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Shiller issues fresh warning about stock bubble

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Dr. Robert J. Shiller, 2013 Nobel Laureate for Economic Sciences, listens during a Nobel Laureate Symposium at the Embassy of Sweden November 19, 2013 in Washington, DC. Nine people from the United States were honored this year with the Nobel Prize in the fields of medicine, chemistry and economic sciences. AFP PHOTO/Brendan SMIALOWSKIBRENDAN SMIALOWSKI/AFP/Getty Images ORIG FILE ID: 524817254
Robert Shiller, 2013 Nobel Laureate for Economic Sciences, and author of “Irrational Exuberance.” (PHOTO: BRENDAN SMIALOWSKI/AFP/Getty Images)
For the second time two weeks, Robert Shiller, Yale economics professor and author of Irrational Exuberance, sent out a warning to Wall Street. His message: the U.S. stock market looks “a bit like a bubble again.”
His latest comments, published in the Financial Times Monday, mirror his comments on Sept. 3 to business cable channel CNBC, when he said “this is a dangerous time” for the stock market and warned that the Dow Jones industrial average, which closed Friday at 16,433.09, could fall to 11,000 — a 33% drop from current levels.
When Shiller talks people listen, as he has a reputation for calling market tops.
His latest warning in the FT suggests that stocks are vulnerable — and could be in a bubble.
“It looks to me a bit like a bubble again with essentially a tripling of stock prices since 2009 in just six years and at the same time people losing confidence in the valuation of the market,” Shiller told the FT.
Shiller told the FT that based on his analysis of investor surveys, there is a greater fear of the market being overvalued now than there has been since the dot-com stock bubble in 2000.
The big risk to the market is that it is overvalued, saysd Shiller, who uses a price-to-earnings metric that smooths out earnings peaks and valleys over a 10-year period. That cyclically adjusted P-E ratio shows stocks have been overvalued for years.
But Shiller reiterated that it is difficult to pinpoint exactly when the market will fall due to valuation concerns.
Shiller also downplayed any big market reaction if the Federal Reserve raises interest rates Thursday for the first time in nearly a decade.

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