Tags: Montier | foie | gras | bubble

GMO's Montier: Financial Markets in 'Foie Gras' Bubble

By Dan Weil   |   Thursday, 27 Feb 2014 06:55 PM

Financial markets are in bubble territory, and James Montier, a member of the asset allocation team at money manager GMO, appears to believe central bank easing is responsible.

He tells the Financial Times we've learned little from the 2008-09 financial crisis. "It is just breathtaking to me how quickly we’ve gone back into this kind of a foie gras bubble environment."

Foie gras is a food dish made out of the liver of a duck or goose that has been force-fed.

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"We’re all being force-fed risk assets," Montier said. "It’s an unpleasant experience, when you’re playing goose to the central bank’s farmer." Apparently, he believes central bank easing is forcing investors to opt for risk assets.

"It’s just not fair. It’s a really odd situation to find yourself in, and to know how to deal with it is one of the real challenges," Montier said. "I have even described this as the toughest time in which to be an asset allocator, primarily because nothing is cheap."

Ha-Joon Chang of The Guardian writes that "stock market bubbles of historic proportion are developing in the U.S. and the U.K., the two most important stock markets in the world, threatening to create yet another financial crash."

In the long run, "the best way to deal with these bubbles is to revive the real economy," he says. "After all, 'bubble' is a relative concept, and even a very high price can be justified if it is based on a strong economy."

But not all experts fear a bubble.

While Fed Chair Janet Yellen told Congress on Thursday that she doesn't necessarily see "broad bubble concerns," she flagged a few areas the central bank is monitoring.

"For example, underwriting standards in leveraged lending clearly appeared to be deteriorating. We have addressed that with supervisory guidance and special exams...We have regulatory and supervisory tools," she said.

"Since my appearance before the House committee, a number of data releases have pointed to softer spending than many analysts had expected," Yellen told the Senate Banking Committee. "Part of that softness may reflect adverse weather conditions, but at this point it is difficult to discern how much."

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