Thursday, March 19, 2020

"Economist Robert Shiller doesn’t think we are headed for another Great Recession"

Which might make the overnight double bottom in the DJIA futures (~18,800) worth paying attention to.
From Fortune:

Famed economist Robert Shiller doesn’t think we are headed for another Great Recession
It's hard to think of a more qualified expert than Nobel laureate Robert Shiller to address the question baffling America's CEOs, consumers, and investors amid the coronavirus pandemic: Is 2020 a repeat of the long-running, near depression starting in 2008, or a relatively short-lived panic recalling the sharp selloff in 1987?

I reached Shiller, a Yale professor, at his home in New Haven, where he's hunkered down for the duration, venturing out mainly to stock up every few days for routine shopping. As usual, Shiller's views on the coronavirus crash were highly original, and he noted that "narratives" that capture our emotions are just as powerful as forecasts based on economic data, including the famed CAPE ratio, that he displays on his home page.
Here's a sampling of Shiller's observations.

The coronavirus selloff is worldwide, and that's a signal
The gigantic drop in stock prices, he points out, is a global phenomenon. Hence, its cause probably isn't big weaknesses specific to the U.S. economy, such as the mid-2000s housing bubble. “It's happening everywhere,” he notes. “It's happening in markets that were expensive like the U.S., and ones that are inexpensive.”

He says that drop is far bigger than is probably justified by the economic fundamentals, even though they're deteriorating. "I haven't been prepared for this from the standpoint of efficient markets," he says. "Based on what we're seeing so far, the stock market shouldn't go down this much," he says. More likely, the depth of the selloff is an overreaction to the severity of the crisis. "People are getting the idea that this virus will get the market to crash," he says. "People go to the supermarket and see the empty shelves, and they panic." Those signs of desperation from daily life darken their view of the economy's future and undermine their confidence in the stock market.

This probably isn’t the Great Recession 2.0
Shiller acknowledges that the rapidity and scale of the stock market's 30% retreat since mid-February point more to another Great Depression or Great Recession than a shock triggered by a passing crisis. "This doesn't seem to be another 1929 or 2008," he observed. "The story isn't the same. This time the bad news comes from something outside the economy. This time it's a virus story that turned into a stock market story." He notes that the current crisis resembles the Spanish flu epidemic of 1919 far more than the vanishing credit that caused the Great Depression.

The selloff isn’t a vindication of the CAPE....

On markets, I'll take Shiller over any three other Nobelists you might care to name.
DJIA futures 19,530 down 323 (1.63%)