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.

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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.

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.


duo's picture

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

TeamDepends's picture

Thank you sir, may I have another cavity search?

bitterwolf's picture

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

TheReplacement's picture

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

RichardENixon's picture

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


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.

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.


maskone909's picture

i second that.  fuck bloomberg. 

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

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.

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"

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."

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.

Freebird's picture

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

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.

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.

angel_of_joy's picture

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

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".


Bay of Pigs's picture

Haha. That assclown wouldnt last five minutes around here.

Pheonyte's picture

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

fonzannoon's picture

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

Rusty Shorts's picture
Rodney Dangerfield's First Economics Class

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



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.

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. 

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.


NoDebt's picture

He's a shoe-in for tenure.  That kind of embarassing performance is a resume enhancement in that part of academia.

Fair disclosure:  I am an economist by training, but I'm feeling much better now.  

Winston Churchill's picture

The only chair he is fit to warm is a high one.

Squid Viscous's picture

how do they choose these names like "Smith" he sure doesn't look like his ancestors were on the Mayflower... maybe daddy or grand-daddy got the phone book out like the guy in The Jerk?

Atomizer's picture

Couldn't stomach watching Janet today. They never answer hardcore questions, just spew bullshit that they want you to believe. Got a good idea what happened today based on ZH community comments. 

Thanks for the above link Tyler. 

Pheonyte's picture

He's right down the road from me. If you want I can deliver a rabbit punch courtesy of Tyler Durden. "Welcome to Fight Club, bitch."

astoriajoe's picture

Mr. Smith has gotten too much attention as it is. I'm sure he'll show this thread to some cute coed and use it to try to get a date.

maskone909's picture

knock-out game? that would be super awesome man.  make sure you get a go-pro first.  or better yet, google-glasses LMFAO oh man the irony.

ptoemmes's picture

He probably can't even make soap, but he'd make a good punching bag.

maskone909's picture

cant make soap.  but he sure can drop it. fish fish fish fish

RichardENixon's picture

I'm going to have to start spending some time on Bloomberg. This Noah Smith guy is a scream.

Freebird's picture

All enquiries & detailed requests for NS's Japanese bukkake experiences should of course be sent to the contacts TD lists above....may be good to ask whether he understands the difference between a dick in the ear & several milleniums of a proven store of wealth.



TheReplacement's picture

Did anyone get a link to another story "People hate bankers because people are ignorant."?

Holy propaganda batman.

layman_please's picture

yeah, lol



"Before buying any financial product, people should pass a simple government-mandated test on its properties."

vulcanraven's picture

Make sure to screenshot the Bloomturd article and others like it, as when gold finally hits a moonshot they will most likely be "conveniently" scrubbed from the internet.

Big Ben's picture

"Gold is not the investment that you are looking for. You can look at equities now. May the Fed be with you."

BandGap's picture

The fuse has been lit offshore, not like the last time when Lehman was bitch-slapped as the sacrificed goat.

As far as the brown clown prodding Russia, all the stops on the chaos train are being pulled as we plunge towards the valley floor. It all goes down when perception returns.