By CCN.com: The US stock market could fall prey to deflation and tumble into a full-blown bear market in 2019. That’s what Yale University professor?Robert Shiller, a Nobel Prize-winning economist, said at the 2019 World Economic Forum in Davos, Switzerland.
Shiller says the Dow Jones has been recovering from its plunge in late-2018, but there’s still a risk of a major downturn ahead.
“I’m not confident of my ability to predict, but I think there’s a risk (of a bear market in 2019),” Shiller told CNBC?on Jan. 23 (video below). “I categorize risks in terms of ‘narratives.’ And this bear-market narrative has taken a strong hold.”
There is a feeling that the stock market might be due for some deflating now because it’s been a long time. We’ve seen some hints of it. And we haven’t seen the real deflation yet.
Robert Shiller: ‘Narratives’ Feed the Bears
Shiller ― who won the Nobel Prize for economics in 2013?― is famous for his work in spotting financial bubbles. He underscored that his bearish outlook is based on psychology and media “narratives” ― and is not based on market fundamentals.
Shiller claims “narratives” played a major role in causing previous US recessions in 1920, the 1930s, and 2007-2009.
I have this quarrel with economists about fundamentals. I’m writing a book on ‘narrative economics,’ and think it is stories that drive markets more than fundamentals.
So basically, Shiller is predicting a bear market while writing a book about how “bear-market narratives” can actually trigger them.
El-Erian: Let’s Not Talk Ourselves into a Recession
Robert Shiller is echoing the sentiments of other noted economists. They warn that recessions and bear markets can become self-fulfilling prophecies.
Since these other economists have real-world experience with money and aren’t academics who only traffic in theory, one could argue that their assessments might be more reliable.
For example,?Mohamed El-Erian?— the chief economic adviser at German mega-bank Allianz — warned that the media hysteria about a recession could actually trigger one.
“I’m stunned by all this talk of recession,”?El-Erian told CNBC in December 2018 (video below).
We’ve got to be careful because we can talk ourselves into a recession. That’s how bad technicals become bad economics.
Mohamed El-Erian said the stock market would remain volatile in 2019 due to financial uncertainty in Europe and China, but there’s no real concern that the United States will tumble into a recession.
“[A recession is] certainly not becoming a reality,”?El-Erian said. “The global economy has become more uncertain — not because of the US, because the US is doing fine — but because of Europe and China.”
JPMorgan’s Jamie Dimon: Keep Calm and Carry on
Similarly,?Krishna Memani — the chief investment officer at OppenheimerFunds?— also laughed off talk of an impending recession.
Memani says the US economy is slowing down a bit, but will still grow above 2%. Moreover, Memani says fears of a US recession that will drag down the global economy is overblown. He doesn’t expect to see a US recession for at least five more years.
“There is no recession imminent — I think five more years is what we are talking about,” Krishna said.
JPMorgan CEO Jamie Dimon also says a global recession is not coming, so everyone needs to “take a deep breath” and calm down.
“It looks to me like a slowdown [not a recession],” Dimon said. “The United States is still growing, at 2.5%…People [should] take a deep breath.”
Featured Image from Flickr/World Economic Forum
Last modified: March 4, 2021 2:52 PM