Shiller: A Recession Will Doom Trump – ValueWalk Premium
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Shiller: A Recession Will Doom Trump

A recession would doom President Trump’s reelection chances, according to Robert Shiller. But he said the chance of that happening before next November is less than 50%.

Q2 hedge fund letters, conference, scoops etc

stock investors Tourbillon Capital Partners SPX Partners

Shiller is a professor of economics at Yale University and a co-recipient of the 2013 Nobel Memorial Prize in Economic Sciences. He spoke to advisors via a conference call that was sponsored by Barclays Investments. Barclays offers a number of index investment products based on Shiller’s cyclically-adjusted price-to-earnings (CAPE) ratio.

Shiller’s political prediction is built on his work on narratives, which is the focus of his next and 13th book, Narrative Economics, available through the link on this page.

The Trump narrative goes back 50 years, Shiller said, to when he began in the real estate industry. Trump knows that a recession doesn’t fit in to his theme of “make America great again.” There is enough evidence that recessions are bad news for incumbent presidents, he said.

“A recession will spell the end of the Trump presidency,” Shiller said.

But those who wish for a different president might not be as enthused by Shiller’s comments on the CAPE ratio.

That ratio is at a historically high level (almost 30 in the U.S.) in part because of the Trump narrative, Shiller said. “Even those who don’t like him are inspired by his tough business attitude.”

The Trump narrative has a powerful impact on growth stocks. A value narrative requires, “holding back from enthusiasm and buying boring stocks,” Shiller said. But the spirit of our times is not a value-investing spirit.

“It’s much more fun to go to a Trump rally and invest in stocks that have a great story,” he said, “than to pull back on stocks.”

The history of economic narratives

Shiller’s book is an outgrowth of his presidential address to American Economics Association in 2017. Economists are neglecting narratives, which he said is an obvious oversight. “The human mind is influenced by stories. Our thinking changes as narratives change, especially when a narrative goes viral, which can happen fast on a global basis.”

The idea that we can talk ourselves into a recession started with the Great Depression, according to Shiller.

Shiller claimed that a “frugality narrative” extended the Great Depression. That was when “simple living” had its heyday. But it meant that nobody wanted to spend, and that lack of consumption depressed economic growth. New car sales fell 85% from 1929 to 1933, he said.

The frugality narrative overwhelmed purchasing decisions. “Nobody wanted a new car in their driveway when their neighbors were desperate,” Shiller said.

Read the full article here by Robert Huebscher, Advisor Perspectives

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