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Tags: Fed | Bernanke | Yellen | Lebenthal

Monetary Easing Still Dominant Theme: Bernanke and Yellen Differ on Stock Prices

By    |   Thursday, 04 June 2015 10:59 AM

Former Fed Chairman Ben Bernanke and current Chair Janet Yellen have expressed different views on the state of the stock market. According to CNBC's Scott Wapner, Bernanke has written on his blog that while stocks have risen, it was from a "severely depressed" state, so the Fed's actions have merely returned stock prices to trend, whereas in Yellen's interview with International Monetary Fund Managing Director Christine Lagarde, Yellen called stock prices "generally quite high," but "not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low, but there are potential dangers there."

CNBC's Steve Liesman put up a chart showing the current expansion more robust than previous recessions. This does not itself mean stocks are overvalued, but he called this "a very stellar expansion."

Jon Najarian, co-founder of OptionMonster.com, remarked that both Fed Chairs are right, and he might have said this in recognition of their legendary infallibility. However, he noted that Bernanke is "more right" than Yellen is. Najarian pointed to a 2.3 percent current yield on 10-year Treasurys. Jim Lebenthal, CEO of Lebenthal Asset Managers, dared to suggest that both Bernanke and Yellen were wrong, "because I don't think they really care about what the level of stocks are." Lebenthal said Bernanke and Yellen have "different agendas," and he criticized Bernanke for voicing his opinion, quipping, "He should just be in academia or private equity." Lebenthal called Yellen's remarks an effort to tell the markets that a Fed rate hike is coming in September, but Wapner quoted bond manager Jeffrey Gundlach, as saying, "Stocks love zero interest rates" and predicting the Fed will not act at all to raise rates. Lebenthal dismissed the views of all of them as not "correct barometers" for stocks.

Liesman credited Yellen with seeking to avoid another "taper tantrum." Josh Brown, CEO of Ritholtz Wealth Management, found that going back to the 1960s, jawboning by the Fed "has not really worked that well." He recalled Chairman Alan Greenspan's famous "irrational exuberance" speech of 1996, which was followed by a 3,000 point run in the Nasdaq. This writer has said that the Fed has taken on sponsorship of the stock market as an extension of its ever-expanding mandate, and if stocks eventually tank, the Fed will intervene and buy stocks directly to support the market.

Looking at another central bank that has engaged/indulged in quantitative easing (QE), the European Central Bank, (ECB), CNBC's Annette Weisbach, quoted Mario Draghi, president of the ECB, as saying volatility is here to stay: "We should get used to periods of higher volatility. At very low interest rates, asset prices tend to show higher volatility." He declared that the ECB would "look through these developments and maintain a steady monetary policy stance." Weisbach noted the ECB is expected to keep QE in place until at least September 2016. A cynic would say traders welcome the volatility, especially since it is underwritten by the central banks in the form of what is now the "Yellen put."

As the Greek drama plays on, Radhika Rao, an economist at DBS, said it's time for action in the next two weeks, that both sides have something to lose and need to compromise. This writer continues to wonder what U.S. authorities are doing behind the scenes. Netherlands Prime Minister Mark Rutte called on the Greek government to adhere to the previous agreements, saying no one wants a Grexit.

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Former Fed Chairman Ben Bernanke and current Chair Janet Yellen have expressed different views on the state of the stock market.
Fed, Bernanke, Yellen, Lebenthal
Thursday, 04 June 2015 10:59 AM
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