Yellen Says Asset Prices Are ‘High’, Draghi Says ‘People’ Still Aware That Stocks Sometimes Fall

Let Mario Draghi just be “clear”: he is not convinced that you are convinced that asset prices only go up, ok?

Responding to a question from CNBC at a press conference at the IMF Annual Meetings in Washington on Saturday, the ECB chief said something to that effect. Specifically, this is the quote:

Let me be clear, I think people are convinced that stocks and shares right now and bonds can go up as well as down.

Now for one thing, I’m not sure that counts as “evidence” that markets aren’t complacent or that we’re not in the middle of a mania. It’s kind of like saying “let me be clear, I think that even though everyone is driving 146 mph, people are still convinced that wrecks are possible.” That is, just because most people would still admit that it’s at least possible for stocks to go down as well as up doesn’t mean there’s not a bubble. Rather, it kinda seems like the fact that Draghi even had to say that suggests we are indeed stretched to the breaking point.


But that’s not all Draghi said. He also said this:

[I] don’t have evidence that [European] markets both stocks and bonds are having valuations that are stretched when compared with historical averages.

While I can’t know for sure what Draghi would consider to be “evidence,” it seems like two thirds of € BBs yielding less than equivalent maturity U.S. Treasurys might count:


Anyway, Yellen was on the tape this morning (also speaking in Washington) and here’s a summary of what she had to say (via Bloomberg):

  • “We continue to expect that the ongoing strength of the economy will warrant gradual increases in that rate to sustain a healthy labor market and stabilize inflation around our 2 percent longer-run objective.”
  • Says inflation readings over recent months have been “surprisingly soft”
  • “My best guess is that these soft readings will not persist, and with the ongoing strengthening of labor markets, I expect inflation to move higher next year”
  • “We expect the neutral level of the federal funds rate to rise somewhat over time, and, as a result, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion”
  • “We will be paying close attention to the inflation data in the months ahead. But uncertainty about the outlook is by no means limited to inflation”
  • Says “wage indicators have been mixed, and the most recent news, on average hourly earnings through September, was encouraging. On balance, wage gains appear moderate, and the pace seems broadly consistent with a tightening labor market once we account for the disappointing productivity growth in recent years”

Right, so that’s all boring. But her responses to panel questions were a little more interesting. For one thing she, unlike Draghi, conceded that “valuations in asset markets are at historically high levels.”


And then, importantly, she said this about fiscal stimulus:

[The] prospects for U.S. fiscal stimulus have buoyed sentiment but not yet had much impact on spending or investment.

[Fiscal policy] is a source of uncertainty. We’ve taken, as many households have, a kind of wait-and-see attitude.

Yes, Yellen, “like households” is taking a “wait-and-see” attitude. And you know what? You can’t really blame her, can you? After all…





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