The market has had a torrid run since March -- as shareholders of Freeport-McMoRan (NYSE:FCX), Hewlett-Packard (NYSE:HPQ), and Southern Copper (NYSE:PCU) surely know. Those three stocks are up at least 75%, helping to fuel the market's stable upward run; we've had little of the gruesome volatility of last year.

Underlying that climb have been signs of economic recovery. Cisco's (NASDAQ:CSCO) CEO has proclaimed the recession over, and Ford (NYSE:F) posted an unexpected third-quarter profit, buoying hopes for the beginning of a recovery in the auto industry. Retail sales grew for the second straight month in October. Yet unemployment swelled to 10.2% in the same month. So where are we going now? What's the state of the economy and the markets?

In a recent interview, Yale professor of finance and economics Robert Shiller weighed in on the economy and the market. Shiller is the co-creator of the S&P/Case Shiller Home Price Index and the author of numerous books, including the recent Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism.

Shiller says the stock market is pretty pricey at the moment and that the "animal spirits are back." He says commercial real estate is the next shoe to drop and that he's concerned about the possibility of a prolonged era of weak economic growth. What follows is an edited transcript of our conversation.

Jennifer Schonberger: What's your take on the state of the economy?

Robert Shiller: We've had a depression scare. At the moment, it seems to have substantially mended. We've really had four major depression scares since the Great Depression. This is the fourth, and they've all ended fairly quickly. So if past patterns are our guide, we've passed it. [But the scary part is,] I'm not sure about that.

The reasons to worry about the depression were especially strong this time, but the U.S. government, along with governments of the world, has taken huge measures against that risk. So we're in a period now where confidence has come back and it may be over, but we still have problems. So I think it's still possible that the scare could come back.

Schonberger: What's the next big shoe to drop?

Shiller: Commercial real estate is one. Commercial real estate prices peaked later than single-family homes, and they still have a lot to go. There are a lot of funding problems that are coming up. Also, the government is borrowing a lot of money right now ...

I think the thing I worry most about is not just the immediate short run, which probably we're on an upward trajectory, but for the longer run. I worry that we may not recover well enough, and it may lead to an era of weak confidence and weak economic growth.

Schonberger: Of the dollar, the equity market, or the housing market, which worries you most now?

Shiller: They're all very uncertain right now. So I worry about all of them. The stock market has had the biggest six-month surge since the Great Depression, and it doesn't look that solid or real. It went up on low volume and government bailouts. The market is a little bit on the pricey side now. So there could be a major collapse in the market -- though that doesn't mean that's going to happen. It might continue to go up. But I think the stock market is worrisome now.

With the housing market, it's really hard to tell because we've had a huge recovery in the housing market. Prices are going up rapidly now. I don't know if I'd put that as my No. 1 concern -- it's going up so solidly at the moment -- but on the other hand it all looks risky, too. So I think we could see new lows in home prices.

Schonberger: You mentioned how the stock market has had a torrid run and that it's worrisome. You have your own price-to-earnings ratio in which you take the real stock price and divide it by 10-year average real earnings. What are you seeing now -- is the market overvalued?

Shiller: As of few days ago, my P/E ratio was 18.5. The average historically has been around 15. So that's high, but not super-high. Not like 2000, when it grew up to 46 at the peak. So if you only look at that metric, the stock market is still a pretty good investment -- it's not so overpriced that one should stay away from it.

On the other hand, it's the unusualness of the economy right now that makes me wonder about the stock market and the fact that it attained this level at such short speed.

Schonberger: In your book, you write that "from blind faith in ever-rising housing prices to plummeting confidence in capital markets ... animal spirits" are driving financial events worldwide. Have the "animal spirits" resurfaced in equities? Commodities?

Shiller: Animal spirits are definitely back, but it's not something you can quantify with one number. It has a different form now. Ten years ago, it was driven by a sense that we were entering this exciting new era driven by the Internet and new communications technology. Now we don't have that story. Also, confidence is not back to those 1999 levels.

Schonberger: The IMF and World Bank are concerned that governments around the world, which have injected massive amounts of cash into their economies to jump-start recovery, are also stoking asset bubbles in real estate, equities, and currencies. Do you agree?

Shiller: We did see a bubbly phenomenon in the stock market since March, and we do have rapid price increases in real estate today. Interest rates are at rock bottom. So cutting interest rates played a role, but I think they did the right thing to cut the interest rates because the economy was so precarious. ... It's probably the reason these asset markets have boomed. But it seems to me less than a 50-50 chance that we have any major bubble from here.

Read more from Robert Shiller here.

Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. The Motley Fool has a disclosure policy.