07/12/2013 Nobel Prize winner warns of US stock market bubble

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Nobel Prize winner warns of US stock market bubble

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CNBC.com | Monday, 2 Dec 2013 | 4:23 AM ET

A sharp rise in U.S. equity prices could be leading to a dangerous bubble, according to one of thethree Americans who won the 2013 Nobel prize for economics.

"I'm not sounding the alarm yet. But in many countries the stock price levels are high, and in many realestate markets prices have risen sharply...that could end badly."

"I find the boom in the U.S. stock market most concerning," Robert Shiller said in an interview withGermany's Der Spiegel magazine published on Sunday.

(Read More: Faber: 'We are in a massive speculative bubble')

He added that this was a key concern because the U.S. economy was "still weak and vulnerable". Thereal estate market in Brazil was also worrying, he said. He said that at a recent conference he attendedin the country, the sharp jump in house prices had been attributed to a growing middle class and apositive economic developments.

He saw many similarities with the U.S. housing boom of the mid-2000s.

"The world is still very vulnerable to bubbles," he said.

Schiller won the Nobel prize economics in October for his research that has improved the forecastingof asset prices in the long term and helped the emergence of index funds in stock markets. He wasawarded the 8 million crown ($1.25 million) prize alongside fellow economists Eugene Fama and LarsPeter Hansen.

(Read More: The Fed has created a huge global bubble: Stockman)

At the ceremony in Sweden, Schiller told Reuters news agency that the Federal Reserve's economicstimulus and growing market speculation were creating a "bubbly" property boom.

"This financial crisis that we've been going through in the last five years has been one that seems toreveal the failure to understand price movements," Shiller told Reuters.

He did not mention a bubble in U.S. stocks back in October, but has now added that to his list ofgrowing concerns. The S&P 500 Index is now higher by 26.6 percent since the start of the year,logging its longest weekly winning streak since 2004 on Friday.

Both the Dow and the S&P 500 are regularly breaking fresh new all-time highs and the Nasdaq istrading at levels not seen since the Dotcom boom went bust in 2000.

(Read more: Art Cashin: Here are the 3 biggest risks to stocks)

Marc Faber, editor and publisher of The Gloom, Boom & Doom Report, told CNBC on Friday hebelieves a "massive speculative bubble" has encroached on everything from stocks and bonds toalternative currency bitcoin and farmland. He attributed the vast bubble to "symptoms of excessliquidity."

The U.S. Federal Reserve has embarked on quantitative easing (QE) in recent years and is currentlypumping $85 billion into the economy every month. This extra liquidity has been joined by similar

07/12/2013 Nobel Prize winner warns of US stock market bubble

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programs in the U.K. and Japan.

Analysts cite this extra liquidity as a reason for the global equity rally this year, but many are nowstarting to grow cautious amid uncertainty over whether the Fed will taper its bond purchases in thecoming months.

Tom Elliot, an international investment strategist at DeVere Group told CNBC Monday that fledglingU.S. growth and quantitative easing were two pillars that were currently propping up the U.S. economy.He was concerned that no-one had any idea what would happen if one of those pillars was removed.

"We've got no idea whether the wall will hold," he said.

By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81

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