In December of 2016, Robert Shiller warned stocks were partying like 1929. [Shiller Warns: Stocks Are Partying Like Its 1929!] Shiller is Sterling Professor of Economics at Yale University. He is an American Nobel Laureate, economist, academic, and best-selling author. He is ranked among the 100 most influential economists in the world [Robert J. Shiller, Wikipedia]. So when Shiller produced this chart, his world-renowned Shllier PE Ratio, it was treated as gospel.
Shiller won a Nobel Prize for his work related to the above chart. His ratio compares the prices to earnings of the past 10 years, and not just one year. On the surface, this chart would cause concern for investors. Since Shiller’s December 8, 2016 CNBC appearance to discuss this, the DOW Jones Industrial Average increased 8%, from 19,615 to a high of 21,169.
There’s a problem with the above chart: it is fake news. As money manager Dave Kranzler pointed out, accounting changes since late 2007 have invalidated the chart. He writes, “The problem comparing the current p/e ratio of the S&P 500 with that of previous stock bubble tops is that the accounting used to produce the ‘e’ is not comparable. Over time, FASB and the SEC have colluded to make it easier for companies to hide losses and report non-cash income as GAAP cash flow and earnings” [Most Overvalued Stock Market In U.S. History—Here’s Why].
For this article, it’s not important you understand all the abbreviations. The point is: the above chart is wrong. How the chart was calculated before 2007 is not the same as it is done today. It is Kranzler’s judgment today’s market would have the highest valuation, if the accounting rules were constant.
Kranzler is right. We can’t compare today’s numbers to yesteryears. Kranzler is not smarter than Shiller. Why does Shiller keep using his ratio, even though he knows the accounting rules have changed? I don’t believe Shiller is part of a conspiracy. Perhaps he simply has too much invested in his famous ratio so admit it is no longer valid.
Does any of this make a difference? “Yes.” Would it have been different, on CNBC, if Shiller had said, “This is the highest valuation in the market, ever!” What if Shiller had explained, “Many of America’s national banks would not exist today, if the government had not changed the accounting rules”? The economist could have reminded the financial reporter prior to the 2007 rule change, banks had to report their assets based on what they could be sold for in the marketplace (this is called, “mark-to-market”). With the changed rule, banks continue to list the value of their assets based on what they say the value is—not what the market would determine. (How would you like to be able to tell your auto insurance agent how much your totaled car is worth?)
My 28 years of financial experience tells me, if Shiller told the truth about financial numbers, he would not be invited back on CNBC.
My problem isn’t with Robert Shiller. My question is, “Why do financial reporters not ask the right questions?” Today’s reporters are repeaters. Instead of doing classical journalism, they simply repeat whatever they are told. When Shiller presents his chart, they don’t think about the data change implications (which they know have occurred). When the government reports economic data, they simply repeat it, without question. If the CBO (Congressional Budget Office) says shredding Obamacare will cost $350 billion, they don’t question the assumptions. They simply repeat it.
Investors make decisions based on fake financial news. Few people understand the corporate media outlets depend on advertising. That dependency leads to news which encourages investors to invest and consumers to consume.
Former Federal Reserve Chairman Ben Bernanke illustrated this motivation to present fake news. When asked to explain why his view of the economy was so wrong in 2005, he said, “Well, it was partly the result of the fact that I was representing the administration. And you don’t really want to go out and say, ‘Run for the hills,’ right?” [Quote]
Fake financial news has permeated reporting. Some economists place little value in the government’s GDP (Gross Domestic Product) data. For example, if the Federal Reserve printed $19 trillion this year and it was spent in this year, the GDP would double. The corporate news media would tout this as wonderful growth. But, such action would reflection hyperinflation and the destruction of the dollar.
The Consumer Price Index is one of the most fraudulent numbers. The basket of goods used to determine whether prices are increasing is constantly changing. (For more information, click here.) In a similar fashion, but not as frequently, the Dow Jones Industrial Average replaces stocks with disappointing performance. Some of the more recent companies removed have been: General Motors, Kraft Foods, Citigroup, American International Group and Kodak. [Corporations Kicked From The Dow Jones, Dow 20,000 is arbitrary and pointless—just like the DOW itself and Here’s Why Dow 20,000 Is Meaningless.]
Whether investors or consumers, we need to recognize financial institutions and businesses want our money. They want as much as they can get. Corporate media, depending on these advertisers, twist the financial news reporting to the benefit of their profits. This requires us to think for ourselves. Our common sense is often more valuable than the opinions we hear from financial experts. When it comes to the corporate media, don’t believe it is “fair and balanced.”
“Dollar” Bill is a real guy, with real knowledge on our nation’s financial calamity, and real solutions for what must be done to dig ourselves out of the hole we are in. Due to his career, Bill must remain “disguised” to protect his position. “Bill” loves America, sees the impending cliff we are all headed towards, and hopes that by sharing his inside knowledge of the failed monetary policy in our nation, that a fiscal “nuclear” event can be minimized.