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Long-Term CAPE Predicts Bubbles
- Robert J. Shiller's long-term CAPE ratio warned of the 2000 dot-com bubble years before the crash.
- Using 10-year average earnings smooths short-term noise and reveals extreme overvaluation trends.
Housing Prices Detached From Fundamentals
- Shiller identified an anomalous global rise in real home prices beginning in 1998 that lacked supporting fundamentals.
- He warned real house prices could fall ~40% and precipitate recessionary effects.
Efficient Markets Is A Half-Truth
- The efficient markets idea says prices incorporate available information and thus follow a random walk of unpredictable news.
- Shiller calls this a half-truth: markets are smart but not perfectly rational over long horizons.