Salient to Investors:
US companies have issued $241 billion in junk bonds this year, more than twice the amount during the same period in 2007.
US stocks are near record highs. Investors’ use of borrowed money to buy stocks is up one-third in the past year to a near record.
Housing prices are surging in areas such as Las Vegas and Phoenix.
Jobless benefits last week were the lowest in almost six years. Household debt is down to mid-1980s levels.
Roberto Perli at Cornerstone Macro said Obama’s bubble caution is a legitimate economic concern but not motivated by consideration of imminent risk. Both Summers and Yellen can claim bubble-battling expertise.
Michael Kumhof and Romain Ranciere at the IMF said in 2010 that when the wealthy lend ever-greater amounts to less-affluent Americans, those bigger debt loads can trigger financial crises.
Jared Bernstein said the 1990s dot-com bubble and the housing boom of the next decade were a shampoo economy: bubble, rinse, repeat. Bernstein said implicit in Obama’s comments is the idea that this has been very damaging in the past.
Adam Posen at the Peterson Institute for Intl Economics is concerned that premature bubble concerns could cause Obama to get caught up chasing this ghost and name a Fed chairman less likely to aggressively use monetary policy tools. Posen said the feeble economy is evidenced by money supply remaining at its lowest level at least 5 decades.
Mohamed El-Erian at Pimco sees artificial pricing in virtually every asset class.
Fed Governor Jerome Powell said in June that home prices are back to fair valuation.
Fed Governor Jeremy Stein said these prolonged low interest rates can create the incentive to take on greater duration or credit risks, or to employ additional financial leverage.
Fed Governor Sarah Bloom Raskin said asset bubbles are a feature of our financial landscape, and what happened before could happen again.
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