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Stock Market ‘Deflation’ Could Trigger Bear Market: Nobel Laureate Robert Shiller

BY Samantha Chang | 2 hours ago Stock Market ‘Deflation’ Could Trigger Bear Market: Nobel Laureate Robert Shiller Robert Shiller warned that the US stock market could be on the verge of a recession. | Source: Flickr/World Economic Forum. By 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.” 1000-Point Swings ‘New Reality’ for Dow Jones Index: Allianz Economist El-Erian — (@CryptoCoinsNews) December 31, 2018 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 POSTED IN: Business, News TAGS: davos, robert shiller, world economic forum
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