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Famed economist says limit exposure to Canada's housing market, U.S. stocks

He may not be ready to call it a bubble, but Nobel-Prize winning economist Robert Shiller says investors in U.S. stocks and Canadian houses should be very careful. In an interview with BNN, the famed Yale economist says he sees worrying signs in both the Canadian housing market and the U.S. stock market. 

“There is a real possibility the Dow will be at 11,000 in two years,” he tells BNN. “But it could also go up. I’m less optimistic with the high valuation of the U.S. market now and less ready to go all in.”

On Wednesday, the Dow Jones Industrial Average gained 235.57 points, closing at 16,284.70.

Shiller says he is still holding on to his own market positions – but warns investors to not be overexposed to the U.S. stock market. Global equities have been under pressure lately as investors fear slowing global growth and its potential impact on corporate earnings. Investors are worried the markets may still be too high, says Shiller.

“What I find most striking now is the loss of confidence in the valuation of the U.S. market. It’s a sign of a bubble,” he says.

Shiller is known for his prescient warnings about the dangers of both the dot-com stock market mania as well as the U.S. housing market collapse. He says he sees some of the same troubling signs in the Canadian housing market as home prices in Toronto and Vancouver hit similar levels seen by some of the hottest U.S. housing markets before the collapse.

“It strikes me they may correct down,” he tells BNN. “I can’t predict (when) – it may go up for years. That’s what happens in these bubble periods. People get accustomed to prices and think they will last – but they may not.”

Shiller says fear is a factor in the price increase in both stocks and housing.

“People have a nesting instinct: I want shelter, I want something I can own – and it forces them to bid up prices,” he tells BNN. “It does make for a high market and that does leave me to think you should be careful.”

Shiller is the author of a new book Phishing for Phools — which he co-wrote with George Akerloff, Federal Reserve chair Janet Yellen's husband and himself a Nobel winner. The book looks at the history and role of deception and manipulation in the markets.

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