Nobel Prize economist warns of U.S. stock market bubble

BERLIN Sun Dec 1, 2013 11:50am EST

Traders work in front of a trading board showing Shutterstock Inc on the floor of the New York Stock Exchange, October 11, 2012. REUTERS/Brendan McDermid

Traders work in front of a trading board showing Shutterstock Inc on the floor of the New York Stock Exchange, October 11, 2012.

Credit: Reuters/Brendan McDermid

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BERLIN (Reuters) - An American who won this year's Nobel Prize for economics believes sharp rises in equity and property prices could lead to a dangerous financial bubble and may end badly, he told a German magazine.

Robert Shiller, who won the esteemed award with two other Americans for research into market 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," Shiller told Sunday's Der Spiegel magazine. "That could end badly," he said.

"I am most worried about the boom in the U.S. stock market. Also because our economy is still weak and vulnerable," he said, describing the financial and technology sectors as overvalued.

He had also looked at "drastically" higher house prices in Rio de Janeiro and Sao Paulo in Brazil in the last five years.

"There, I felt a bit like in the United States of 2004," he said, adding he was hearing arguments about investment opportunities and a growing middle class that he had heard in the United States around the year 2000.

The collapse of the U.S. housing market helped trigger the 2008-2009 global financial crisis.

"Bubbles look like this. And the world is still very vulnerable to a bubble," he said.

Bubbles are created when investors do not recognize when rising asset prices get detached from underlying fundamentals.

(Reporting by Madeline Chambers; Editing by Mark Potter)

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Comments (13)
SanPa wrote:
US citizens might worry of a stock market bubble, but west Canada is definitely in a Real Estate bubble country.

Dec 01, 2013 10:28am EST  --  Report as abuse
RSchuckman wrote:
this is hardly news. I think just about everybody who has read maybe three articles about the economy in the last year knows there is a bubble. The investment community is only trying to time it’s exit. it’s going to be all about avoiding a stampede. Personally, I hope they don’t ban shorts, as there will be plenty of miney to be made that way.

Dec 01, 2013 10:56am EST  --  Report as abuse
reality-again wrote:
This new financial bubble that’s growing by the day before our (mostly blind) eyes is different – It’s bigger than anything we’ve known in the past, and it’s our country’s central bank that has been knowingly inflating it, with disregard to the inevitable dire consequences.
It took years to make the connection between the ‘Great Moderation’ and the 2008-9 crisis, but this time nine out of ten Americans know ahead of time that it’s the Fed’s QE that brought the next financial disaster upon us.

Dec 01, 2013 11:10am EST  --  Report as abuse
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