From Reuters today:
Robert Shiller, who won the esteemed award with two other Americans for research intomarket 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…I am most worried about the boom in the U.S. stock market. Also because our economyis still weak and vulnerable,” he said, describing the financial and technology sectors as overvalued.
…”Bubbles look like this. And the world is still very vulnerable to a bubble,” he said.
I guess this probably falls under the heading of no shit, Sherlock! The cause is well known an summarised neatly by John Sevior in the AFR:
On the eve of the funds’ launch in 2012, Sevior spoke to The Australian Financial Review Magazine and noted valuations were as good as he’d seen since March 2009 when they hit a five and a half year low as the GFC took hold.
He was particularly keen on bank stocks but thought overall the sharemarket was a good place to be despite “every half-baked expert in the world” recommending cash or fixed interest.
Turned out he was right back then, but what about now ?
“A year and a half ago when I made those comments, I mean it’s never totally clear but there were some more obvious things to do then than now.
“I think it’s quite a confusing environment at the moment, particularly with rates low so the risk-free bogey is low by historical standards and that’s led to a wholesale re-rating of income type stocks like banks, which look to be quite highly valued by historical standards…Everyone wants to be a hero and make the call, it’s probably unlikely that they’ll hold these ratings but if rates stay low for longer, which they could, then these valuations could hold for longer than people might have expected,” says Sevior, who has gone from being overweight the banks to slightly underweight.
Rates will be lower for longer and my guess is that this bubble has room yet to grow before the inevitable bust.
