Irrational Exuberance | Robert J. Shiller

Irrational Exuberance | Robert J. Shiller | You should buy this book.

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Irrational Exuberance

	Irrational Exuberance Robert J. Shiller Broadway Books, 2006 - 336 pages average customer review:based on 89 reviews view larger image
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highly recommended

Good Insights!

Shiller sees current market price-earnings ratios (mid-20s) as still far higher than historical averages, and President Bush's "Ownership Society" a plus for economic growth but also encouraging speculation.

Further evidence that the market is overpriced is that the DJIA was about 3,600 in early '94, and then passed 10,000 during March, 1999 - tripling in 5 years, while GDP rose less than 40% and profits less than 60%. As for real estate, Shiller reports that in the eight most volatile states median home prices rose from '85-'02 from 4.9Xper capita income to 7.7X.

Why these large increases? Shiller offers a number of explanations:

1)Most investors are unaware of the troubling lack of credibility of most stock market research.

2)Mortgage lenders began including a wife's income during the 1970s in qualifying for a loan.

3)Capital gains tax cuts in '97 and '03. Also Proposition 13's passing in California.

4)Greenspan creating the impression that major losses would be prevented - eg. the Federal Reserve's stepping in after the '87 crash, '98 Russian debt crisis and Long Term Capital Management's failure, and the Y2K crisis.

5)Analysts' consistently optimistic forecasts (eg. only 1% said "Sell"), combined with the onset of regular business reporting on cable.

6)The growth of IRAs and mutual fund advertising.

7)Greenspan's "justification" for new stock levels through concluding that we were in a "new era" - tremendous business improvement via computers, without inflation or business cycle downturns. (A turnaround for Greenspan who in '96 originated the term (and concern over" stock market "irrational exhuberance.")

Shiller's recommendations include a monetary policy that gently leans against bubbles (he also points out that the 1930's Great Depression was substantially due to monetary authorities' trying to stabilize speculative markets through interest rate policies), opinion leaders offering stabilizing opoinions, imroving Social Security's design - reducing the felt pressure to invest for greater return (how would this occur without putting further pressure on stock market prices is not made clear), placing company funded/supported retirement plans on a sounder footing (same problem as prior recommendation), and an effective plan to increase savings (again, I'm unsure how this would

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You should buy this book.

This is the most well articulated and thoroughly researched account of the factors that contribute to speculative bubbles (or periods of irrational exuberance) I have come across. So well written it would be enjoyable for those not in the finance industry. It provides perspectives on where the stock and housing markets are now in the context of historical tendancies, beyond the daily noise and media hype. Can't say enough about this book. I'll probably be reading it a few more times.

Great read for non-econ majors

This book is an interesting and informative look at market and real estate bubbles. It has helped me to understand the crazy real estate bubble here in the San Francisco Bay Area, and it has also helped me to look at the stock market from a more educated perspective.

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