Yes, We’re Confident, but Who Knows Why

THE recovery in housing, the stock market and the overall economy has finally gained sustainable momentum — or so it is said.

That opinion seems to be based on several salient facts. Unemployment has been declining, from 10.0 percent in October 2009 to 7.7 percent last month. More spectacularly, the stock market has more than doubled since 2009 and has been especially strong for the last six months, with the Dow Jones industrial average reaching record closing highs last week and the S.& P. 500 flirting with superlatives, too.

And the housing market, seasonally adjusted, has been rising. The S.& P./Case-Shiller 20-city home price index gained 7 percent in 2012.

These vital signs make many people believe that we’ve turned the corner on the economy, that we’ve started a healing process. And their discussions often note one particular sign of systemic recovery: confidence. There is considerable hope that the markets are heralding a major development: that Americans have lost the fears and foreboding that have made the financial crisis of 2008 so enduring in its effects.

Hope is a wonderful thing. But we also need to remember that changes in the stock market, the housing market and the overall economy have relatively little to do with one another over years or decades. (We economists would say that they are only slightly correlated.) Furthermore, all three are subject to sharp turns. The economy is a complicated system, with many moving parts.

So, amid all those complications, there are other possibilities: Could we be approaching another major stock market peak? Will the housing market’s takeoff be short-lived? And could we dip into another recession?

There are certainly risks. Congress is mired in struggles over the budget crisis and the national debt. The government is questioning the risk to taxpayers in its huge support of housing through Fannie Mae, Freddie Mac, the Federal Housing Administration and the Federal Reserve. Problems in Europe, Asia and the Middle East could easily shift people’s confidence. There have been abrupt and significant changes in confidence in European markets since 2009. Is there any reason to think that the United States is immune to similar swings?

For years, I’ve been troubled by the problem of understanding the social psychology and economic impact of confidence. There hasn’t been much research into the emotional factors and the shifts in worldview that drive major turning points. The much-quoted consumer sentiment and confidence indexes don’t yet seem able to offer insight into what’s behind the changes they quantify. It also isn’t clear which factors of confidence drive the separate parts of the economy.

Along with colleagues, I have been conducting surveys about aspects of stock market confidence. For example, since 1989, with the help of some colleagues at Yale, I have been collecting data on the opinions and ideas of institutional investors and private individuals. These data, and indexes constructed from them, can be found on the Web site of the Yale School of Management.

I have called one of these indexes “valuation confidence.” It is the percentage of respondents who think that the stock market is not overvalued. Using the six-month moving average ended in February, it was running at 72 percent for institutional investors and 62 percent for individuals. That may sound like a ton of confidence, but it isn’t as high as the roughly 80 percent recorded in both categories just before the market peak of 2007.

HOW do the these figures relate to other stock market measures? I rely on the measure of stock market valuation that Prof. John Campbell of Harvard and I developed more than 20 years ago. Called the cyclically adjusted price-earnings ratio, or CAPE, this measure is the real, or inflation-adjusted, Standard & Poor’s 500 index divided by a 10-year average of real S.& P. earnings. The CAPE has been high of late: it stands at 23, compared with a historical average of around 15. This suggests that the market is somewhat overpriced and might show below-average returns in the future. (The use of the 10-year average reduces the impact of short-run, or cyclical, components of earnings.)

For perspective, compare today’s valuation, confidence and CAPE figures to those of other important recent periods in the stock market. In the spring of 2000, a sharp market peak, only 33 percent of institutional investors and 28 percent of individual investors thought that the market was not overvalued. The CAPE reached 46, a record high based on data going back to 1871. (For the period before 1926, we rely on data from Alfred Cowles 3rd & Associates.) Yet most respondents in 2000 thought that the market would go up in the next year, so they hung in for the time being. That suggests that the 1990s boom was indeed a bubble, with investors suspecting that they might have to beat a hasty exit. They ended up trying to do just that, and brought the market down.

But then consider the valuation confidence in October 2007, another major peak, after which the stock market fell by more than 50 percent in real terms. At that peak, the CAPE was at 27 — a little higher than it is now, though not extraordinarily lofty. In 2007, valuation confidence was 82 percent for institutional investors and 74 percent for individual investors, or not far from today’s levels. Investors at the time didn’t think that they were floating on a bubble, and they saw the probability of a stock market crash as unusually low. Yet a plunge soon occurred. The cause appears not to have been so much the bursting of an overextended bubble but the subprime mortgage crisis and a string of financial failures that most investors couldn’t have known about.

Clearly, confidence can change awfully fast, and people can suddenly start worrying about a stock market crash, just as they did after 2007.

Today, the Dodd-Frank Act and other regulatory changes may help prevent another crisis. Even so, regulators can’t do much about some of the questionable thinking that seems to drive changes in confidence.

For example, why is a record high in the United States stock market a reason for optimism? Nothing is remarkable about reaching a market record: the S.& P. Composite Index has done it 1,007 times, based on daily closes, since the beginning of 1928. That’s about once every 23 trading days, on average, though the new records tend to come in bunches.

The important fact is that we haven’t set a nominal stock-market record in six years. And we haven’t set one in 13 years if we use the inflation-corrected S.& P. Composite total-return index. That this index may be about to set a record means only that we haven’t made any real money in the stock market in 13 years, which hardly seems a reason for confidence.

But public thinking is inscrutable. We can keep trying to understand it, but we’ll be puzzled again the next time the markets or the economy make major moves.

Robert J. Shiller, professor of economics and finance at Yale, has collaborated with Barclays Bank on a family of indexes and investment products.

http://www.nytimes.com/2013/03/10/business/confidence-and-its-effects-on-the-economy.html

 

Shiller: Δεν θα είναι τόσο φοβερή μια διάσπαση της Ευρωζώνης...

Από την πλευρά του ο R. Shiller, καθηγητής Οικονομικών στο Πανεπιστήμιο του Γέιλ και δημιουργός του δείκτη της αμερικανικής αγοράς ακινήτων S&P/Case-Shiller σε σημερινές του δηλώσεις αναφέρει πως τυχόν διάλυση της Ευρωζώνης δεν θα είναι τόσο φοβερή και τόσο καταστροφική, όσο αρκετοί φοβούνται...

http://www.bankingnews.gr/bank-insider/item/39575-%CE%B4%CE%B5%CE%BD-%CE%AD%CF%87%CE%B5%CE%B9-%CE%BB%CF%85%CE%B8%CE%B5%CE%AF-%CF%80%CE%B1%CF%81%CE%AC-%CE%BC%CF%8C%CE%BD%CE%BF-%CE%AD%CE%BD%CE%B1-%CE%BC%CE%AD%CF%81%CE%BF%CF%82-%CF%84%CF%89%CE%BD-%CF%80%CF%81%CE%BF%CE%B2%CE%BB%CE%B7%CE%BC%CE%AC%CF%84%CF%89%CE%BD-%CF%84%CE%B7%CF%82-%CE%B5%CE%BB%CE%BB%CE%AC%CE%B4%CE%B1%CF%82-%CF%80%CF%81%CE%BF%CE%B5%CE%B9%CE%B4%CE%BF%CF%80%CE%BF%CE%B9%CE%B5%CE%AF-%CE%BF-%CE%B3%CE%BD%CF%89%CF%83%CF%84%CF%8C%CF%82-trader-lewis-%CE%AD%CF%87%CE%BF%CF%85%CE%BC%CE%B5-%CF%80%CE%BF%CE%BB%CE%BB%CE%AC-%CE%BD%CE%B1-%CE%B4%CE%BF%CF%8D%CE%BC%CE%B5-%CE%B1%CE%BA%CF%8C%CE%BC%CE%B7-%CE%B2%CE%BB%CE%AD%CF%80%CE%B5%CE%B9-%CE%AC%CE%BD%CE%BF%CE%B4%CE%BF-%CF%84%CE%BF%CF%85-%CE%B5%CF%85%CF%81%CF%8E-%CE%B1%CE%BD-%CE%B5%CE%BD%CE%B9%CF%83%CF%87%CF%85%CE%B8%CE%B5%CE%AF-%CE%BF-esm-shiller-%CE%B4%CE%B5%CE%BD-%CE%B8%CE%B1-%CE%B5%CE%AF%CE%BD%CE%B1%CE%B9-%CF%84%CF%8C%CF%83%CE%BF-%CF%86%CE%BF%CE%B2%CE%B5%CF%81%CE%AE-%CE%BC%CE%B9%CE%B1-%CE%B4%CE%B9%CE%AC%CF%83%CF%80%CE%B1%CF%83%CE%B7-%CF%84%CE%B7%CF%82-%CE%B5%CF%85%CF%81%CF%89%CE%B6%CF%8E%CE%BD%CE%B7%CF%82

The Euro’s Imagined Community 

The point is that if Europe can keep these symbols alive, even a eurozone breakup would not have the dire political consequences for Europe that so many predict.

Making the Most of Our Financial Winter

ON a traditional farm, when winter comes and there’s no need for planting, fertilizing or harvesting, it’s time for infrastructure projects. Farmers fix their barns, build fences or dig wells — important tasks that could be done in any season if there weren’t more pressing jobs to do.

If the winter is unusually long and cold, planting time is delayed and additional projects are undertaken. It’s all very simple and sensible: the idea is not to let people sit around idle, and to use down time to get important things done.
The farm needn’t go into debt to do this. All able-bodied people on the farm are expected to contribute their labor, an imposition we can view as an informal tax. Later, everyone on the farm enjoys the benefits of all that work, by participating in the various benefits — the economic growth — it helps to create.
In many respects, the American Jobs Act, proposed by President Obama but blocked in its full form by the Senate last week — would do much the same thing for the nation during the current economic winter. Parts of the plan would provide for projects like school modernization, airport and highway improvements, high-speed rail systems and redevelopment of abandoned and foreclosed-upon properties to stabilize neighborhoods. Those are the modern national equivalents of fixing the barn and building a fence.
And these projects would be made possible by taxes. As Mr. Obama said last month: “Everything in this bill will be paid for. Everything.” The bill would start public improvement projects in 2012, and raise taxes, in the form of a 5.6 percent surtax on millionaires, in 2013, more than paying for the public improvements part of the bill.
In every depression the nation has faced, there have been proposals for the government to do just this: increase spending on public improvements to create jobs for the unemployed.
An article in The St. Louis Post-Dispatch, written in 1877, during the 1873-79 depression, argued that the government could create a great many infrastructure jobs. “There are many needed improvements: the construction of the Texas and Pacific Railroad, the widening of the entrances to the Mississippi, the diking of its alluvial blanks, the clearing of obstructions from the beds of the great rivers of the West, the improvement of the harbors and rivers in the East, the completion of the post offices, custom houses, seawalls, breakwaters and other useful works of a national character,” the article said.
An article in The New York Times, written in 1893, during the 1893-97 depression, described public improvements to relieve unemployment and said there were plenty of things that could be done to create jobs: “building of lines of rapid transit, widening and deepening the Erie Canal, improving the Mississippi, and building canals across the peninsula of Michigan.”
BUT neither of those proposals got very far back then, because either substantial tax increases or substantial debt increases were politically unacceptable. State, local and federal governments were limited mainly to accelerating the use of existing revenue (or only slightly increasing their borrowing) or to coordinating voluntary donations for infrastructure projects. One observer wrote in The Chicago Daily Tribune in 1877 that it was an outrage “when the government exacts a tax for subsidizing any business scheme, for providing public improvements that are not needed, or in any other enterprise which is intended merely to furnish work for the unemployed.”
In 1894 in St. Louis, the city government backed a campaign to secure private donations to create an artificial recreational lake with picturesque islands in Forest Park. Called the “Lake Poor Fund,” it appealed to dual motives: to improve the city and to hire the unemployed. It paid 750 of the jobless to dig with shovels and picks. (The steam shovel hadn’t yet fully emerged as a dominant technology.) The lake was completed within the year, and city residents still enjoy it today.
It was not until the Great Depression of the 1930s that financing infrastructure programs through serious deficit spending was prominently advocated. A revolution in economic thinking, led by John Maynard Keynes, enabled us to think of the economy as something that can spontaneously fail, that the government can stimulate to get going again and make everyone better off.
In his 1988 book, “The Origins of the Keynesian Revolution,” Robert W. Dimand, a historian of economic thought at Brock University in Canada, says that precursors of Keynes-like thinking about economic stimulus can be traced back to the 1890s, but that their reasoning was muddled and unpersuasive. It was not until 1931, in one of the most influential scholarly economic articles of all time, that Richard F. Kahn, a 25-year-old student of Keynes, clarified his mentor’s ideas and showed how a little government stimulus could have what we now call a multiplier effect.
Mr. Kahn assumed that there would be debt financing of stimulative spending, saying that the effects of increased balanced-budget expenditures — spending that is fully paid for by tax increases — were “a matter for separate study” which, in fact, he never got around to. The terms “multiplier” and “deficit spending” were coined soon thereafter.
Making everyone better off, and a lot better off through the power of the multiplier, was the key to the idea’s success in the political arena.
It wasn’t until the 1940s that economists realized that a balanced-budget stimulus could be effective, too. As I’ve discussed in earlier columns, economists starting with Walter S. Salant and Paul A. Samuelson realized that during a depression or in near-depression conditions, any government expenditure fully funded by taxes will increase national income approximately one for one, without raising national debt. This is known as the balanced-budget multiplier.
The public improvements suggested in the president’s proposal would have been fully paid for by the bill’s tax surcharge. And any new legislation we now consider could also pay for such improvements with tax increases, so as not to raise the national debt even temporarily. This idea should still have common-sense appeal to Americans in this time of high unemployment, just as the idea of winter work does on the farm.

http://www.nytimes.com/2011/10/16/business/a-proven-principle-behind-obamas-jobs-plan.html

Οι τιμές κατοικίας στις ΗΠΑ κατέγραψαν ετήσια πτώση 4,1% - Shiller: έχουν και άλλο πτώση

Δε φαίνεται να υπάρχει ακόμη πυθμένας στην αμερικανική αγορά κατοικίας και σύμφωνα με τα στοιχεία που δημοσιεύτηκαν σήμερα οι τιμές καταγράφουν σε ετήσια βάση πτώση της τάξης του 4,1%. Και όμως, τα νέα αυτά φαίνεται να θεωρούνται θετικά από τις αγορές καθώς οι προβλέψεις έκαναν λόγο για πτώση της τάξης του 4,5%. Οι τιμές παρέμειναν σταθερές από τον Ιούνιο και μετά κάτι που επίσης θεωρείται θετική εξέλιξη.

http://www.xrimanews.gr/oikonomia/15209-oi-times-katoikias-stis-hpa-kategrapsan-ethsia-ptwsh-41--kai-ayto-einai-kalo

Τα τελευταία στοιχεία που έδειξαν πτώση της τάξης του 4,1% για τις τιμές κατοικίας στις ΗΠΑ αλλά και μείωση της έντασης της τους τελευταίους μήνες, δε σήμαναν το τέλος της πτώσης στην αμερικανική αγορά κατοικίας, σύμφωνα με τον καθηγητή του πανεπιστημίου Yale και εμπνευστή του σημαντικότερου δείκτη των τιμών κατοικίας Robert Shiller.

Σύμφωνα με τις προβλέψεις του, συνυπολογίζοντας και τον πληθωρισμό οι τιμές κατοικίας θα συνεχίσουν να πέφτουν για μεγάλο διάστημα ακόμη και ο πυθμένας τους, ίσως, να απέχει αρκετά χρόνια.

http://www.xrimanews.gr/oikonomia/15213-shiller-oi-times-katoikias-stis-hpa-exoyn-kai-allo-ptwsh

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το "ο πυθμένας τους, ίσως, να απέχει αρκετά χρόνια." δείχνει να είναι τουλάχιστον έως 2013

The great debt scare

By Robert J. Shiller

It might not seem that Europe’s sovereign-debt crisis and growing concern about the United States’ debt position should shake basic economic confidence. But it apparently has. And loss of confidence, by discouraging consumption and investment, can be a self-fulfilling prophecy, causing the economic weakness that is feared. Significant drops in consumer-confidence indices in Europe and North America already reflect this perverse dynamic.
We now have a daily index for the US, the Gallup Economic Confidence Index, so we can pinpoint changes in confidence over time. The Gallup Index dropped sharply between the first week of July and the first week of August – the period when US political leaders worried everyone that they would be unable to raise the federal government’s debt ceiling and prevent the US from defaulting on August 2. The story played out in the news media every day. August 2 came and went, with no default, but, three days later, a Friday, Standard & Poor’s lowered its rating on long-term US debt from AAA to AA+. The following Monday, the S&P 500 dropped almost 7%.
Apparently, the specter of government deadlock causing a humiliating default suddenly made the US resemble the European countries that really are teetering on the brink. Europe’s story became America’s story.
Changes in public confidence are built upon such narratives, because the human mind is very receptive to them, particularly human-interest stories. The story of a possible US default is resonant in precisely this way, implicating as it does America’s sense of pride, fragile world dominance, and political upheavals.
Indeed, this is arguably a more captivating story than was the most intense moment of the financial crisis, in 2008, when Lehman Brothers collapsed. The drop in the Gallup Economic Confidence Index was sharper in July 2011 than it was in 2008, although the index has not yet fallen to a lower level than it reached then.
Most confidence indices today are based on survey questions that ask respondents to assess the economy today or in the near future. George Gallup, the pioneer of survey methods and creator of the Gallup poll, created a confidence index in 1938, late in the Great Depression, when he asked Americans, “Do you think business will be better or worse six months from now?” He interpreted the answers as measuring “public optimism” and “the intangible mental attitude which is recognized as one vital element in the week-to-week fluctuations of business activity.”
But it hardly seems likely that big changes in people’s confidence (the kind of confidence that affects their willingness to spend or invest) are rooted in expectations over so short a time horizon.
When George Gallup wrote, almost nine years after the Great Depression began, a sense of ultimate futility – a belief that high unemployment would never end – was widespread. That sentiment probably held back consumption and investment far more than any opinions about changes in the next six months. After all, consumers’ willingness to spend depends on their general situation, not on whether business will be a little better in the short term. Likewise, businesses’ willingness to hire people and expand operations depends on their longer-term expectations.
The Consumer Sentiment Survey of Americans, created by George Katona at the University of Michigan in the early 1950’s, and known today as the Thomson-Reuters University of Michigan Surveys of Consumers, has included a remarkable question about the reasonably long-term future, five years hence, and asks about visceral fears concerning that period:
“Looking ahead, which would you say is more likely – that in the country as a whole we’ll have continuous good times during the next five years or so, or that we will have periods of widespread unemployment or depression, or what?”
That question is usually not singled out for attention, but it appears spot-on for what we really want to know: what deep anxieties and fears do people have that might inhibit their willingness to spend for a long time. The answers to that question might well help us forecast the future outlook much more accurately.
Those answers plunged into depression territory between July and August, and the index of optimism based on answers to this question is at its lowest level since the oil-crisis-induced “great recession” of the early 1980’s. It stood at 135, its highest-ever level, in 2000, at the very peak of the millennium stock market bubble. By May 2011, it had fallen to 88. By September, just four months later, it was down to 48.
This is a much bigger downswing than was recorded in the overall consumer-confidence indices. The decline occurred over the better part of a decade, as we began to see the end of debt-driven overexpansion, and accelerated with the latest debt crisis.
The timing and substance of these consumer-survey results suggest that our fundamental outlook about the economy, at the level of the average person, is closely bound up with stories of excessive borrowing, loss of governmental and personal responsibility, and a sense that matters are beyond control. That kind of loss of confidence may well last for years.
That said, the economic outlook can never be fully analyzed with conventional statistical models, for it may hinge on something that such models do not include: our finding some way to replace one narrative – currently a tale of out-of-control debt – with a more inspiring story.

http://blogs.reuters.com/great-debate/2011/09/23/the-great-debt-scare/

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έλα μωρέ, "η οικονομία είναι ψυχολογία" θα πουν διάφοροι, δεν λεει αυτό

Shiller Sees ‘Substantial’ Probability of Recession

Mετά το 99% του Rosenberg το ..substantial - νομίζω όμως ότι φαινόταν "μακράν"

Noted economist Robert Shiller said Wednesday there was a “substantial” probability the U.S. could lurch again into recession.
Noting weak global data — including a stubbornly depressed U.S. housing market — were flashing warning signs, the Yale University economist said the economy right now faced a “tipping point.”
“Forecasting models would say no” on the question of whether the U.S. will face a double-dip, Shiller said. “But I’m seeing signs that encourage me to worry about that.”
Shiller, who is one of the two men behind the S&P Case-Shiller home-price index, said home prices could still decline despite being lower than where they were more than five years ago. The summer season could see a pickup in prices, he said, but “I still worry about the general downtrend.”
“There might be a turnaround if psychology changes,” he said. But “I fear that it may just continue down.
“It just doesn’t look good,” he said in an interview with The Wall Street Journal.
General confidence about the economy is waning, Shiller said, leading to a so-called liquidity trap, in which the Federal Reserve has pumped the economy full of stimulus and consumers are still not opening their pockets.
“When the demand isn’t there, you can lower interest rates all the way to zero and people are still not willing to spend — that’s where we are right now,” Shiller said.


Meanwhile, as Greece teeters on insolvency, Shiller said the continuing stream of negative headlines was likely to have a negative impact on global confidence. “Stories like this, even if it’s from a small country, can have a vivid impact,” he said.
“I don’t think it’s overblown,” Shiller said of concerns Greece could threaten to topple the global financial system much the way the failing of Lehman Brothers brought the global system to its knees in 2008.

http://blogs.wsj.com/economics/2011/06/15/shiller-sees-substantial-probability-of-recession/ 

Home-Price Drop of 25% Wouldn’t Shock Shiller

A model for the U.S. may be Japan, where home prices fell for 15 years after that country’s real estate bubble burst in the early 1990s, Shiller said.
“They lost close to two-thirds of their value,” Shiller said. “Then they went up for one year in 2006 and then they started going down again.”
Forecasting home prices is impossible because there’s no historical precedent for the real estate bubble of the 2000s and the subsequent price drop, Shiller said.

ολόκληρο

Robert Shiller Predicts Drop in Home Prices Up to 25%

I worry that home price might fall – not just a little – but 15, 20, 25 percent in real terms … that would bring us back down to the long run average. You know, home prices haven’t really trended up in real terms over the last century.

http://wallstreetpit.com/63199-robert-shiller-predicts-drop-in-home-prices-up-to-25

The US stock market is overvalued by 40%

Andrew Smithers, of London-based research house Smithers & Co, ....In his latest report, The US Stock Market: Value and Nonsense About It, he takes to task those who claim US equities are still cheap.

http://ftalphaville.ft.com/blog/2009/10/23/79346/the-us-stock-market-is-overvalued-by-40/

O τύπος χρησιμοποιεί κλασσικά μοντέλα, τα οποία θεωρώ ότι σχεδόν πάντοτε δείχνουν τις αγορές overvalued.

Q&A: Shiller Sees 5 Years of Stagnant Home Prices

Is the slump in U.S. home prices bottoming out?
Shiller: The situation has definitely changed. With our numbers — the S&P/Case Shiller home price index — going up sharply. It looks like a major turnaround. We’ve been watching that for three months now, and we have some concern that it could be an aberration and temporary. But, at this point, it seems to be evident in just about every city in the U.S. That suggests it’s real. But it probably isn’t the beginning of a major boom, just because the economy is in such bad shape. There’s also a chance that it will reverse. It’s still only three months old, so it’s very hard to be sure at this point. The most likely scenario is that it won’t continue at this high rate of increase, but that it will neither go down a lot, nor up a lot.
So the index will move sideways for a while?
Shiller: Yes, for a while, meaning five years.
η συνέχεια

Professor Robert Shiller warns Britain may suffer a double recession

One of the world's most influential economists warns today that Britain faces the prospect of two recessions in quick succession.
Robert Shiller, Professor of Economics at Yale University, said that the recent stock market bounce should be treated with caution.
The apparent upturn could soon go into reverse, he told The Times, marking a repeat of economic patterns in the 1930s and the 1980s. Such a double-dip slowdown has been nicknamed by economists a “W-shaped” recession, where recovery is so fragile, the country could be plunged into another slowdown as soon as it emerged from the last.
Speaking to The Times this week, Professor Shiller said: “I was last here [in London] in the fall and there is definitely a sense of optimism now. The Fed [US central bank] and the Bank of England seem to have things under control. Everything seems to be getting better.”
However, he warned that “there is a real possiblity of another recession. We may well see more bad news. It is a real failure of the imagination to think otherwise.”
He said that there were a number of issues that threatened any long-term recovery for the British economy - rising unemployment, mortgage defaults, and another wave of new company failures that “could surprise us yet”.
Professor Shiller also said that the banks were still harbouring large portfolios of troubled assets.
“We all want to lick this problem — there's been a burst of confidence over the last few months, but really it's not based on any news. A lot of people think this recession is coming to an end. But I'm not so sure. A resurgence in confidence may not translate into new jobs. We are still in uncertain times.”
He added: “In 1931 in the US, President Hoover unveiled his recovery plan - there was a huge stock market rally — the market improved but it didn't hold because bad news kept coming in. Increased confidence can be a self-fulfilling prophecy but it doesn't always hold.”
Professor Shiller said, however, that he believed another likely scenario to be one where Britain would face a continuous decline with house prices falling for a number of years, drawing comparisons with the decade of misery in Japan in the 1990s.
The economist became well known when he predicted the timing of the end of the dot-com boom in March 2000, and was one of the first to warn that the US housing market was perilously overvalued and that its collapse would cause devastating reverberations across the world's biggest economy.

SHILLER HAS BEEN RIGHT BEFORE
Robert Shiller predicted that the internet bubble would burst in March 2000. Weeks before the boom ended, when the Dow Jones industrial average was about 11,000 points, he published Irrational Exuberance. He argued that market valuations were unsustainable, likening the phenomenon to a Ponzi scheme on steroids. As the bubble burst, Wall Street stocks dropped 20 per cent in 16 months.
The phrase “irrational exuberance” to describe the fevered stock market was adopted by Alan Greenspan, the former Chairman of the Federal Reserve.
Professor Shiller was also among the first to warn about the US housing boom, telling investors that high property prices could not last. He said that the impact of the housing crisis could be so great that it might bring down a key financial institution. Within weeks, Lehman Brothers had gone bust, while mortgage giants Fannie Mae and Freddie Mac and the world’s largest insurer AIG had to be bailed out with billions of dollars of taxpayers’ money.
http://business.timesonline.co.uk/tol/business/markets/article6346115.ece