"While prices of real estate, equities, and corporate bonds have risen appreciably and valuation metrics have increased, they remain generally in line with historical norms. In some sectors, such as lower-rated corporate debt, valuations appear stretched and issuance has been brisk."
In other words, valuations for equities, bonds and housing are all normal, no bubbles here, but the momo crowd just got Yellen smacked and without momo, what's really left of the market?
"Nevertheless, valuation metrics in some sectors do appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year. Moreover, implied volatility for the overall S&P 500 index, as calculated from option prices, has declined in recent months to low levels last recorded in the mid-1990s and mid-2000s, reflecting improved market sentiment and, perhaps, the influence of “reach for yield” behavior by some investors....
... signs of risk-taking have increased in some asset classes. Equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched, with ratios of prices to forward earnings remaining high relative to historical norms. Beyond equities, risk spreads for corporate bonds have narrowed and yields have reached all-time lows. Issuance of speculative-grade corporate bonds and leveraged loans has been very robust, and underwriting standards have loosened.For example, average debt-to-earnings multiples have risen, and the share rated B or below has moved up further for leveraged loans."
The "Influence of Reach for Yield" is almost infuriatingly laughable as the F_E_D is the one who created the "Reach for Yield" with ZIRP interest rate policies! Note she calls out biotechs and Social Media in particular, two areas we have been big on shorting on a momo led bounce, names like P, FB, TWTR, AMZN, NFLX, and IBB all smacked down. The good news is all but FB remain in excellent longer term shorting positions, but I wouldn't chase anything. I'm going to concentrate on these today as it seems the "Don't fight the F_E_D" moment just came for the stocks that move the market, also the stocks that are all in large (some multi-year) tops.
Does anyone else find it interesting that these momos and small caps she has just targeted were selling off in the IWM 4% last week? I mean it's not like the F_E_D hasn't been caught red-handed giving inside information to Wall St. before.
And yes, leveraged loans or junk loans like subprime auto loans are all part of the F_E_D's asset bubble created by the "Reach for yield", but the way she mentions it as if it were an event that just popped out of nowhere when the F_E_D specifically targeted the "Reach for Yield", in my opinion as a means to bailout banks in stealth mode so the public doesn't have another AIG moment.
In other news, Espirito Santo's holding company looks set to file bankruptcy.
And someone just dumped 17,000 YG/gold futures contracts, a notional value of $2.3 bn dollars.
17k contracts dumped.
We have been expecting a deeper correction in gold and for every seller there is a buyer, some initial indications suggest someone may have accumulated a little of that, but I'll be following that closely as well.
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