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Robert Shiller: The US Stock Market Could be Approaching a Bubble

Robert Shiller, who called both the Nasdaq bubble as well as the housing bubble, is getting increasingly concerned about a bubble in the USA.  But he’s not officially calling the US stock market a bubble yet though he is growing concerned.  According to Reuters he says:

“I am not yet sounding the alarm. But in many countries stock exchanges are at a high level and prices have risen sharply in some property markets,” Shiller told Sunday’s Der Spiegel magazine. “That could end badly,” he said.

“I am most worried about the boom in the U.S. stock market. Also because our economy is still weak and vulnerable,” he said, describing the financial and technology sectors as overvalued.”

So, when would Shiller get scared of US stocks?  He elaborated in an interview over the weekend with Barrons:

“The current adjusted price/earnings of 25 is quite a bit above the average, which is about 16. But it’s not so much above average that I would disqualify stocks as an investment. Based on an updated regression that one of my students initially ran, it is still predicting something like a real return for stocks of 2.5% a year—not superhigh. But I’m starting to get more worried about the market as it keeps going up. When CAPE gets as high as 28, stocks would start to look unattractive.”

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