Portfolio Manager Perspectives

Jeff Benjamin

Green acres best bet for making green, Yale's Shiller says

Limited supply will drive prices of farmland up over the next decade; stocks will come a-cropper

May 16, 2011 @ 2:43 pm

By Jeff Benjamin

With the exception of farmland, investors should keep their expectations for investment returns low for at least the next 10 years, according to Robert Shiller, an economics professor at Yale University.

Speaking during an opening session of the Investment Management Consultants Association's annual conference in Las Vegas, Mr. Shiller said he expects stocks to gain a mere 2% to 3% annually over the next decade.

In his presentation, Mr.Shiller, well known for his S&P/Case-Shiller Home Price indexes, illustrated how farmland participated in the real estate bubble from 2000 to 2005, but did not fall in stride over the past few years.

“My only bullish call is farmland,” he said.

The reason farmland has held much of the gains that it built up during the real estate bubble, he said, is because, unlike housing, there is a limited supply.

“A single logical error that people make when buying a home is that they think buying a home is the same as buying land,” he said. “But in the total price of a house, only 20% is the land.”

Mr. Shiller also covered some of the driving forces behind the financial crisis, which he described as the worst financial crisis since the Great Depression.

“Even at this point, with the recession technically over, we are in the worst financial shape we've been in since the Great Depression,” he said.

Mr. Shiller mentioned the usual suspects in explaining the crisis, including relaxed lending practices, a disproportionate percentage of subprime loans, weak regulatory oversight and a government policy that encouraged more mortgage lending.

But the real question people should be asking, he said, is why we ended up in that position to begin with?

“You can't just blame the regulators, because people weren't calling for regulators to do something about it during the housing boom,” he said.

In terms of his generally gloomy investment outlook, Mr. Shiller calculated the real unemployment rate — including the unemployed, underemployed, as well as those people that have been forced into early retirement — at 15.9% or about one-sixth of the adult population in the United States.

The downward trend of the latest consumer confidence data also should be recognized, he added.

“It worries me because if people don't have confidence, they don't spend money,” he said.

Mr. Shiller also pointed out that the homebuilding industry, and probably the banking industry, actually started feeling the pressure at least two years before the start of the financial crisis in 2007.

According to his research, consumer traffic at real estate properties started to fall dramatically in 2005, and that was followed by a dramatic decline in housing permits.

“It was almost like somebody blew a whistle that only dogs and homebuyers could hear,” he said.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

How did we pick this year's 40 under 40 winners?

Special projects editor Liz Skinner and editor Fred Gabriel say efforts to improve the financial advice industry and the promise of future success factored heavily in candidate selection.

Latest news & opinion

Meet our new 40 Under 40s

For a fifth year, InvestmentNews is proud to shine a spotlight on the amazing accomplishments and potential of top young financial professionals.

Merrill re-evaluates commission ban in retirement accounts

The wirehouse's wealth management group announces a fresh look at the ban now that the DOL rule is on the brink of death.

10 biggest retirement mistakes

Adhere to enrollment deadlines and distribution rules or pay a hefty penalty.

DOL fiduciary rule on brink of death as key deadline passes

Justice Department didn't petition the Supreme Court to rehear the case. A mandate from the 5th Circuit would finally lay the fiduciary rule to rest.

Finra to overhaul broker information system, cut compliance costs for broker-dealers

The move is intended to cut compliance costs for firms as well as make the registration and disclosure process more efficient.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print
This story is part of XMore ▲