Why the Real Estate Markets are Booming
Why the Real Estate Markets are Booming
Well it’s not only real estate but the stock markets as well.
When viewing Mr. Shiller’s remarks, keep in mind in this QE Infinity world even Nobel Prize winners are confused. The Fed has created a monster!
Robert Shiller, a Nobel Prize winning economist, a pioneer in the field of behavioral finance, long-time Yale professor, financial innovator and prolific author. Shiller is also the co-creator of the widely cited gauge of U.S. housing prices, the Case-Shiller Home Price Index, and creator of the cyclically adjusted PE ratio known as the Cape Ratio which is a price-earnings ratio for the S&P 500 based on average inflation-adjusted earnings from the previous ten years.
Why the Real Estate Markets are Booming
Because it includes ten years of earnings many consider it to be a more reliable gauge of market value. His presence could not be more timely. He is known for identifying the tech and housing bubbles long before anyone else did, and here we are in the midst of an economy crushing pandemic with home prices booming and stock prices hitting new records. We started with the stock market, his analysis of the record-setting performance.
OK, here is the summary up to 5:27 above: The stock market is sky-high because investors are afraid to sell and therefore miss out on further gains. So, there is not a fear of loss but a fear of avoided gain. Thus, it is emotion that is driving this market higher and higher, not fundamental value analysis. But, the fundamentals have shifted significantly in favor of tech. Apple has overtaken Saudi Aramco as the world’s most profitable company. Most of the tech companies are sitting on hundreds of billions$ in cash right now and they’ve been raising their dividends faster than the broader market. Tech has completely revolutionized the world economy the same way oil did at the turn of the 20th century, and this pandemic has only exasperated that trend.
A second option for inflation protection, along with the TIPs that Mr. Shiller recommends, is treasury direct i-bonds. They are principle protected, and have a floating yield at (or sometimes above) the rate of inflation. For safe money that is hard to beat right now. Unfortunately you can only purchase a max of 10k per year…
Incase you missed it, here is a link to my opinion about the crazy real estate market.
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