Tags: Thiel | Fed | easing | bubble

PayPal Co-Founder Thiel: Fed Easing Creates 'Bubble of Massive Size'

By    |   Monday, 13 October 2014 05:35 PM

Venture capitalist Peter Thiel, co-founder of PayPal, thinks the Federal Reserve's massive easing program has artificially pumped up financial markets.

"There's a way in which QE [quantitative easing] has affected all valuations," he told CNBC. "The thing that is most distorted is the bond market and perhaps less on the equity side. But we certainly are back in a government[-induced] bubble of massive size."

The 10-year Treasury yield hit a 16-month low of 2.28 percent Friday and stood at 2.29 percent Monday. The Barclays U.S. Treasury 10-20 Year bond index has returned 11.5 percent so far this year, compared with 3.1 percent for the S&P 500 index.

"We have 0 percent rates, 2 percent inflation. So the real rates are minus 2 percent. That's what's really distorted. The things that are most distorted are the things that most like [Treasury] bonds — corporate bonds, stocks that pay high dividends. Housing's probably in something of a bubble again."

Thiel, who now works with several investment firms, has a more moderate view of technology stocks.

"They're somewhat overvalued, but that's not the core of the insanity," he said. "Tech investors always overrate growth and always underrate durability. You can measure growth, but you can't measure durability."

One tech stock he likes is lodging rental website Airbnb. "If I had to bet on one that would be the next $100 billion company it would be Airbnb," Thiel noted. "It's a giant market, and it keeps growing very fast."

"I think these bubbles are psychosocial phenomena. And unlike the 1990s tech bubble, the public is not involved."

As for bonds, Anthony Perrotta, head of fixed income research at the TABB Group, a financial advisory firm, appears to share Thiel's view.

"The fear is that the committed posture of the U.S. government [to low interest rates] may provide the impetus for a doomsday scenario in credit markets," he wrote on Tabbforum.com.

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Venture capitalist Peter Thiel, co-founder of PayPal, thinks the Federal Reserve's massive easing program has artificially pumped up financial markets.
Thiel, Fed, easing, bubble
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2014-35-13
Monday, 13 October 2014 05:35 PM
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