Nobel Laureate Economist Praises Trump For Stock Market Rally: 'He Creates Animal Spirits'

Nobel Laureate for economics Robert Shiller sees president Donald Trump as the primary cause of Wall Street's recent strength because he's stoking the market's "animal spirits." Shiller won the Nobel Prize in 2013.

Shiller's newly-found praise for Trump is a huge turnaround from the point of view he held back in January 2018 when he said in an interview he'd give Trump a grade of "one or two out of 10 when it comes to economic policies."

Shiller said he didn't vote for Trump in November 2016. While he admitted to being nervous about Trump after the president's inauguration in January 2017, he said there’s no doubt Trump's personality had ignited widespread excitement about future U.S. prosperity.

Now, almost three years since that remark, Shiller credits Trump with creating the emotional high that's driving current Wall Street growth. He said this emotional high shows little signs of fading.

“He’s a motivational speaker," said Shiller of Trump. "We’ve never had a motivational speaker president before. He knows how to create animal spirits.”

The phrase animal spirits is solely associated with Shiller. It's the title of a 2009 book he co-authored. Animal spirits refer to the intangibles that psychologically drive excitement on Wall Street or in a particular sector. Wall Street today is imbued with animal spirits, contends Shiller.

The proof is in the numbers. All three major stock market indices hit all-time highs on December 20. The S&P 500 is up 29 percent thus far this year; the NASDAQ Composite has skyrocketed 35 percent; the Dow Jones Industrial Average is up 22 percent. This exuberance can't all be put down to strong fundamentals, however.

“It may not be so logical. It may be more, as I said, of animal spirits," contends Shiller. "This is an emotion that you feel at a certain time that you sense you see in other people. So when you see other people feeling confident about the market, you feel more confident yourself.”

Shiller now believes there’s a very good chance Trump will be re-elected and a recession could be years away. He said the U.S. might see a continuation of the Trump boom for some time despite the impeachment. He said he can easily see this happening. Shiller remains in the bull market camp and cites a strong economy for the unprecedented market gains.

But Shiller does have a warning for Wall Street. He warns there will be a huge price to pay down the road as valuations continue to soar. His favorite indicator, his own Shiller PE Ratio known as CAPE, shows the price-to-earnings ratio based on average inflation-adjusted earnings over the past 10 years at an uncomfortable level right now.

"The ratio is around 30 now which is quite high by historical standards,” said Shiller. “On the other hand, if you go back to 1999 and 2000, the ratio got up to 44. So it was about 50 percent higher than it is now. Eventually, it gets out of whack.”