Monday, October 16, 2017

Robert Shiller talks about Bubbles in Bitcoin, Gold, Market

On Bitcoin
I'll take bitcoin, too, because I know I can sell it and get out of it. There seems to be some strange enthusiasm for it. People get excited about things like new monetary standards. Remember bimetallism? It went into a fad, everyone was talking about it for a while. And then it faded.

Gold
I think gold is a bubble, but it's always been a bubble. It has some industrial uses, but it basically it's like a fad that's lasted thousands of years.

Market Confidence 
Confidence in the valuation of the market is indeed the lowest it's been since 2000. And when it got low in 2000, the market fell about 40 percent. So it was bad. I think there's a danger, but I'm not saying to sell everything. I'm still in the market myself."

Thursday, September 7, 2017

Satoshi Nakamoto's story is driving Bitcoin prices



"I'm not as negative as it may seem, but I think that the thing that's driving bitcoin at the moment, like other examples of bubbles, is a story. And it's the quality of the story that's attracting all this interest, and it's not necessarily sustainable.

Then, we have a new form of money that ... sounds extremely revolutionary and involves a very clever use of cryptography that you can spend all afternoon trying to figure out. So the story has inspired young people and active people, and that's what's driving the market. It's not fundamentals. It's not like this is a fundamentally important thing, this bitcoin.

I don't mean to say that we're going to see a burst in bitcoin tomorrow and it will be gone forever. We did see a burst in 2013, by the way. It could happen again, and then it could take off again.

It seems to me that the enthusiasm for bitcoin is a little bit out of proportion to its immediate application. I don't know, maybe it's possible that you can still ride this bubble on bitcoin. But I keep thinking there'll be other currencies, other ideas will come up and will eclipse this one. So it's risky."

Monday, August 21, 2017

Everything has become expensive in the US

“In the US, everything is expensive. Housing has gotten expensive, bonds are highly priced, and the stock market is highly priced. It kind of suggests to me a willingness to hold assets. And I think it’s partly driven by fear. And this is what’s different with 1999. We’re much more worried about our jobs now or our children’s jobs. We’d like to have a house for our children because they might not be able to afford it."

Tuesday, August 15, 2017

Housing affordability and social tension

Inequality is usually measured by comparing incomes across households within a country. But there is also a different kind of inequality: in the affordability of homes across cities. The impact of this form of inequality is no less worrying.

In many of the world’s urban centers, homes are becoming prohibitively expensive for people with moderate incomes. As a city’s real-estate prices rise, some inhabitants may feel compelled to leave. Of course, if that inhabitant already owned a house there that they can sell, they may regard the price increase as a windfall that they can claim by departing. If not, however, they may be forced out with no compensation.

The consequences are not just economic. People may be forced out of cities where they have spent their entire lives. Leaving amounts to losing lifelong connections, and therefore can be traumatic. If too many lifelong inhabitants are driven out by rising housing prices, the city itself suffers from a loss of identity and even culture.

As such people depart, an expensive city gradually becomes an enclave of high-income households, and begins to take on their values. With people of various income levels increasingly divided by geography, income inequality can worsen and the risk of social polarization – and even serious conflict – can grow.

As this year’s Demographia International Housing Affordability Survey shows, there are already massive disparities across major global cities (measured by the ratio of median home prices to median household income). A high ratio correlates with high pressure for people to leave.

This year’s survey, which covered 92 cities in nine countries, showed that, as of late 2016, Hong Kong had the least affordable housing, with a price-to-income ratio of 18.1. That means that paying off a 30-year mortgage on a median-price home would cost a median-income buyer more than half of their income – and that is without interest. Mortgage rates are low in Hong Kong, but not zero, suggesting it is just about impossible for a median-income household to purchase a home there without access to additional funds from, say, a parent, or, if the buyer is an immigrant, from abroad.

After Hong Kong, the list continues with Sydney (12.2), Vancouver (11.8), Auckland (10), San Jose/Silicon Valley (9.6), Melbourne (9.5), and Los Angeles (9.3). Next come London and Toronto – at 8.5 and 7.7, respectively – where housing is extremely expensive, but incomes are also high.

Meanwhile, some attractive world cities are quite affordable, relative to incomes. In New York City, the median home price stands at 5.7 times median household income. In Montreal and Singapore, that ratio is 4.8; in Tokyo and Yokohama, it is 4.7; and in Chicago, it is 3.8.

Maybe the figures for these outlier cities aren’t precise. They are hard to check, and there must be inconsistencies across cities, countries, and continents. For example, the geographical boundaries of the areas used to compute median price and median rent may vary. In some cities, higher-priced homes may tend to turn over more rapidly than in others. And some cities may be inhabited by larger families, implying bigger houses than in other cities.

But it seems unlikely that the errors could be so significant that they would change the basic conclusion: home affordability around the world is highly variable. The question, then, is why residents of some cities face extremely – even prohibitively – high prices.

In many cases, the answer appears to be related to barriers to housing construction. Using satellite data for major US cities, the economist Albert Saiz of MIT confirmed that tighter physical constraints – such as surrounding bodies of water or land gradients that make properties unsuitable for extensive building – tend to correlate with higher home prices.

But the barriers may also be political. A huge dose of moderate-income housing construction would have a major impact on affordability. But the existing owners of high-priced homes have little incentive to support such construction, which would diminish the value of their own investment. Indeed, their resistance may be as intractable as a lake’s edge. As a result, municipal governments may be unwilling to grant permits to expand supply.

Insufficient options for construction can be the driving force behind a rising price-to-income ratio, with home prices increasing over the long term even if the city has acquired no new industry, cachet, or talent. Once the city has run out of available building sites, its continued growth must be accommodated by the departure of lower-income people.

The rise in housing prices, relative to income, is unlikely to be sudden, not least because speculators, anticipating the change, may bid up prices in advance. They may even overshoot, temporarily pushing the ratios even higher than necessary, creating a bubble and causing unnecessary angst among residents.

But this tendency can be mitigated, if civil society recognizes the importance of preserving lower-income housing. Many of the calls to resist further construction, residents must understand, are being made by special interests; indeed, they amount to a kind of rent seeking by homeowners seeking to boost their own homes’ resale value. In his recent book The New Urban Crisis, the University of Toronto’s Richard Florida decries this phenomenon, comparing opponents of housing construction to the early-nineteenth-century Luddites, who smashed the mechanical looms that were taking their weaving jobs.

In some cases, a city may be on its way to becoming a “great city,” and market forces should be allowed to drive out lower-income people who can’t participate fully in this greatness to make way for those who can. But, more often, a city with a high housing-price-to-income ratio is less a “great city” than a supply-constrained one lacking in empathy, humanitarian impulse, and, increasingly, diversity. And that creates fertile ground for dangerous animosities.

Tuesday, August 8, 2017

Is owning a home the American Dream ?


“The American Dream is back.” President Trump made that claim in a speech in January.

They are ringing words, but what do they mean? Language is important, but it can be slippery. Consider that the phrase, the American Dream, has changed radically through the years.

Mr. Trump and Ben Carson, the secretary of housing and urban development, have suggested it involves owning a beautiful home and a roaring business, but it wasn’t always so.

Instead, in the 1930s, it meant freedom, mutual respect and equality of opportunity.

It had more to do with morality than material success.

This drift in meaning is significant, because the American Dream - and international variants like the Australian Dream, Le Rêve Français and others - represents core values. In the United States, these values affect major government decisions on housing, regulation and mortgage guarantees, and millions of private choices regarding whether to start a business, buy an ostentatious home or rent an apartment.

Conflating the American dream with expensive housing has had dangerous consequences: It may have even contributed to the last housing bubble, the one that led to the financial crisis of 2008-9.

These days, Mr. Trump is using the hallowed phrase in pointed ways. In his January speech, he framed the slogan as though it were an entrepreneurial aspiration.

“We are going to create an environment for small business like we haven’t seen in many many decades,” he said, adding, “So, essentially, we are getting rid of regulations to a massive extent, could be as much as 75 percent.”Mr. Carson has explicitly said that homeownership is a central part of the Dream. In a speech at the National Housing Conference on June 9, he said, “I worry that millennials may become a lost generation for homeownership, excluded from the American Dream.”

But that wasn’t what the American Dream entailed when the writer James Truslow Adams popularized it in 1931, in his book “The Epic of America.”

Mr. Adams emphasized ideals rather than material goods, a “dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to his ability or achievement.” And he clarified,

“It is not a dream of motor cars and high wages merely, but a dream of a social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and recognized by others for what they are.”

His achievement was an innovation in language that largely replaced the older terms “American character” and “American principles” with a forward-looking phrase that implied modesty about current success in giving respect and equal opportunity to all people. The American dream was a trajectory to a promising future, a model for the United States and for the whole world.
In the 1930's and 1940's, the term appeared occasionally in advertisements for intellectual products: plays, books and church sermons, book reviews and high-minded articles. During these years, it rarely, if ever, referred to business success or home-ownership. By 1950, shortly after World War II and the triumph against fascism, it was still about freedom and equality. In a book published in 1954, Peter Marshall, former chaplain of the United States Senate, defined the American Dream with spiritually resounding words: “Religious liberty to worship God according to the dictates of one’s own conscience and equal opportunity for all men,” he said, “are the twin pillars of the American Dream.” The term began to be used extensively in the 1960s. It may have owed its growing power to Martin Luther King’s “I Have a Dream” speech in 1963, in which he spoke of a vision that was “deeply rooted in the American Dream.” He said he dreamed of the disappearance of prejudice and a rise in community spirit, and certainly made no mention of deregulation or mortgage subsidies. But as the term became more commonplace, its connection with notions of equality and community weakened. In the 1970s and ’80s, home builders used it extensively in advertisements, perhaps to make conspicuous consumption seem patriotic. Thanks in part to the deluge of advertisements, many people came to associate the American Dream with homeownership, with some unfortunate results. Increasing home sales became public policy. In 2003, President George W. Bush signed the American Dream Downpayment Act, subsidizing home purchases during a period in which a housing bubble — the one that would lead to the 2008-9 financial crisis — was already growing at a 10 percent annual rate, according to the S.&P. Corelogic Case-Shiller U.S. National Home Price index (which I helped to create). This year, Forbes Magazine started what it calls the “American Dream Index.” It is based on seven statistical measures of material prosperity: bankruptcies, building permits, entrepreneurship, goods-producing employment, labor participation rate, layoffs and unemployment claims. This kind of characterization is commonplace today, and very different from the original spirit of the American dream.

One thing is clear: Bringing back the fevered housing dream of a decade ago would not be in the public interest. In “House Lust: America’s Obsession With Our Homes,” published in 2008, Daniel McGinn marveled at the craving for housing in that era: “In many neighborhoods, if you’d judged the nation’s interests by its backyard-barbecue conversation — settings where subjects like war, death, and politics are risky conversational gambits — a lot of people find homes to be more compelling than any geopolitical struggle.”

This is not to say that homes have no appropriate place in our dreams or our consciousness. To the contrary, in a 2015 book “Home: How Habitat Made Us Human,” the neuroanthropologist John S. Allen wrote, “We humans are a species of homebodies.” Ever since humans began making stone tools and pottery, they have needed a place to store them, he says, and the potential for intense feelings about our homes has evolved.

But the last decade has shown that with a little encouragement, many can easily become excessively lustful about homeownership and wealth, to the detriment of our economy and society.

That’s the wrong way to go. Instead, we need to bring back the American Dream of a just society, where everyone has an opportunity to reach “the fullest stature of which they are innately capable.”

Friday, June 30, 2017

High CAPE Ratio is Concerning

The CAPE ratio that John Campbell and I devised 30 years ago is at unusual highs. The only time in history going back to 1881 when it has been higher are, A: 1929 and B: 2000. We are at a high level, and its concerning.

Its not definitive but its concerning. People should be cautious now. We have a high market. That doesn't mean I would avoid it altogether.