Shiller is to economic geeks what Dylan is to music fans. Most of us know who he is, but for those that don’t, he’s a Yale professor, listed as one of the top 100 most influential economists in the world, and he is “Shiller” of the Case-Shiller index. Do not confuse him with Peter Schiff, Mr. Mortgage, or any of the other yahoos who try to make predictions to gain fame and fortune. He is the kind of guy that a president or a Bernanke will call for an opinion.
I’ve followed his interviews and his lectures over the years and he began editing himself after he created Case-Shiller. If you don’t know Case-Shiller, the readers digest version it that it is a way to place bets on the future of real estate prices without having to buy actual real estate. And it’s legal betting, AKA, the stock market.
If he prognosticates too much anymore, it’s a potential SEC violation and even if it isn’t, it’s unethical, and very un-Shiller-like to do so. Sometimes he speaks in what sounds like riddles, but usually he says that anything is possible, but the odds are things will follow certain economic principles. When interviewed, the typical bobblehead reporter will ask him if it is possible real estate will go down for whatever amount of years, and Shiller will say “yes.” They usually cut there and use that soundbyte. The media does the same thing to Roubini, they love their soundbytes. But if you watch him explain, if it’s unedited, he will go on to say that all scenarios are possible, but the likley scenario is that real estate will track inflation, except for land restricted areas. Unfortunately that isnt very exciting, so in come the editors. In laymans terms, if inflation is running at 5% and housing is rising at 25%, expect future declines. The opposite is true as well. With beach property, islands, built out places like Manhattan, this formula doesnt apply. That’s a very simplified way of looking at it, but the guy is usually right, and usually he’s one of the first. I like the guy and my simplified interpretation of his theory. Everytime I try to make sense of anything, I start with the way Shiller thinks, not with what he says in his (now carefully edited) interviews. The other guy I read regularly, because he stays true to his core beliefs, is our own Rich Toscano. Different people, but same sensible consistency.
The trick are all the other variables when trying to determine the value of a single house and it’s current fair value and estimated future value. Sizes of houses have changed, some areas that were once far flung suburbs have grown up and have gained autonomy (ie. carlsbad/encinitas) so it get really hard to compare median priced 1970’s home purchase in encinitas, factor inflation since then and come to an estimated value for today. The water gets muddy, because the houses are bigger now, much bigger, and encinitas isn’t the same as it was 40 years ago.
I watched the interview, pay close attention to how he responds whe he say things like “That could happen, I’m nt predicting it, but it could happen.”
So when I say the title of this thread, and the key word, “could,” in Shiller speak, that means it’s not likely.
The only thing i took away from that interview, is that Shiller thinks gold and oil are in bubbles, he used them as bubble examples, no “could” or “possible” used with that statement. He’s usually about a year ahead on these things, gold and oil, your 12 month clock is now ticking.
