Yellen Says Stock Too Rich: Markets tank?
Was Ms. Yellen channeling Alan Greenspan, Mr. "Irrational Exuberance," yesterday when she opined that stocks were overvalued? If you remember, as Fed Chairman in the late '90s, Greenspan, then still cloaked in his "Maestro" mantle, similarly put forth his opinion that stocks, especially those tech stocks that fueled the mania that eventually led to the "tech wreck" of 2000, were priced too high. He famously announced that the behavior of market participants at the time sprang from something he labeled "irrational exuberance." Stocks tanked and he basically took it back, preferring to reboot the tech bubble until it collapsed under its own weight rather than the pronouncements of a Fed chairman.
This morning, European stocks reacted negatively to Yellen's comments and U.S. stock futures were likewise down. Will this play out as it did in the late '90s with a retraction at some point, depending on just how far down stocks eventually fall? Ah, the drama the Fed chairpersons never cease to author. Do they enjoy the power of their pronouncements? Does it give them a feeling of power, however fleeting, in some measure better than a simply morning cup of Joe? We don't know, but we will suffer the consequences one way or the other, as we have suffered the consequences of Fed policy in an oh-so-special way ever since the 2008 debacle caused by - you guessed it - the Fed's monetary policy (to be fair, ably assisted by the federal government's fiscal policy).
But before we launch into a rant about our central bank and government officials and their meddlesome ways, we note that not only stocks, but bonds and precious metals all look to be heading lower. These three rarely faint at the same time, at one or the other retaining some composure if the other two swoon. So what's that about? Are we heading for some unforeseen crisis? If not a crisis, will a substantial correction wipe out not only our gains for the year, but eat away at our capital despite any efforts to prudently balance our portfolios?
We refer you to our previous post today about selling in May for further thoughts about all this.
This morning, European stocks reacted negatively to Yellen's comments and U.S. stock futures were likewise down. Will this play out as it did in the late '90s with a retraction at some point, depending on just how far down stocks eventually fall? Ah, the drama the Fed chairpersons never cease to author. Do they enjoy the power of their pronouncements? Does it give them a feeling of power, however fleeting, in some measure better than a simply morning cup of Joe? We don't know, but we will suffer the consequences one way or the other, as we have suffered the consequences of Fed policy in an oh-so-special way ever since the 2008 debacle caused by - you guessed it - the Fed's monetary policy (to be fair, ably assisted by the federal government's fiscal policy).
But before we launch into a rant about our central bank and government officials and their meddlesome ways, we note that not only stocks, but bonds and precious metals all look to be heading lower. These three rarely faint at the same time, at one or the other retaining some composure if the other two swoon. So what's that about? Are we heading for some unforeseen crisis? If not a crisis, will a substantial correction wipe out not only our gains for the year, but eat away at our capital despite any efforts to prudently balance our portfolios?
We refer you to our previous post today about selling in May for further thoughts about all this.
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