Business Insider’s Interview With Robert Shiller

I apologize for the Robert Shiller overload lately but he has done a number of recent interviews and has some interesting things to say. In my opinion, he nails the long-term macro scenarios better than most. The best quote from the interview:

Maybe this is my hubris, but I imagine I could make a lot of money investing — if I put my mind to it and stopped focusing on these big aggregates as I do. But I’m not, I’m an academic and I’ll let other people get rich.  I don’t know what I would do with the money anyway.

He goes on to say he thinks we will see another recession sooner than later:

RS: I think that’s definitely possible because the unemployment rate is very high now and it’s not going down very fast, so I’m still calling for a double-dip. I mean I wish we didn’t have it, but that’s what I always meant. Nobody ever defined double-dip anyway, if you look at history the only example that looks credible for what people seem to be talking about was the 1980, 81 and 82 recessions, it was less than a year between them. But we’ve already made sure that we’re not going to have that because we’ve already passed the time limit.

On the PE ratio:

BI: But you do think P/Es will ultimately regress back to the mean?

RS: Possibly, yes. There’s two ways price-earning ratios can regress to the mean. One is, the price can go down (the numerator) and the other is the denominator should go up. Efficient Markets theory says that it’s going to be the latter — because you can never predict price. High price earning ratio is in itself a prediction. But in the study I did with John Campbell we looked at which one it has been historically and I’ll tell you, and hands down price does it. Price-earning ratio does not predict earnings growth. So, yeah, I think that the most likely scenario is that sometime over the next ten years is we will see a big downward correction. I just don’t know exactly when.

How he is invested:

BI: So, what are you doing with your own money now?

RS: Well I have it kind of diversified. It seems like everything is overpriced: stocks, bonds, and real estate. And index bonds were given a negative yield recently; maybe they’re coming back. Nothing looked attractive. There must be some people who can find attractive investments. But I’m really a professor, interested in broad issues. The question of whether you should put it in a hedge fund with an expensive manager. I think maybe you should, but only if you can judge managers right. I don’t think you should put it in a random one. Maybe this is my hubris, but I imagine I could make a lot of money investing — if I put my mind to it and stopped focusing on these big aggregates as I do. But I’m not, I’m an academic and I’ll let other people get rich.  I don’t know what I would do with the money anyway.

Read more: http://www.businessinsider.com/henry-blodget-robert-shiller-exclusive-davos-2011-1#ixzz1CfKUIccN

Weekend Reading

Links for the Week ending Jan-30, 2011

I didn’t do a links post last weekend so what follows are some of the best reads from the past two weeks.

• Investing with the Herd (NYT)
• Apple’s `Underdog’ Analysts Outperform Wall Street (Bloomberg)
• U.S. Stocks Near ‘Significant’ Top (Business Week)
• LOWRY’S: NO MAJOR TOP FORMING (Prag Cap)
• THE DEMOGRAPHIC HEADWIND IN THE USA (Prag Cap)
• How to Track Performance (Engineering Returns)
• Hedge Fund Analyst Checklist (World Beta)
• SHOULD PRICE MOMENTUM BE IMPORTANT TO VALUE INVESTORS? (Magic Diligence)
• David Einhorn Predicting Another Crisis Like the Great Recession (Insider Monkey)
• Non-Finance Link: The Coldest Places on Earth (Wunder Blog)

Robert Shiller: Stocks are Overpriced

A couple of interesting things this week from Robert Shiller.

First, in an interview with The Browser he discusses how human psychology drives capitalism and its contributions to the financial crisis. Robert Shiller on Human Traits Essential to Capitalism.

In the interview he recommends five books on the topic. They are:

1. Adam Smith: The Theory of Moral Sentiments
2. The Passions and the Interests: Political Arguments for Capitalism before Its Triumph
3. Nudge: Improving Decisions About Health, Wealth, and Happiness
4. Fault Lines: How Hidden Fractures Still Threaten the World Economy
5. Winner-Take-All Politics: How Washington Made the Rich Richer–and Turned Its Back on the Middle Class

Also, this week

Sentiment Update: Individual Investor Sentiment Drops

The NAAIM (active money managers) survey for this week showed an increase of 5.4% in bullish sentiment while the AAII (individual investors) survey showed large decrease of 8.7%.

This week,

Are Corporate Tax Cuts Needed?

With President Obama suggesting in his Tuesday’s State of the Union address the possibility of a corporate tax cut I was left wondering; is it needed and will it help.

First, let me state that I believe the federal burden in this county is too high. Serious structural changes need to be made to correct our long-term fiscal trajectory. In general, I believe government spending is too high and taxes as well. This philosophical framework aside, I had to ask myself are corporations the best entities to target for tax cuts.

The data shows that corporate taxes rates have been generally declining for decades. The current rate of 28%