Yellen Doubles Down: "Valuations Are At High Levels Historically"

On the heels of San Franciso Fed Governor John Williams' warning  that The Fed "doesn't want there to be excesses in financial markets... " Janet Yellen has reiterated her concerns that markets are a bit toppy...

Market valuations “are at high level in historical terms” when assessed on metrics akin to price-earnings ratios, warned Fed Chair Janet Yellen in response to a question on an IMF panel in Washington, but was careful to add that "overall financial stability risks in the U.S. remain moderate."


"Prospects for U.S. fiscal stimulus have buoyed sentiment but not yet had much impact on spending or investment," she said.


Broader financial stability risks depend on more than just asset prices and it may also be important just why asset valuations are high. So one factor that clearly comes into play is an environment of low interest rates and central bankers like many market participants have been adjusting our notions of what” interest rates are likely to be in the longer term.

So - to sum up - The Fed doesn't want excesses... Yellen thinks stock valuations are stretched... but don't worry coz rates are low (although we are dedicated to raising them) and financial stability (despite record high corporate leverage and record low spreads) is not a problem.

Well... The market has almost never been this expensive...

As Peter Boockvar warns: "Almost there. S&P 500 price to sales ratio is just 4% from March 2000 peak."

Additionally, Draghi and Kuroda were also said they saw little evidence of frothiness in markets.

Others in Washington were less sanguine...

The market “feels as benign in 2017 as it felt in 2006,” said Jes Staley, the chief executive of Barclays Plc, referencing the eve of the crisis.

Yellen also added in a subtle jab at Trump that while prospects for U.S. fiscal stimulus have buoyed sentiment but not yet had much impact on spending or investment...

"It is a source of uncertainty," Yellen says of fiscal policy changes, "we've taken," as many households have, "a kind of wait-and-see attitude."

Of course, The Fed head being worried about stock valuations is a nothing-burger for the mainstream.

Since Janet Yellen's first warning in July 2014: "Equity market valuations appear stretched"

  • S&P +29%
  • Nasdaq +53%
  • DOW +33%

So did Janet just give the market a reverse-psychology BTFD signal? If she did, not everyone's buying it...

Swiss Finance Minister Ueli Maurer said in an interview with Swiss newspaper SonntagsBlick that:

"the only question regarding next crisis is 'when and where', not 'if'..."

And finally Mexico's central bank governor Agustin Carstens said Sunday on a panel in Washington, where he participated in IMF meetings that some emerging-market assets may be priced too richly and governments need to prepare for contingencies...

A search for yield has dominated asset allocation for too long, and some severe problems could emerge when portfolios are re-balanced, Carstens says.


A lack of liquidity can cause severe reactions in some emerging markets, he says.

He's got a point!