Janet Yellen Opens Mouth, Epic "Valuation" Fiasco Ensues

Tyler Durden's picture


5 Years ago, President Obama explained to the American public that "profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal" much to the chagrin of CPAs everywhere, stuck looking under every rock and cranny just what a profit and earning ratio was.

Today, none other than Janet Yellen created yet another imaginary metric to reassure the stock-buying-public that all is well as follows: "price equity ratios and other measures are not outside of historical norms." While she admits "some things may be on the high side," her credibility is entirely blown as a simple glance at the following chart shows that - as opposed to what Yellen says, none other than the ultimate establishment body JPMorgan shows that valuations in "price-earnings ratios" are higher now than at the peak of the bubble in 2007. To conclude, this is why the Fed should not enter the business of "valuing" stocks - it has NO IDEA what it is talking about.

To recap: five years ago, President Obama performed the first open-mouth operation for investors to buy stocks and made up a new valuation metric.

"what you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it"

Today, it was Yellen's turn to show her ignorance: fast forward to 1:32:44 in the clip below for the epic "Price-Equity ratio" reference.

Broadcast live streaming video on Ustream

"The Federal Reserve has been increasingly and  intensely focused on financial stability, and we understand that  maintaining interest rates at low levels for a long time can incent  reach-for-yield or asset bubbles.  So we are monitoring this very  closely, and that's in part why I reference some of these trends in my  opening testimony.


My general assessment at this point is that threats to financial  stability are at a moderate level and not a very high level.  Some of  the things that I would look at in assessing threats to financial  stability to see if they're broad-based, broad measures of asset  prices, of equities, real estate, of debt -- do they seem to be out of  line with historical norms?  And I think they are the answer is no.  Some things may be on the high side, and there may be some pockets  where we see valuations becoming very stretched but not generally.


The use of leverage is not broad-based.  It hasn't increased in credit growth.  It's not --you know, at alarming levels by any means.


So I don't have a view -- the Federal Reserve doesn't take a view as to what the right level of equity or asset prices should be, but we do try to monitor to see if they are rising outside of levels consistent with historic norms.  And as I indicated, in spite of the fact that equity prices, broad indices have risen substantially, price-equity ratios and other measures are not outside of historical norms.  And I don't know what the right level of prices is, but in that sense I'm not seeing alarming warning signals."

*  *  *

The problem - aside from WTF is a "price-equity ratio" is that P/E ratios are actually higher now than they were at peak of the bubble...

  • Current forward S&P 500 P/E: 15.6x
  • Forward S&P 500 P/E on October 9, 2007: 15.2x

Needless to say, this assumes the current consensus for Non-GAAP earnings growth is accurate, which as we explained previously is driven almost entirely by "one-time charge" addbacks: addbacks which traditionally peak just before recessions strikes. That, and collapsing share counts due to endless buybacks of course, all of which is driven by cheap credit.

But all of the above is "noise" to quote Janet Yellen. One quick look at the chart below and it becomes immediately clear that the 190% surge in the S&P since the 2009 lows has been entirely on the $10 trillion (excluding China's $25 trillion in new financial debt) in central bank created liquidity.

And some additional equity valuation metrics now vs "then"


*  *  *

Yet day after day, investors listen to The Fed, mesmerized by every word that comes out of their mouths, when in fact yet again it is all bullshit fluff and clueless textbook misunderstanding of the irrationality of markets rationally charged higher by the Fed's ignorance now laid out for all to see.

Your rating: None Average: 5 (22 votes)

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 07/16/2014 - 15:24 | 4963916 Bill of Rights
Bill of Rights's picture

Atlanta TSA Agent To Reporter: What Is This “District Of Columbia” You Speak Of?


They are there to save us, count on it. Now assume the position.

Wed, 07/16/2014 - 15:41 | 4963984 Headbanger
Headbanger's picture

Yeah, what city is that district in anyway?

And "price-equity ratio" is that ratio thing ya know with numbers and stuff.


Wed, 07/16/2014 - 16:15 | 4964132 cifo
cifo's picture

Because she can.

Wed, 07/16/2014 - 16:24 | 4964160 Vespasian
Vespasian's picture

FFS ZH... I don't know how much more I can take of seeing Yellen & Chelsea Clintons HALLOWEEN MASKS plastered on thread leads...


My eyes are starting to feel like Roddy McDowell in Clockwork Orange...

Wed, 07/16/2014 - 16:27 | 4964172 KingdomKum
KingdomKum's picture

it's Malcolm McDowell  .  .  .  

Wed, 07/16/2014 - 16:35 | 4964194 Vespasian
Vespasian's picture

Yeah... that dude... Lookin' at YELLIN all day fucks ur mind up...

Wed, 07/16/2014 - 16:40 | 4964207 TeamDepends
TeamDepends's picture

Yeah, Roddy McDowall played Yellen's son in "Psycho".

Wed, 07/16/2014 - 16:42 | 4964213 Vespasian
Vespasian's picture

Fukkin weird how that shit happens

Wed, 07/16/2014 - 17:39 | 4964497 dracos_ghost
dracos_ghost's picture

When the hell did Buddy Hacket become Fed Chairman?

Wed, 07/16/2014 - 18:05 | 4964568 Vespasian
Vespasian's picture

TWINS... Separated at birth from Brooklyn Bathsheeba Butt Memorial Hospital in Brooklyn... ``` Hackett was born in Brooklyn, New York, New York, the son of Anna Geller, and Philip Hacker, an upholsterer and part-time inventor. He grew up on 54th and 14th Ave in Borough Park, Brooklyn, across from Public School 103 (now a yeshiva). He graduated from New Utrecht High School in 1942.[2][2] While still a student, he began performing in nightclubs in the Catskills Borscht Belt resorts as Butch Hacker.[3] He appeared first at the Golden Hotel in Hurleyville, New York, and he claimed he did not get one single laugh.[2]


Hey ~ But they <3'd him at Kellerman's in the Catskills!



Wed, 07/16/2014 - 16:53 | 4964274 duo
duo's picture

"Capital District", that's what she should have told the TSA agent.  Hopefully the agent has seen the movie.

Wed, 07/16/2014 - 16:14 | 4964125 TeamDepends
TeamDepends's picture

Thank you sir, may I have another cavity search?

Wed, 07/16/2014 - 16:31 | 4964180 bitterwolf
bitterwolf's picture

Were a BIG country and their are  different cultures as well as CLASS strata but this is GODDAMNED embarassing.

Wed, 07/16/2014 - 16:33 | 4964191 TheReplacement
TheReplacement's picture

That is part of district 13.  We torched that mother years ago when they rose up.

Wed, 07/16/2014 - 17:25 | 4964440 RichardENixon
RichardENixon's picture

Just found out the TSA agent is really this "Noah Smith"


Wed, 07/16/2014 - 15:25 | 4963921 LawsofPhysics
LawsofPhysics's picture

Talking about valuation in the absence of a mechanism for true price discovery is a fool's errand.  She plays the part perfectly.

Wed, 07/16/2014 - 15:27 | 4963930 fonzannoon
fonzannoon's picture



Tyler Bloomberg just kicked u right in the ding dong.



Wed, 07/16/2014 - 15:30 | 4963947 max2205
max2205's picture

Its code...BTFD

Wed, 07/16/2014 - 16:09 | 4964099 nope-1004
nope-1004's picture

"gold is heavy and easy to steal".

LMFAO!!  Kinda like concrete?  What a baffoon.  Of course, Bitcoin is totally transparent and will outlast a complete fiat collapse..... /s

Fuck Bloomberg.  Bunch of hobos.  The article makes it painfully clear to me that 2 objectives were the MO:  Discredit both gold (4,000 year old money), and ZH.  In a manipulated arena it is easy to make an argument about percentage of losses because gold is the barometer of USD malfeasance.  And for gold to be let free would show the world how corrupt and worthless the USD really is.

Bloomberg just lost any ounce... I mean, any dollar of credit they had with me.


Wed, 07/16/2014 - 16:15 | 4964129 maskone909
maskone909's picture

i second that.  fuck bloomberg. 

they have some balls to challenge zerhedge.  "occasionally good reporting" smdh.

Wed, 07/16/2014 - 16:43 | 4964221 TeethVillage88s
TeethVillage88s's picture

US Media want us to look like UK.

$200K in debt per household
$20K in avg Income
$Empire Faded in WWI
$No Industrial Strategy for Domestic Jobs
$Lingering Thatcherism
$Permanent Lower Class that is Ignored

Author of article, Noah Smith, is another shill for lingering Stagflation. He doesn't like the Fundamentals, he likes Technicals. Group Think Media. Corporate Culture. Keep all your pension in Company Stock, good man.

Wed, 07/16/2014 - 17:03 | 4964326 maskone909
maskone909's picture

what really tops it off is the slandering of Austrian economics.  like its some sort of terrorist ideology.  bloomberg might as well change their name to "State Department and Friends"

Wed, 07/16/2014 - 18:43 | 4964747 Dollarmedes
Dollarmedes's picture

What the fuck did anyone expect from a corrupt plutocrat who tries to ban the fucking size of sodas?

And his efforts to rid the population of guns means that when TSHTF, he's at the top of "the list."

Wed, 07/16/2014 - 16:16 | 4964138 Urban Redneck
Urban Redneck's picture

Bloomturd trolls don't understand terms like BTFD, BTFATH or BTFWIII, otherwise they might employ more defensible tactics in their hit pieces.

Wed, 07/16/2014 - 15:55 | 4964051 Freebird
Freebird's picture

Let's welcome Noah to fightclub & await the proprietor's response to this handbag slap...

Wed, 07/16/2014 - 15:58 | 4964061 fonzannoon
fonzannoon's picture

Assistant prof of finance LOL


Wed, 07/16/2014 - 15:57 | 4964059 FuzzyDunlop21
FuzzyDunlop21's picture

Today I learned gold was a poor hedge against inflation. Thats the god damndest thing ever because I could have swore it wasnt but a year ago that gold in rupee terms hit an all time high as India's currency was weakened to an (all time?) low.

Wed, 07/16/2014 - 16:04 | 4964084 Tyler Durden
Tyler Durden's picture

Apparently Smith had no response to "Austrian Economics Vs Clueless Trolls" so he decided to do what he does best: troll what few readers he has with another silly Zero Hedge name-dropping, ad hominem click bait piece in hope of generating page views (he is paid on a per click basis).

We wish the Stony Brook assistant professor...

Noah Smith College of Business Stony Brook University

Specialization: Economics
Currently Teaching: MBA 539 Investment Analysis
Office: Harriman 319
Telephone: 631-632-1913
Email: noah.smith@stonybrook.edu

Noah Smith received his PhD in economics from the University of Michigan, graduating in 2012. His dissertation concerns expectation formation in financial markets. Noah majored in physics as an undergraduate at Stanford University, and spent three years working in Japan, where he still returns from time to time to do research. He also writes at the economics blog "Noahpinion".


Curriculum Vitae

... the best of luck on his road to tenure paved with Bloomberg View smear pieces instead of actual, well, research. We have zero use for him, or his free advertising.

Wed, 07/16/2014 - 16:10 | 4964106 angel_of_joy
angel_of_joy's picture

Smith as in "Agent Smith" ? How appropriate...

Wed, 07/16/2014 - 16:34 | 4964185 Vespasian
Vespasian's picture

By the look of that beak, beady eyes, & smarmy lips.. Looks like 'NOAH SMYTHE' 2 me... Proud changer of surname!

Wed, 07/16/2014 - 16:36 | 4964200 maskone909
maskone909's picture

OMFG that bloomberg guy reeks of clearasil and arrogance

Wed, 07/16/2014 - 16:41 | 4964211 Vespasian
Vespasian's picture

JDate dot com profile = 'Enjoys long walks on the beach at sunset... & having strings of matzohs shoved up his ass'... Just like OBUMa

Wed, 07/16/2014 - 16:46 | 4964238 TeethVillage88s
TeethVillage88s's picture

Dated Obama?

Wed, 07/16/2014 - 16:53 | 4964264 Al Huxley
Al Huxley's picture

When not licking the boots of his imperial masters, Noah enjoys writing propaganda pieces hailing the virtues of Keynesianism and MMT, and explaining to the recently homeless single mothers why 'its your own goddamn fault you lost your job, why don't you apply yourself, get an MBA and join an investment bank?'.

Wed, 07/16/2014 - 18:24 | 4964675 Rob Jones
Rob Jones's picture

I think we just found out what happened to Mathman.

Wed, 07/16/2014 - 17:10 | 4964362 Pairadimes
Pairadimes's picture

More likely Patchouli and a shelf full of participation trophies.

Thu, 07/17/2014 - 04:23 | 4966370 hobopants
hobopants's picture

So that article told me gold goes down in price on occasion, unlike stocks and real estate...got it. Jonah hill's cousin here must have earned his degree on his knees. Keep it up Tyler, they are scared shitless if they are writing propaganda like this. 

Wed, 07/16/2014 - 16:12 | 4964107 fonzannoon
fonzannoon's picture

It validates the fact that every freaking college course is run by the T.A's while the actual Professor is out golfing or hitting on a freshman. Apparently it's gotten to the point where assistants even get to write bloomberg op ed pieces. How embarrassing for the professor to get skanked by his underling.

SUNY Stonybrook....LOL.  It's just too funny. 

"Those who can, do. Those who can't, teach. Those who can't can't, assist".


Wed, 07/16/2014 - 16:56 | 4964293 Bay of Pigs
Bay of Pigs's picture

Haha. That assclown wouldnt last five minutes around here.

Wed, 07/16/2014 - 17:33 | 4964473 Vespasian
Vespasian's picture

 '"Those who can, do. Those who can't, teach. Those who can't can't, assist".


close fonz...


'"Those who can, do. Those who can't, teach. Those who can't can't, teach GYM, those who can't, assist those who teach GYM, those who can't, assist in teaching GYM ECONOMICS'


So what u need to do is give him your 100% ATHLETIC SUPPORT!

Wed, 07/16/2014 - 17:35 | 4964484 fonzannoon
fonzannoon's picture

around me gym teachers make 100k with a similar pension at 55 and free healthcare for life. All for being an "athletic supporter". So as usual it turns out i'm the asshole after all.

Wed, 07/16/2014 - 17:44 | 4964485 fonzannoon
fonzannoon's picture


Wed, 07/16/2014 - 17:43 | 4964486 fonzannoon
fonzannoon's picture


Wed, 07/16/2014 - 17:08 | 4964346 Pheonyte
Pheonyte's picture

fyi ... Assistant Professor is a full-time gig; it's different from Teaching Assistant.

Wed, 07/16/2014 - 17:20 | 4964414 fonzannoon
fonzannoon's picture

For purposes of this conversation it's the same thing.

Wed, 07/16/2014 - 18:54 | 4964759 Rusty Shorts
Rusty Shorts's picture
Rodney Dangerfield's First Economics Class

...an example of the gap between the "real world" and school.



Wed, 07/16/2014 - 17:58 | 4964581 Little Boomer
Little Boomer's picture

I'm not defending him, but an assistant professor is not a teaching assistant, it's the lowest rung of professordom. Assistant professor, then associate professor, then full professor. the assistant profs are usually (but not always) younger. Yeah, I'm an assistant professor-music.

Wed, 07/16/2014 - 18:06 | 4964605 fonzannoon
fonzannoon's picture

The key to a successful insult is disregarding specifics regarding your intended targets own personal circumstances and making sure to label them inaccurately. With that said i still wonder how a piker like him was able to get a piece in Bloomberg. 

I mean no offense to you and wish you luck. 

Wed, 07/16/2014 - 16:19 | 4964127 nope-1004
nope-1004's picture

Still has milk on his chin, little boy.  Just because some fiat-reliant institution brain washed him into believing a certian way, doesn't mean it is right.  If he could think for himself and research real money, he'd see how embarrassing his remarks really are.


Wed, 07/16/2014 - 17:52 | 4964564 Temporalist
Temporalist's picture

That's not milk.

Do NOT follow this link or you will be banned from the site!