Is Robert Shiller being Paid to Spin a CNBC Narrative? Or Is He Saving the World as Any Moral Economist Would Do?

The Moral Economist
Oct 21 · 6 min read
CNBC

CNBC has an extremely misleading title “Robert Shiller: Recession likely years away due to bullish Trump effect” of a recent interview with Nobel Prize winning and Yale University economist Robert Shiller.

Shiller’s work on asset valuations, animal spirits, and behavioral finance allowed him to correctly predict the 2000 and 2008 bubbles, along with getting a 2013 Nobel Price, of course.

He recently authored a book called Narrative Economics that he has been promoting pretty heavily. In it, he argues that the psychology of narratives (which can be measured using Natural Language Processing AI) can have an impact on asset prices.

Based on the above title, you would think his narrative is that we are totally not overvalued, right? There’s no recession to worry about here.

Multpl Shiller CAPE Chart

Well, his Cyclically Adjusted Price Earnings (CAPE) measure is sitting pretty close to 30, which is basically identical to what it was on Black Tuesday in 1929.

And it’s currently significantly higher than during the 2008 housing collapse. The only time in the past 150 years that it was higher was during the 2000 internet boom.

The historical average is around 16. Over the past 40 years, that average has certainly climbed up, but it also looks like we have already peaked back in January 2018. That’s not a bullish sign for the market, given how hard it’s been to breach those mountain tops.

So what does Robert Shiller the man, as opposed to the title, have to say about this? After watching all YouTube CNBC Robert Shiller interviews for the past year, I can confirm that Shiller is actually predicting a pullback fairly soon.

Back on CNBC in August of last year, Shiller argued that the market was peaking and it was time to sell. Pretty good timing given December’s 20% blood bath.

Then, in April of this year, regarding the Fed’s recession indicator jumping above the psychologically scary 30%, he said the probability of a recession in the next 18 months was probably higher than that!

Two months ago, at the end of August, Shiller argued that Fed rate cuts could actually be pretty negative for sentiment. He argued that the Fed should have kept raising rates. Historically, Fed rate cuts precede recessions, with the exception of a couple in the 1990s.

But Shiller argues that those times, the Fed was actually scared of a recession as well! That’s why the markets didn’t like the Fed’s narrative that July was just a mid-cycle adjustment, as opposed to ending of cycle easing, you know since that’s good news that we’re at the end of cycle…

Anyways, Shiller argues that the Fed cutting could create a self-fulfilling prophecy (narrative) that we are headed for a recession. Ironically, the central bank’s attempt to be more transparent spooked markets that are allegedly primed for new all-time highs.

Fast forward to two weeks ago, and the misleading titles begin. This one: “Jobs number is a boost of confidence, says Yale's Robert Shiller”

Sure, that’s literally what he says in the first 10 seconds of speaking. He points out that our low unemployment numbers make it hard to criticize Trump politically. But then things become less rosy.

“Of course, the unemployment rate is kind of a fuzzy number.”

“The flat wage number suggests it’s not really so strong an economy.”

“You can spin this report any way you want.”

Then, he starts talking about how he doesn’t know if there will be a recession in 2020, but what matters to him is how severe it will be. There are narratives in place not only about how the Fed could be useless but those surrounding automation and immigration that could turn a garden variety recession into a severe one, possibly mirroring the double-dip recession back in 1937!

Not to mention once Bernie becomes president, the market could face a decade of bears. Oh wait, I added that part.

Robert Shiller: Recession likely years away due to bullish Trump effect

This is part of why I found this recent title very misleading, spinning a narrative that a for-profit corporation like CNBC would love market participants to fall for. That the bearish Yale economist who correctly predicted the 2000 and 2008 bubbles and has been very bearish on the recent rally is suddenly bullish and thinks the market will keep running for years!

Maybe it’s just because I had to watch this on CNBC’s website at normal speed with commercials compared to 2x speed on YouTube Premium, but this whole interview seemed very staged.

The frat boy interviewing Shiller tees off with a one-sided question, something along the lines of: “We had a bit of a recession and yield curve scary in August. What makes you think this is very premature and we could have years to go?” (Emphasis Added)

“Yes, this yield curve scare looked frightening, but nothing’s happened so I guess we’re still in the Trump era. Donald Trump has by inspiration had an effect on the market. This can contribute some time to boosting the market” WTF?

Of course, I’m not surprised at all that Shiller would point out that not only Trump’s policies (tax cuts and deregulation) are bullish, but that Trump’s very egotistical nature has incentivized wealth flaunting. It’s this kind of creative thinking that got Shiller the Nobel Prize in the first place.

But saying nothing’s happened yet in one month, so we magically survived a recession is borderline absurd, especially for such a reputable and accurate economist.

Notice, Shiller doesn’t say that the recently not yet signed Phase 1 trade agreement has removed a cloud of uncertainty that means markets are primed for bullishness. Instead, he points out, “of course, we live in an incredibly uncertain period of time. We haven’t seen this much uncertainty in a long time.”

He proceeds to pay lip service to consumption. Blah blah blah the consumer is strong, yeah we all know they are the last to turn in a cycle. If you wait for those indicators, you’ll already have found the bottom.

“Consumers are hanging in there. You might wonder why would that be at this time, so late into the cycle. This is the longest expansion ever.” (Emphasis Not Added)

The only explanation Shiller can think is the Trump consumption effect. So then Shiller turns his attention to what literally no investor has been taking seriously at all: Trump’s impeachment.

Wait, everyone’s been telling me that there’s no way that Trump gets impeached. Okay, that’s not true. Half my liberal friends have lost all hope, and the other half is telling me Trump won’t make it to the end of the year. But the market quickly reversed a dip on impeachment news, certain that a Republican Senate would never impeach Trump.

So, why is Shiller bringing this up? Because this entire stock market rally is entirely contingent on Trump winning reelection. Maybe now that Trump has decided to take on the military-industrial complex and withdraw troops from Syria, it’s okay for the establishment (including Republicans) to consider removing Trump from office.

Chris Wallance recently reported that a close big-money Republican source says there’s a 20% chance Trump is impeached. Does it look like the market has priced this in when we are at all-time highs?

It seems to me that CNBC executives got together and said, damn, we really need a confidence boost or the market is going to tank. Why don’t we bring on Robert Shiller, the beloved economist, and tell him to stop crashing markets with his self fulfilling doomish prognostications, and instead test out his narrative theory on an army of poor uninformed investors to keep them in the market a little bit longer? We’ll make so many profits; the ROI on this interview could be 1000x!

Would a moral economist have any choice but to acquiesce to capitalist propaganda to save capitalism?

Follow me @TheMoralEconomist

Data Driven Investor

from confusion to clarity, not insanity

The Moral Economist

Written by

Data Driven Investor

from confusion to clarity, not insanity

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade