Life Preservers on the Titanic Theory— August 20, 2014
In the recent years all asset prices are rising together. There might be many causes for this including
- The governments printing money ( Quantitate Easing) and hence increasing liquidity in the markets
- Central banks are keeping interest rate low, hence driving capital towards all kinds of assets
- There is real recovery in the economy, which is evident in the revenue and profits
Robert Shiller ( professor of economics and author of Irrational exuberance ) thinks it’s a symptom of anxiety. He explains in this video how worries about the future can cause asset markets to be priced highly.
He calls it the “Life Perseveres on the Titanic” theory. He describes
When the Titanic was going down, people would pay a fortune for anything that floats and that might be the situation we are in now.
Economist and the financial analyst will later try to explain the rise in asset prices, essentially stating “This time it’s different”, it was retail chains in 1920’s and technology in 2000’s and even now.
Tagged with: Robert Shiller
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