Yale’s Shiller: Stocks Rising on Earnings, Not Economic Optimism

Thursday, 12 Apr 2012 11:43 AM

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Stocks have risen during the past couple of years due to strong corporate earnings and not due to an underlying optimism for the country's future, says Yale Professor Robert Shiller.

Corporate measures like cost-cutting have made earnings attractive, while loose monetary policies from the Federal Reserve such as rate cuts and liquidity injections have sent money flooding into the stock market.

Such factors have been good for stocks, but won't last forever.

Editor's Note: Wall Street Insider: The System Is Rigged

"The stock market is up since 2009 because of an extraordinary growth of earnings. The question to me is whether that's sustainable," Shiller tells CNBC.

Housing remains weak, with millions facing foreclosure and eviction, while unemployment continues to plague confidence and demand.

"There's things on the horizon that might disturb, and people are ultimately still a little bit anxious and iffy — so the animal spirits are not back to 2005 levels. "

The housing sector, which helped throw the country into recession, continues to weigh down on recovery.

Federal Reserve officials point out the country is recovering but won't rule out the need for monetary stimulus measures such as liquidity injections to juice up the economy before it can stand on its own.

The economy likely grew around 2.5 percent in the first quarter, according to Federal Reserve Bank of New York President William Dudley.

"We need sustained growth above that rate to absorb the still substantial amount of unused productive capacity," Dudley said in a recent speech, according to Reuters.

"In the headwinds department, I would include the run-up in gasoline prices because that will sap purchasing power, the continued impediments to a strong recovery from ongoing weakness in the housing sector, and fiscal drag at the federal and state and local levels."

Editor's Note: Wall Street Insider: The System Is Rigged



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