Yale economist Robert ShillerDouglas Healey
Moments before one of the most anxiously awaited Federal Reserve policy decisions in recent years, Yale University Professor of Economics Robert Shiller joined Inside the Market for a discussion on the Canadian and U.S. housing markets, bond-buying tapering and his latest economic outlook. This was a chance for Globe Unlimited subscribers to ask questions of one of the most influential economists in the world.
Mr. Shiller is a best-selling author who has written extensively on financial markets, behavioral economics, macroeconomics, real estate, and statistical methods. He is co-creator of the Case-Shiller index of U.S. house prices and correctly forecast both the 1987 stock market collapse and the more recent U.S. real estate meltdown.
Despite Canada's relative economic outperformance versus the U.S. during the so-called Great Recession, Mr. Shiller has not been upbeat about this country in recent years, saying our housing market could be in store for a U.S.-style drop and that Canada came through the financial crisis relatively unscathed because of the luck of a spike in crude oil prices.
Lately, he's been advocating his cyclically adjusted price-to-earnings ratio (or CAPE) metric - which suggests the market is much more expensive than under the traditionally used 12-month trailing price-to-earnings ratio. His ratio, which compares the price of the market to inflation-adjusted returns from the prior 10 years, shows that the market is now valued at 24 times earnings. The trailing P/E ratio suggests the market is valued at about 19 times earnings, which is only modestly higher than the historical average of 15.
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Darcy Keith