This Yale professor can see the future.
He accurately predicted:
- Internet Bubble
- 2008 Financial Crisis
But at the time, no one believed him.
This is Robert Shiller's latest market warning and the secret to predicting bubbles:
In March 2000, Yale economist Robert Shiller published (Irrational Exuberance), warning that tech stocks were severely overvalued.
As a result, the market crashed, completely aligning with his prediction.
Investors lost $5 trillion.
But this was just the beginning...
In 2005, Shiller updated his book and issued another warning:
He pointed out that housing prices were severely detached from economic fundamentals.
Everyone laughed at him.
The prevailing consensus at the time was: 'Housing prices won't fall nationally.'
However, three years later, the worst financial crisis since 1929 broke out.
Shiller's core insight was not in the data, but in market narrative.
He believed the market was driven by:
- Emotion
- Narrative
- Human psychology
This led him to pioneer behavioral economics, specifically studying why smart investors make wrong decisions.
So, what is his secret weapon for identifying market bubbles?
CAPE ratio (Cyclically Adjusted Price-to-Earnings ratio).
This is a valuation tool that measures stock prices relative to earnings over the past 10 years, revealing whether the market is overvalued or undervalued.
In 2000 and 2007, the CAPE ratio both lit up red.
When the CAPE ratio exceeds 30, the market enters a high-risk zone.
Internet Bubble (2000): 44
Before the 2008 financial crisis: about 27
Today (March 10, 2025): about 35
It had reached higher levels during the 2000 internet bubble and briefly touched 38.49 in 2021.
Shiller's three major bubble warning signs:
1. Prices rising too quickly, far exceeding income growth or historical trends.
2. Price-to-income ratio too high, making assets unaffordable.
3. Speculative buying, with investors flooding into the market due to 'fear of missing out' (FOMO) rather than based on fundamental analysis.
So, what is Shiller's current prediction?
He offered two important warnings that all investors and traders should pay attention to:
1. Housing prices may fall by 10% (or enter a long-term sideways trend).
2. Artificial intelligence may trigger unprecedented market volatility.
What does this mean for 2025 and the crypto market?
For traditional markets, Shiller sees potential risks:
- Stock market valuations nearing historical highs.
- Concerns in the real estate market.
- Market investment increasingly relying on narrative over fundamentals.
For traders who understand market psychology, this is both a risk and an opportunity.
Warnings about AI are especially important for the crypto market.
Shiller believes AI will bring about 'extremely disruptive' economic changes and may trigger severe market volatility.
The market narrative surrounding AI will also drive price fluctuations for many assets, including Nvidia and even cryptocurrencies.
The market narrative cycle described by Shiller is strikingly similar to the crypto market:
1. Early investors build the market story.
2. Prices rise, reinforcing that story.
3. Media amplifies the promotion, drawing attention.
4. New investors enter due to FOMO.
5. Market performance fails to meet expectations, and the bubble begins to burst.
6. Narrative collapses, and the market plummets.
Understanding which stage the current market is in is crucial.
What is Shiller's biggest insight regarding the crypto market?
In the short term, market psychology influences price movements far more than fundamentals.
Those who understand the market narrative cycle can position themselves ahead of the crowd.
This is critical for the crypto market.
But true long-term gains come from...
Bitcoin has cyclical patterns.
But what influences Bitcoin's movement is not just the market narrative, but also these key factors:
1. The trend of the dollar index.
2. Global liquidity.
3. Quantitative tightening or easing.
4. The current stage of the economic cycle.
5. Bitcoin's market adoption rate.
While no one can accurately predict the future, combining macro fundamentals with technical analysis...
In the next 3-4 years, the crypto market may represent the most promising wealth opportunity.
But the premise is...
You must enhance your knowledge and skills.
There are no shortcuts.