Stocks Slip As Fed's Brainard Warns "Asset Valuations Do Look A Bit Stretched"

Noting that she is "looking very closely at inflation," The Fed's Lael Brainard continued the recent trend of warnings from Fed speakers by noting "asset valuations do look a bit stretched," which seemed to take some of the exuberance out of stocks...

Asset valuations historically aren't "way out of line, but elevated I would say, relative to historical averages," Federal Reserve Governor Lael Brainard says in response to audience question at event in Cambridge, Massachusetts.

 

“Normally, stretched asset valuations in themselves are something that you would monitor,” she says

 

“Volatility has been exceptionally low -- both realized and implied -- and that’s something that also I’ve been sort of looking at and I think trying to better understand what the underlying dynamics are there”

 

“When you see financial imbalances turning into something more systemic, you usually have them coupled with growing maturity mismatches or building leverage. And that connection is something that I’m intensely focused on, and I think we have good analysis on that. That’s an area that just hasn’t really been flashing yellow, for the most part.”

And stocks briefly reacted...

 

Brainard adds to the list of Fed worriers, as we detailed previously...

If there was any confusion why the Fed intends to keep hiking rates, even in the face of negative economic data and disappearing inflation, it was put to rest over the past 2 days when not one, not two , not three, but four Fed speakers, including the three most important ones, made it clear that the Fed's only intention at this point is to burst the asset bubble.

First there was SF Fed president John Williams who said that "there seems to be a priced-to-perfection attitude out there” and that the stock market rally "still seems to be running very much on fumes." Speaking to Australian TV, Williams added that "we are seeing some reach for yield, and some, maybe, excess risk-taking in the financial system with very low rates. As we move interest rates back to more-normal, I think that that will, people will pull back on that,

Then it was Fed vice chairman Stan Fischer's turn, who while somewhat more diplomatic, delivered the same message:

"the increase in prices of risky assets in most asset markets over the past six months points to a notable uptick in risk appetites.... Measures of earnings strength, such as the return on assets, continue to approach pre-crisis levels at most banks, although with interest rates being so low, the return on assets might be expected to have declined relative to their pre-crisis levels--and that fact is also a cause for concern."

Fischer then also said that the corporate sector is "notably leveraged", that it would be foolish to think that all risks have been eliminated, and called for "close monitoring" of rising risk appetites.

All this followed the statement by Bill Dudley, who many perceive as the Fed's shadow chairman, who yesterday warned that rates will keep rising as long as financial conditions remain loose:

"when financial conditions tighten sharply, this may mean that monetary policy may need to be tightened by less or even loosened.  On the other hand, when financial conditions ease—as has been the case recently—this can provide additional impetus for the decision to continue to remove monetary policy accommodation."

And finally, it was Yellen herself, who speaking in London acknowledged that some asset prices had become “somewhat rich" although like Fischer, she hedged that prices are fine... if only assumes record low rates in perpetuity:

Asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios, but I wouldn’t try to comment on appropriate valuations, and those ratios ought to depend on long-term interest rates,” she said.

 

Comments

Erek Thu, 07/13/2017 - 14:20 Permalink

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Step aside coffee! This is a job for alcohol! 

CPL VD (not verified) Thu, 07/13/2017 - 14:38 Permalink

Quadrillions in shadow and derivative debt.  They owe 4.8 quadrillion dollars of debt they've stuffed into OTC/Pink/Derivative/Debt Silos/Dummy companies/Etc.  That's around 4 earths they owe if measuring the capitalization required to buy a planet.  So recite the following mantra to help cure the market.

  • Die Janet, die.
  • Die Brainard, die
  • Die Cohen, die.

I think everyone understands quite clearly that they will never pay it back.  And in traditional 'family' style methods given what's owing, it's better to just kill them.  Not like anyone actually believes they can solve their thievery and stupidity.  Use them as the example to set the bar for all others after them.  That is, when anyone walks into the role, they'll remember how awful the example is set for failure.  Since these people have such FAITH in FIAT currency and don't want to play ball with everyone else, let them prove their faith by DYING FOR THEIR FAITH...very publicly and very messy.

In reply to by VD (not verified)

knukles CPL Thu, 07/13/2017 - 14:53 Permalink

I don't know shit about monetary policy and the savings investment transmission mechnaism, let alone that pesky MV=PT thingamajig, but I came to in a Holiday Inn Express last night.  So I guess I have some credibility when I say anything?  Lemme have the key to the washroom please.

In reply to by CPL

roisaber (not verified) Thu, 07/13/2017 - 14:22 Permalink

What the fuck? Last week it was stocks look overvalued, yesterday it was ZOMG we're going to have to raise interest rates slower than we thought, today it's overvalued again... do they actually have a plan or do they just mumble the first thing that pops into their head at any given moment?

Blankfuck Thu, 07/13/2017 - 14:30 Permalink

What? assholes are a bit streched? you mean like THE FED FUCKERS? THE ONES THAT STRECHED THE BALANCE SHEET BY GIVING THE BANKER FUCKERS MONEY? USA LITTLE PEOPLE GOT THE BUTT FUCK OF A DEAL-THE BANKER FUCKERS MADE OFF INTO THE SUNSET WITH BILLIONS LEAVING THE AMERICAN PEOPLE HOLDING THEIR BAG OF SHIT!

GodHelpAmerica (not verified) Thu, 07/13/2017 - 14:39 Permalink

Does Wall Street have drinking games during fed speeches yet?

This shit is worse than the presidential debates...

Ricki13th Thu, 07/13/2017 - 15:04 Permalink

Do y'all see why the Fed is cancer. Those fork tongue speak, I miss the days when the fed didn't open their mouth every other day to shore up confidence in there Ponzi scheme.

Clowns on Acid Thu, 07/13/2017 - 15:32 Permalink

Well QE itself was a manical stretch ....so of course the asset markets are stretched. The Banks compensation packages, sorry Bank Holding (Commercial banking, brokerage, and Insurance companies)  companies to be more exact, are stretched as well.A lot of stretchin' going on I would say.

Too-Big-to-Bail (not verified) Thu, 07/13/2017 - 17:42 Permalink

She's hot, but her being a central banker goes against all my principles wanting to bang her

Blankfuck Thu, 07/13/2017 - 18:25 Permalink

BANKER FUCKERS HAVE THEIR SMILES STRECHED!   THE STOLEN GIFTED MONEY VIA THE FED RESERVE FUCKERS, PILED AND  STRECHED IN THE MANSIONS AND WALLETS. BAGHOLDERS USA LITTLE PEOPLE WERE BUTTFUCKED!

warsev Thu, 07/13/2017 - 18:52 Permalink

"assets stretched" Huh.Let me state this as simply as I know how. There's too much investable money looking for investment, inflating values of potential assets that bear any positive return. Flood the world with money and what do you expect?

Iskiab Thu, 07/13/2017 - 19:41 Permalink

Who gives a shit what the fed thinks, all that matter is what the fed does with QE and rates. I'm more interested in the coding for the investing robots. Right now they'll buy any dip and support the market, question is when they're set to sell and what will trigger it.