Nine years after the last major financial crisis there seems to be only two entities that believe the Federal Reserve any longer... and they are CNBC and HFT computers. But for anyone else with even a modicum of intelligence, the central bank no longer has any credibility.
In fact let's take for example Fed Chairman Janet Yellen's latest claim in which she stated at a London conference on June 27 that she doesn't believe there will be another major financial crisis within her lifetime.
Responding to a question on financial system stability, Yellen said post-crisis regulations (and $2.5 trillion in excess reserves which just happen to be fungible and give the banks the impression that they are safe) had made financial institutions much “safer and sounder.”
"Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will."
Some were quick to compare this statement to Neville Chamberlain infamous - and very, very wrong - 1938 prediction of "peace in our time."
Of course this is the same Janet Yellen who back in October of last year admitted that not only can she not see bubbles in the economy, but that that there are none active.
Fed Head Janet Yellen is keeping alive the tradition of her predecessors, Messrs. Greenspan and Bernanke, by showing she is equally as blind-sighted to the bubbles central banks are blowing in the bond and equity markets. During her September press conference, Ms. Yellen stubbornly clung to the misconception that it is only possible to tell if a bubble exists after it bursts. And because of this delusion, in Yellen’s eyes ninety-six months of a virtual Zero Interest Rate Policy (ZIRP) is merely, and I quote, “a modest degree of accommodation.” Her blinders are so opaque that she claims to see, “no signs of leverage building up.” And her feckless ability to spot market imbalances even resulted in this doozy of a Yellen quote: “In general, I would not say that asset valuations are out of line with historical norms.” - Affluent Investor
Thus with these examples in mind it should no longer be surprising that the Fed continues their policy of tightening interest rates when nearly all indicators point towards the economy already being in recession, and assets such as equities and housing are at the same bubble levels they were just before the last financial crisis.
The current 12-month trailing price-to-earnings ratio of the S&P 500 sits at 25.95x, while the forward 12-month price-to-earnings is roughly 17.1x, according to FactSet data. Each of these is higher than its long-term average.
In fact, based on one measure of valuation, the market hasn't been this expensive anytime other than before a massive crash.
The cyclical adjusted price-to-earnings ratio, better known as Shiller P/E, which adjusts the price-to-earnings ratio for cyclical factors such as inflation, stands at 27.86 as of Friday. There have only been a few instances in history when stocks have been this expensive: just before the crash of 1929, the years leading up to the tech bubble and its bursting, and around the financial crisis of 2007-09. - Business Insider - Dec. 2016
As history continues to rhyme its way from one disaster to another like a drunken sailor here in the early part of the 21st century, Fed Chairman Janet Yellen is working very hard to replace Britain's Neville Chamberlain as the most myopic politician in the last 200 years. And as we know from history as to what happened in a very short time following the former PM's announcement of peace in our time, so too should Americans seriously think about beginning to bunker down now that Yellen has officially tempted fate in a financial environment that is screaming of a new and oncoming crash.