U.S. Federal Reserve Chair Janet Yellen is getting a bit of a reputation as a very highly placed financial analyst as she and her staff continue to point out bubbles in various asset classes when they see them. In the last year or so the garrulous Fed chair has warned about the S&P 500 and the biotech and social media sectors – although so far the return has not been great on that call.
Yellen’s most recent call comes this week as the Fed Chair appears on Capitol Hill for two days of testimony after the release of the Fed’s latest official Monetary Policy Report to Congress. This time Yellen and the Fed are warning about a speculative bubble in the commercial real estate market.
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Charlie Munger spoke at the Daily Journal Corporation's Annual Meeting of Shareholders today. Although Warren Buffett is the more well-known Berkshire Hathaway chief, Munger has been at his side through much of his investing career. Q4 2020 hedge fund letters, conferences and more Charlie Munger's speech at the Daily Journal meeting was live-streamed on Yahoo Read More
Otherwise, the July 15th MPR was pretty much de rigueur. The Fed is still calling for 2% consumer inflation, but the current rate is below 1%. The unemployment situation is gradually improving, but there is still way too much “underemployment”.
The good news is economic growth seems to be picking up from the anemic pace in the first quarter. The MPR notes: “a number of recent spending indicators suggest that economic activity increased at a moderate pace in the second quarter.”
Latest Fed Monetary Policy Report highlights commercial real estate bubble
After noting “financial vulnerabilities in the United States overall have remained moderate since the previous Monetary Policy Report,” the most recent MPR goes on to note that “valuation pressures in commercial real estate are rising as commercial property prices continue to increase rapidly.”
Janet Yellen as market mover
The release of the MPR and Yellen’s comments have a history of moving markets. For example, in early May of this year as the S&P 500 was approaching a record high, Yellen noted stock market valuations were “generally quite high.”
It turned out she was a bit premature with her call. The S&P actually moved up for two more weeks, hitting a high of 2131 on May 21 before dropping back. That said, the S&P 500 is barely a half a percent away from its all-time high today.
In a report to Congress almost a year ago now, Yellen pointed the finger at the social media and biotech stock sectors, saying valuations were “substantially overstretched.”
Mixed bag in that call, as Facebook is up, but Twitter down over the last year. A number of biotech issues did see steep losses the day she spoke, but the dip was temporary, as the iShares Nasdaq Biotechnology ETF hit an all-time high this week.