IMF's Christine Lagarde Joins The Chorus, Warns Market Is "Too Upbeat"
First, three weeks ago, it was the BIS.
Then, last week, it was Janet Yellen, Series 7, 63 certified, who during last week's Humphrey Hawkins testimony, did what no Fed Chairman had done before: commented on stock prices, and what's worse (if only for the momo, liquidity addicts so used to be being bailed out by the Fed always and forever) she had her "irrational exuberance" moment when the Chairmanwoman of the Fed explicitly stated that biotech and social-network stocks are in a bubble.
Scotiabank's Guy Haselmann summarized it best:
The most shocking moment came shortly thereafter, when Oscar-winner Yellen screamed to Hensarling after a question, “Because you can’t handle the truth!” She then launched into an explanation about how the plan all along has been to intentionally create asset inflation (as opposed to asset bubbles). Such a proclamation means that Yellen must be an expert on market valuation metrics and can responsibly recognize the difference between asset inflation and asset bubbles. To be fair however, she admits that should (another) boom /bust mistake be made, she has great confidence (this time) that the FOMC has the ability to clean up the fallout through macro-prudential and regulatory tools. Regrettably, not making the transcript was her barely audible whisper of “pump and regulate, baby”.
That she finally admitted that the market is approaching its upper limit should have been enough to launch a major market correction. Instead the market barely budged and subsequently recovered virtually all its losses, even as the war in Ukraine and Gaza reached new highs, in the process confirming that other recurring Fed concern: that the market has hit record complacency (to be sure, the Fed had zero commentary that it is the Fed's fault the market no longer responds to any newsflow, fundamentals or stimuli).
It appears that the Fed has created a terrifying "central-planning" Frankenstein monster with its monetary policy, one which will keep going higher and higher until it crashes so epically, it will complete the finacial system wipe out that was started with the collapse of Lehman and merely delayed with the $4 trillion Fed balance sheet expansion. And the Fed is finally realizing just this, with a 5+ year delay: after all we cautioned just this would happen in March of 2009.
Then, yesterday, it was none other that the IMF's Christine Lagarde, who joined the chorus of warnings that the market is overvalued and due for a correction. From Reuters and BBC:
"The head of the International Monetary Fund warned on Friday that financial markets were "perhaps too upbeat" because high unemployment and high debt in Europe could drag down investment and hurt future growth prospects... She also warned that continuing low inflation could undermine growth prospects in the region.
"There is the danger of a vicious cycle: persistently high unemployment and high debt-to-GDP ratios jeopardize investment and lower future growth," Lagarde said on Friday, according to the prepared text of her speech
So to summarize: first the BIS, then the Fed and now the IMF are not only warning there is either a broad market bubble or a localized one, impacting primarily the momentum stocks (which is ironic in a new normal in which momentum ignition has replaced fundamentals as the main price discovery mechanism), they are doing so ever more frequently.
And how do the same momentum algos react? They promptly ramp the S&P 500 to essentially its all time high. Why? Because at this point it is far too late for even the Fed to pretend it has any control over the "centrally-planned" market. Or rather, centrally-unplanned. And because it is now also too late for the Fed to even conduct a controlled crash.
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