Biotech Stocks Up 75% Since Fed "Stretched Valuations" Warning

Tyler Durden's picture

"Don't fight the Fed," unless The Fed says "sell." That appears to be the message loud and clear from an absolutely exuberant Biotech bubble that is now up over 75% from Janet Yellen's "stretched valuations" warning last year...

Up almost 90% from post-Yellen dip lows...


Yellen's "irrational exuberance" moment.



Nevertheless, valuation metrics in some sectors do appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year. Moreover, implied volatility for the overall S&P 500 index, as calculated from option prices, has declined in recent months to low levels last recorded in the mid-1990s and mid-2000s, reflecting improved market sentiment and, perhaps, the influence of “reach for yield” behavior by some investors....


... signs of risk-taking have increased in some asset classes. Equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched, with ratios of prices to forward earnings remaining high relative to historical norms. Beyond equities, risk spreads for corporate bonds have narrowed and yields have reached all-time lows. Issuance of speculative-grade corporate bonds and leveraged loans has been very robust, and underwriting standards have loosened. For example, average debt-to-earnings multiples have risen, and the share rated B or below has moved up further for leveraged loans.


Some major margin calls for Yellen Capital coming...

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KnuckleDragger-X's picture

Biotech has an even greater bullshit factor than the computer sector. Not to worry though, it all goes to research...and huge C-suite bonuses.....

BullyBearish's picture

AMBA rocketing on the prospect of DRONES EVERYWHERE...Biotech rocketing on TPP: global distribution for BIG PHARMA with limited liability...sounds like the old MBS plan

JustObserving's picture

Fed wants higher equity valuations for the Ponzi called the US economy to survive a few more weeks.

At least $1.400,000 in debt and unfunded liabilities per taxpayer and rising at $70,000 per taxpayer per year must be supported by a million lies from the Fed

How bad is it?  Kotlikoff says, “I told them the real (2014) deficit was $5 trillion, not the $500 billion or $300 billion or whatever it was announced to be this year. Almost all the liabilities of the government are being kept off the books by bogus accounting. . . . The government is 58% underfinanced . . . . Social Security is 33% underfinanced . . . . So, the entire government enterprise is in worse fiscal shape than Social Security is, but they are both in terrible shape.”  So, how much is America on the hook for in the future?  Kotlikoff contends, “If you take all the expenditures that the government is expected to make, as projected by the Congressional Budget Office (CBO), all the spending on defense, repairing the roads, paying for the Supreme Court Justices’ salaries, Social Security, Medicare, Medicaid, welfare, everything and take all those expenditures into the future . . . and compare that to all the taxes that are projected to come in, and the difference is $210 trillion.  That’s the fiscal gap.  That’s our true debt.”

Kotlikoff's numbers work out to $1.720,000 per US taxpayer.

Squid Viscous's picture

Yellen learning new tricks from her Goldman bosses, when i say sell, it means BUY!


youngman's picture

Alls I can say is with these high valuations...Obamacare is going to get much more expensive....these new blue pills are not going to be cheap because of these have to make a return that makes your stock look valued correctly

madbraz's picture

this is how the corrupt game is played - you put some pion in charge of the federal reserve and you put the biggest, baddest bank supporter possibly in charge of the NY FED and have access to it's $4 trillion dollar balance sheet.  the federal reserve pion has no clue what goes on in the market, only the head honcho on the NY FED does (and is directly responsible for runnning it every day and talking to bankster head honchos every day).  so the ny fed head honcho is instructed by his bankster buddies to do things like $100 billion bucks/day worth of "reverse repos", perhaps starts trading futures at the CME or uses a proxy for it, perhaps dips his toes into the algo/hft thing (or even was behind the creation of it), whatever is needed to keep the turd that feeds his friends on top.


the only solution (other than ending the FED) would be to fragment power equally among different federal reserve districts - that would make it much harder to (criminally) manipulate markets.  look no further than Europe, where QE doesn't really work because it is fragmented among local central banks.



Seal's picture

What transgression have we Americans done to be ruled over by the likes of Obomba, Ben Bernanke, Alan Greenscum, Janet Yellen, James Clapper, Michael Hayden, et al.  and the worst of all, do-nothing corrupt idiots in Congress. 

City_Of_Champyinz's picture

More fucking absurdity, when this comes back to reality it is going to be epic. 

Loucleve's picture

XBI is my canary in the coal mine.  at some point, the short of a lifetime.

wait for a big break, then the bounce, then the short.

Finnman's picture

I'm bullish. Bio has legs at least to 2017. Buy from every dip and if no dips just buy. Make my mony

khakuda's picture

It's only up a mere 4 to 5 fold over the past 4 years.  It looks like technology charts in the late 1990s.  What's the problem?

asteroids's picture

I look at BIS (2X biotech short) and run away screaming. But, someday, it'll rocket to the moon.

TheRideNeverEnds's picture

So she told you to buy VIX and sell Biotech


It worked for a week or three but over the medium to long term that trade is death.


The vix and its products decline and stock go up.  Especially bio-techs, they start as penny stocks and go to 1000 whereas VIX products started in the thousands (relative to current prices with splits) and are now penny stocks.  


You can take the opposite side easy enough.  Sell SPX puts at the money; that would put you short vol long stocks and as we all know that trade unlike the first is basically just free money.