You are on page 1of 5

9/22/13

Did the Fed just pop the stock market bubble?

GO

Enter Symbols

HOME U.S.

NEWS

MARKETS

INVESTING

GO

Enter Keywords

SMALL BUSINESS

VIDEO

SHOWS

WATCH LIVE

PRO

REGISTER | SIGN IN

Did the Fed just pop the stock market
bubble?
Text Size
Published: Saturday, 21 Sep 2013 | 9:17 AM ET
By: Jeff Cox | Senior Writer
Recommend

18

Tw itter

0

35

LinkedIn

1

Share

You know it's a rough market when even
Warren Buffett can't find a bargain.
History's most famous value investor told
CNBC a few days ago that stocks are now
"fairly priced" and that a good buy is hard to
find.
Getty Images

Seemingly benign, the statement comes at
what could be a crucial time for the market,

when investors are looking for a clear signal amid a sea of conflicting ones.
In addition to Buffett's statement, last week's trading had two fairly watershed
moments: The Federal Reserve fooled most of the investing community when it
decided not to pare back its $85 billion a month bond-buying program, and traders
poured the most money ever into the equity market for a single week.
(Read more: Bulls gone
wild: Money flows hit a
new record)
The results, though, were

FEATURED
Next for JPMorgan: Fight with the
CFTC
JPMorgan spent nearly a billion dollars on the
"London Whale" debacle, but that doesn't mean
it's out of the woods yet.

The brain science of financial
bubbles
As it turns out, you kind of have to be a bit of a
sociopath to avoid financial bubbles.

Bulls gone wild: Money flows hit
record
Traders may have been skittish ahead of this
week's Federal Reserve meeting, but they still
bet heavily on risk.

just as muddied as the Fed's
message.

Analysts on JPMorgan woes: So
what?

Stocks shot up following

Analysts shrugged at JPMorgan's "London
Whale" fine.

Play Video
Are stocks fully valued?

Wednesday's Open Market

Discussing how the bond market is pricing in the Fed's monetary
policy, w ith Andrew Slimmon of Morgan Stanley.

Committee meeting—and on
the backs of the $26 billion in
cash that poured into mostly

exchange-traded funds prior to the decision—then proceeded to turn tail in the

MORE FROM NETNET

other direction, giving up all their post-Fed gains.

Bitcoin banking? Here's how it could work
Here's the case against Janet Yellen for Fed chair

The developments raised an inevitable question of whether the market, after thriving

BofA got Fed right, here's what they say is next

on a $3.7 trillion Fed balance sheet of cheap money, had finally hit a wall and a

Yoshikami: What the Fed shocker means for investors

bubble of sorts had popped.

Morning Six-Pack: What we're reading Friday
What now? 3 things to watch from Fed decision

"Bubbling his way out of trouble," was the way Michael Hartnett, the chief market

The Ultimate Federal Reserve QE Taper Live Blog

strategist at Bank of America Merrill Lynch, termed Fed Chairman Ben Bernanke's

As taper looms, what the real economy looks like

approach to the market.

Morning six-pack: What we're reading Thursday
Relax. The markets aren't running on QE anyway

www.cnbc.com/id/101048439?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=101048439%7CDid the Fed just pop the

1/5

US tries to reassure Israel while approaching Iran Five things you didn't know about Angela Merkel Critics worry that such loose Fed policy always feeds into bubbles. "Fed officials have never been able to agree among themselves what exactly would constitute the 'substantial' improvement in the labor market outlook that would persuade them to halt the monthly asset purchases. Jeff Cox Some in the market. said in an analysis for clients. By nature LaVorgna is affably bullish. saying there really weren't John Carney a lot of bargains left but that he was looking for one in Apple. they Stephanie Landsman is one of the producers of CNBC's 5pm ET show "Fast Money. (Read more: Lone dissenter says Bernanke's Fed confused the market) SUBSCRIBE NetNet on Facebook Markets have counted on Fed chairmen to provide clear guidance about future policy—even through the nuanced code that Alan Greenspan had once provided— and Bernanke had violated that gentleman's agreement. though. his July 10 speech at a NBER Conference or during his The activist shareholder rallied against the corporate governance system in American business in a new editorial. but rather a suggestion that perhaps all the Fed accommodation had caused a bubble with which Bernanke was happily compliant.com. the Fed will not have the courage to follow-through on its TOP NEWS & ANALYSIS actions because market expectations will likely be well ahead of where Did the Fed just pop the stock market bubble? the Fed is. here's what they say is next) CONTACT NETNET Email: NetNet@cnbc. but his frustration with the Fed has grown in recent months over concern that the central bank continues to use crisis policies in the absence of a crisis—a policy that carries risks that increase the longer it persists. the chief U." have done a very poor job of communicating to the markets how improvements in the labor market should be gauged. chief U. "The irony to all of this is that the backup in interest rates was due mainly to the chairman's May 22 comments before the Joint Economic Committee when during the Q&A session he suggested that the Fed could taper its asset purchases sometime this year. weren't pleased. the maverick director of the Reagan-era Office of Management and Budget." The problems went deeper.com Text: 917-740-8477 Call: 201-735-4638 To add to Buffett's observation about a market that no longer was cheap. WALL STREET Art Cashin Trader Talk Pre-mkt 3 things to watch from Fed decision What could be worrying the chairman so much that he would risk a financial asset With Wednesday's shocker the Fed served the masses two reminders and one thing to pay attention to going forward. In turn.com. At a news conference after the decision. Jeff Cox is a senior writer for CNBC. said CNBC's Jim Cramer. though. AROUND THE WEB LaVorgna said he believes the market has been given too free a hand to dictate Dealbreaker Fed policy: We are worried that when the time comes to taper. makes an MOST POPULAR STORIES 850-page case in his recent book The Great Deformation. bubble as well as the alienation of his market constituency? Joe LaVorgna.com/id/101048439?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=101048439%7CDid the Fed just pop the 2/5 . vented his frustration with the Fed in a note: Cramer: Buy these ‘cult’ stocks now Though investors should be generally cautious.) House OKs bill to kill Obamacare. "As a result." Paul Ashworth. John Carney is a senior editor for CNBC. covering the gamut of issues affecting the stock market and the economy. economist at Deutsche Bank. and someday Business Insider tighten.S. policymakers will shy away from taking sufficiently Record iPhone debut isn't a 'victory lap' yet: Pro aggressive action. (Read more: BofA got Fed right. avert shutdown www.cnbc. The chairman did Icahn challenges boards' 'divine right' nothing to dispel this notion at the June 19 post-FOMC press conference. several stand-out stocks are likely to go much higher. (David Stockman. than the Fed's simple nervousness over the recovery's pace. activist investor Carl Icahn chimed in with similar comments.S. and that the Syria discloses chemical weapons stockpile details stock market surge of 150 percent off the March 2009 lows is just the latest case of a central-bank induced catastrophe waiting to happen. mid-year "Humphrey Hawkins" testimony (July 17).9/22/13 Did the Fed just pop the stock market bubble? Hartnett's analysis was not so much that the bubble had been breached. Stephanie Landsman economist at Capital Economics. covering Wall Street and finance and running the NetNet blog. Bernanke was unapologetic for the Fed's decision making and the tumult it caused.

avert shutdown Kudlow: Obama would rather talk to Iran than Boehner Related Mortgage rise hits refis.17 -1. DC drama could rattle the market Buffett: Stocks now 'fairly priced' The Federal Reserve: CNBC Explains Bulls gone wild: Money flows hit record Sponsored BofA got Fed right: Here's what's next Carl Icahn agrees with Buffett › 10 Best Mutual Funds Lone dissenter: Fed created confusion › Health Insurance Reviews Quantitative Easing: CNBC Explains › Lowest Mortgage Rates Are stocks fully valued? › Best Penny Stocks To Buy Warren Buffett Bank of America Corp › Online Voting System Apple Inc › Online Depression Help Price Change %Change BAC 14." Kass told MOST POPULAR VIDEO clients. Getting out—not so much.41 -4. Recommend 18 Tw itter 35 0 LinkedIn 1 Share Print Email MOST SHARED Lone dissenter says Bernanke's Fed confused the market House OKs bill to kill Obamacare.44 -0." EPA vs. Pepsi can't end tapering or else the bond and stock markets will blow up.04% NetNet Fed watch list More sequestration? Student loans Sponsored › Best Retirement Annuities › Highest CD Rates › High-yield CD Rates › Retirement Communities › Equity Income Mutual Funds › Best Mutual Funds www. Follow him @JeffCoxCNBCcom on Twitter. The Fed is trapped and Options Action: Coke vs. Fed speak.9/22/13 Did the Fed just pop the stock market bubble? Investor Doug Kass at Seabreeze Partners Management believes the Fed has dug JCPenney looking at raising more funds: Sources itself a hole from which there may be no escape. "There is no way out for the Fed once it started the process of printing.cnbc. not home sales: BofA CEO Fed speak.89 -1. "Getting in was easy.com/id/101048439?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=101048439%7CDid the Fed just pop the 3/5 . DC drama could rattle the market Obama to Boehner: I won't negotiate on debt limit Your first trade for Monday Investors hoping that the market rally was pinned on growth and not trillions in quantitative easing may be the ones who pay the price. King coal? Crowds gather at Apple stores The value of diversification _ By CNBC's Jeff Cox.16% AAPL 467. The longer this Is BlackBerry an event-driven stock? continues the bigger the inevitable burst.

the price is going to be astronomical! But if you buy that one share and the company implodes. or not. which pumps up the EPS. and now has just a few hundred mil. where is the economy headed? If consumers represent 70% of domestic demand. Sales aren't improving much. it's true. 2013 10:41 AM ET What you can bet on is . as the market reflated. 2013 09:57 AM ET my buddy's step-aunt makes $72 an hour on the computer. All information will be after the fact. But. » Report Abuse UnsophisticatedInvestor | Sep 21.com/id/101048439?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=101048439%7CDid the Fed just pop the 4/5 . 2013 10:34 AM ET Which leads one to ask. no wonder banks are showing record profits! » Report Abuse UnsophisticatedInvestor | Sep 21. The DOW and the S&P hit record highs last week. and the market responded. he's stuck. In an accounting sense. » Report Abuse UnsophisticatedInvestor | Sep 21. and that the main thing QE is doing is holding down interest rates so that the carrying costs on the burgeoning government debts don't run roughshod over us all.9/22/13 Did the Fed just pop the stock market bubble? › The Best Penny Stocks › Online Retirement Cals › Trading Programs › Best Medicare Plans Comments 7 Comments Total alicia.jobs47. He also didn't like the thought of having to admit that he didn't like what happened. but the interest on your cash accounts has. But the patient is hooked on the morphine now. 2013 10:43 AM ET Yep. and now he's done it. the patient will go into shock. the economy will not be headed in a good direction. It's interesting that personal debt interest rates haven't kept up with the downward spiral in rates. 2013 10:39 AM ET It seems that a lot of corporations are buying in their stock. and that's why he won't say anything concrete about the situation. but EPS #'s are popping sue to less shares outstanding. you'll be like that Brazilian oil tycoon who had $30 billion last year. and it's partially true. and if Ben pulls the plug on the morphine drip. when the majority of consumers aren't feeling so good? The answer seems to be that the economy isn't causing the excellent earnings being reported. The patient IS somewhat healthier. and Ben didn't like what happened. and off the critical list. 2013 10:31 AM ET I believe that Ben had good when he started the QE express. Read More Here ---> www. Ben doesn't know how to get out of the QE game.cnbc. She has been unemployed for nine months but last month her pay was $18759 just working on the computer for a few hours..so there is some justification for the situation. I think the springtime statements about eventual tapering were a trial balloon to see how the market took the thought of cutting back on the drug. More QE came..com » Report Abuse UnsophisticatedInvestor | Sep 21. » Report Abuse www. and the vast majority of consumers are being squeezed lower on the economic scale. » Report Abuse Sagebrush6 | Sep 21.the feds & big investors won't tell you anything until they take their money and run. that QE isn't providing much oomph to the economy. The market responded. Anyway. and now that it hasn't. I think that he assumed the economy would get better. and it's true that S&P earnings have been at record highs . More QE came and the market responded. WHY are S&P earnings at record highs? Why do earnings look so good.julie | Sep 21. because he thought the patient would recover with all of the therapy that was delivered. Ben wanted to pump up the markets. It's difficult to say whether the economy did. EPS is higher! When there's only one share of Apple left to buy. in a lot of cases.

The Fed will just bloat and bloat. and when the Federal debt becomes SO large that we can't make the interest payments if rates go back up to historic norms (4-5% on the 10-yr). The ONLY way out is default. All Rights Reserved. CNBC reserves the right to moderate and approve your comment. Asia Europe Economy Earnings Energy Inside Wealth Politics Technology Blogs Slideshows Special Reports Corrections Pre-Markets U. Remaining characters 1100 Pr e vie w Co m m e n t CNBC welcomes your contribution. N EW S MARKETS IN VESTIN G SMALL BUSIN ESS VID EO SHOW S U. and keep changing the action points at which they say they'll be ready to ease off the accommodation. Data also provided by www.. it will become apparent that they'll never stop buying the bonds. » Report Abuse 1 ADD COMMENTS Please Sign In or Register to participate. and Market Data and Analysis © 2013 CNBC LLC. Video Europe Video Asia Video CEO Interviews Analyst Interviews Digital Workshop Full Episodes Closed Captioning Watch Live CNBC U.com/id/101048439?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=101048439%7CDid the Fed just pop the 5/5 . or continual inflation of the money supply. and become a remote spigot for the Treasury printers. because Congress has PROVEN that they can't control spending. 2013 10:48 AM ET So they're just going to dither. in the end. Europe Asia Stocks Commodities Currencies Bonds Funds ETFs Stock Blog Personal Finance CNBC Explains Portfolio Watchlist Stock Screener Fund Screener Financial Advisors Franchising Financing Management Video Latest Video Top Video U. All roads are leading to Greece. And yes.S.9/22/13 Did the Fed just pop the stock market bubble? UnsophisticatedInvestor | Sep 21. Please respect our community and the integrity of its participants. you all know what will happen. Stock Quotes. like the Universe. Your Comments (Up to 1100 characters): Please sign-in/optin or register to be able to submit comments.S.S..cnbc. since Ben AND Congress have both proven themselves to be inept. CNBC Asia-Pacific CNBC Europe CNBC World Full Episodes W ATCH LIVE PRO About CNBC Site Map Video Reprints Advertise Careers Help Contact Privacy Policy AdChoices Terms of Service Independent Programming Report Latest News Releases RSS Data is a real-time snapshot *Data is delayed at least 15 minutes Global Business and Financial News.S.