There's a battle going on at the top of the market.
Four Fed speakers this week pulled out their pins and took a poke at the market bubble:
- Williams said "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."
- Fischer said "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.
- Dudley said 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 Chairwoman Janet Yellen said yesterday that some asset prices had become “somewhat rich" although like Fischer, she hedged that prices are fine… if one 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. Yellen then said (already being taken out of context by bulls): "Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not be