of major renovation going on. People seem to be wanting to spend.
Or fixing up what they have versus spending significantly more on an upgrade...
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Old 10-21-2019, 12:35 PM   #9
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Or fixing up what they have versus spending significantly more on an upgrade...
Maintenance counts...like replacing an old roof before it leaks. Even a carpet replacement in our 2,000 square foot house is almost as much as getting an "upgrade" to synthetic flooring.
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Old 10-21-2019, 01:39 PM   #10
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He is a smart guy, but still always come back to how often has the Cape 10 ratio been correct in predicting future returns since the 1990's?
Appears to be decently on target as a backtested ratio before the 90's.
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Old 10-21-2019, 05:52 PM   #11
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I don't know either.
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Old 10-26-2019, 09:11 PM   #12
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I opine that the easy money being dropped from helicopters worldwide will eventually cause a tulip bubble. Many projects will have difficulty pencilling out if interest rates do eventually rise, though it appears deflation is still a problem as well. Interesting times...
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Old 10-26-2019, 09:17 PM   #13
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I do not find cape 10 to be a very effective predictor of future results, or at least not a timely one.
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Old 10-27-2019, 03:58 AM   #14
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Quote:
Shiller emphasizes there’s still uncertainty and risk surrounding Wall
Street.
I am shocked, shocked! to know there is risk on Wall Street. Who knew?
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