Over the last few months we have discussed how most money managers believe that we are nowhere near the top. Why? According to them, we need a definitive blow off top. Yet, Shiller’s P/E ratio above suggests otherwise. Let’s see what Robert Shiller himself thinks.
I define a bubble as a social epidemic that involves extravagant expectations for the future. Today, there is certainly a social and psychological phenomenon of people observing past price increases and thinking that they might keep going. So there is a bubble element what we see. But I’m not sure that the current situation is a classic bubble because I’m not certain that most people have extravagant expectations.
That is to say, pick your level of “expectations”. Also, here is what most people get wrong. Not every top will be the same. Just because we had a blow off top in 2000, doesn’t mean we will get one today. That’s what makes the stock market so complex. I don’t think anyone can argue that we had a definitive blow off top in 2007. Mr. Shiller goes on….
In fact, the current environment may be driven more by fear than by a sense of a new era. I detect a tinge of anxiety and insecurity now that is a factor in markets, which is quite different from other market booms historically.
Fear, greed, expectations….. Pick your favorite driver. At the end of the day there is no requirement that the stock market must set a blow off top. In other words, those waiting for one might be waiting in vain.
