Yellen told Congress recently that valuations of high-yield bonds “appear stretched.” The UK Telegraph: “It is quite unusual for the chair of the Federal Reserve to express a view on market valuations, so it is hardly surprising that investors have sat up and noticed.”
It is “quite unusual” simply because most know when to keep it zipped, when they are out of their arena and away from their mandate.
The respected columnist George Will recalled how the Economist noted last year that, “…Yellen is now poised to take the tiller of the US economy.” From Will: “Oh? The economy has a tiller? And with it, the Fed chair can steer the US economy? Who knew? A touch of the tiller here, a nimble reversal there - these express the fatal conceit of an institution that considers itself capable of, and responsible for, fine-tuning the nation’s $15.7 trillion economy.”
Many fear the next bubble, a yet-to-be indentified excess-gone-to-the-dogs manufactured by Fed largesse. This is not a likely outcome. Instead, our next crisis will be tied to the combination of Fed activism – fooling with the tiller - and the world market crowd’s demand for a god. Thus, if Yellen judges that high-yield bond valuations are inflated, the market crowd takes that as gospel (which is exactly what happened, this incident, as high-yield investors quailed).
We noted in past sketches that we will have hell to pay. This Fed chair will continue to overreach; the market crowd will continue to react in the extreme (as do all crowds) and the resulting market violence/distortions will help to put this so-called recovery to rest.
Robert Craven
It is “quite unusual” simply because most know when to keep it zipped, when they are out of their arena and away from their mandate.
The respected columnist George Will recalled how the Economist noted last year that, “…Yellen is now poised to take the tiller of the US economy.” From Will: “Oh? The economy has a tiller? And with it, the Fed chair can steer the US economy? Who knew? A touch of the tiller here, a nimble reversal there - these express the fatal conceit of an institution that considers itself capable of, and responsible for, fine-tuning the nation’s $15.7 trillion economy.”
Many fear the next bubble, a yet-to-be indentified excess-gone-to-the-dogs manufactured by Fed largesse. This is not a likely outcome. Instead, our next crisis will be tied to the combination of Fed activism – fooling with the tiller - and the world market crowd’s demand for a god. Thus, if Yellen judges that high-yield bond valuations are inflated, the market crowd takes that as gospel (which is exactly what happened, this incident, as high-yield investors quailed).
We noted in past sketches that we will have hell to pay. This Fed chair will continue to overreach; the market crowd will continue to react in the extreme (as do all crowds) and the resulting market violence/distortions will help to put this so-called recovery to rest.
Robert Craven
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