I’ve posted Entry #264 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Shiller’s Findings Revolutionize Our Understanding of How the Economy Works Too.
Juicy Excerpt: I have made this point on numerous occasions and have never been successful in generating much feedback. So I was happy to see a Letter to the Editor written in response to Shiller’s recent article (Rising Anxiety that Stocks Are Overpriced) that makes the essential point succinctly and yet compellingly. The comment was posted on August 31 by a fellow named “Ken” from Sydney.
Ken writes: “One of the problems that Professor Shiller ignores is that bubbles, in generating apparent wealth, have effects in the wider economy. As their asset values increase, they [investors who own stocks] tend to spend more, which increases the income of others in the economy. Seeing their increased income, they borrow more, pushing up asset prices.”