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Don’t miss our next trade idea. Get on the Bear Traps Report Today, click here*FISCHER: HIGH ASSET PRICES MAY LEAD TO FUTURE STABILITY RISKS
Breaking News: The FOMC is Targeting Asset Bubbles – Financial Conditions
“To us, the Fed is targeting Financial Conditions, which is a circular feedback mechanism to the equity markets, given its overall construction. It’s as near to ‘bubble targeting’ as they can get, we recommend clients short bonds.”
Bear Traps Report, June 26, 2017
Bond yields spiked today on a hawkish turn from the Fed and ECB Tuesday.
Governor Stanley Fischer was not on the calendar today and this speech was just published on the Fed’s website. He sees a “notable uptick in risk appetites” that warrant “close monitoring” as “price-to-earnings ratios now stand in the top quintiles of their historical distributions, while corporate bond spreads are near their post-crisis lows.”
Back Up in Bond Yields, Copper, Iron Ore, and Oil
Yellen’s Hawkish turn has helped fuel a global reflation revival. Just when Wall St. threw in the Reflation towel, she started a comeback.
Yellen’s Legacy
We believe Chair Janet Yellen is setting up her FOMC exit strategy – if President Trump says “goodbye Janet” in February (Yellen’s term expires as Fed Chair) – she will protect her legacy on the way out in our view – focused on financial conditions, asset bubbles and balance sheet reduction.
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Don’t miss our next trade idea. Get on the Bear Traps Report Today, click hereHawkish Fedspeak Driving Yields Higher Today
Yields spiked today on a hawkish turn from Janet Yellen and Mario Draghi – Central bankers talked up removing accommodation while focused on asset bubbles. Yellen even talked up risks we’ve stressed to clients in recent months- PIK Toggle Structures – extremely aggressive financing in the corporate bond market.
Less Focus on the Fed’s Models – Advice the Pre-Lehman FOMC Should Have Heeded
We commend the Fed and Janet Yellen, making phone calls – talking to real risk takers (less academics) is a key to 21st century risk management.
Fed Chair Janet Yellen says the FOMC is “trying to think outside the box” and talk to more people both inside and outside the financial sector after missing signs leading up to last crisis in its economic models. “Unfortunately, these insights were a little bit too late” last time, Yellen said Tuesday at event in London.
Financial Conditions Have Eased as the Trump FOMC has Hiked Rates
In our view, the FOMC is NOT comfortable with easing financial conditions as they hike rates. The Fed is trying to do things now “in a more systematic way” and “talk to people in different pieces of the financial sector about all of the things that could conceivably go wrong that are not in our models”
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