In this video clip, Dr. Shiller is again showing he has turned from a bubble educator to a Case-Shiller index fund promoter.
Gone are the days whn Shiller promoted insight into bubbles. Instead, he walks a fine line, because he wants to protect both sides of the trade in his index.
When the interviewer said, “Isn’t it possible that the index going down is just irrational pessimism” about the housing market, which is really near a soft landing?
Shiller’s response was that she made a very good point. He has sold out, because he’s trying to promote his index. So he can’t take sides anymore, and his recent interviews are pretty much worthless, because he doesn’t take any position.
Meanwhile, Dr. Alan Gin now sees the housing bubble and slowing economy. I think 6 months of declining indicators has convinced him, and he is no longer spinning the facts.
I didn’t read the article but the way I read that excerpt he was acknowledging that the flip side of irrational exuberance could include some irrational pessimism.
Without irrationality the market wouldn’t distort very far up and it wouldn’t overcorrect too far down. Yet, those peaks and valley are what comprise the long term trendlines.
I wouldn’t say the pessimism right now is irrational, but at whatever point the price structure ventures down into undervalued territory a big factor in that will be irrational pessimism.
I read his new edition of “Irrational Exuberance” recently and what he said in the interview corresponds pretty well to what he said in the book. In the book, he gives a lot of insight on how bubbles form and how they grow. But he concludes that there’s no way of predicting where or when they will form. And there’s no way of predicting when they will pop either. It was a great book with interesting data and analysis. But, ironically, the more you analyze the data, the more you realize how uncertain the future can be. In that sense, I find Shiller’s response to be completely in line with his analysis (i.e. He acknoledges that he doesn’t REALLY know what is going to happen).
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