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Investor sentiment expert Peter Atwater on market bubbles, Trump and tiny houses

Peter Atwater, president of Financial Insyghts and adjunct professor at the University of Delaware, discusses how studying social mood can help investors predict financial market cycles, as well as explain the emergence of phenomena like the rise of Donald Trump.

"Markets demonstrate herd behavior that is based on stories far more than fact," the author of "Moods and Markets" said in an in-depth sit-down with CNBC's Mike Santoli. "The wealth effect posits if asset prices rise, people will feel more confident. I think it's just the opposite. Asset prices rise because people feel more confident."

Atwater follows a theory popularized by the technical analyst Robert Prechter called socionomics, which holds that changes in social mood cause fluctuations in financial markets, commerce and politics.

"You have this confidence decoupling," Atwater said about today's social and political climate. "If you've been an owner or manager or senior executive you've had an extraordinary run in terms of market confidence and individual confidence. … Main Street though, … the users of capital, have had a very different experience."

Other topics discussed during this exclusive discussion:

  • The bubbles brewing in real estate, art and Silicon Valley;
  • whether U.S. stocks are overvalued;
  • why tiny houses are becoming popular.

PRO subscribers can also read the entire transcript of the exclusive interview below.