Meet Janet Yellen, Stock Market Psychic

Janet Yellen has a crystal ball. And she sees trouble ahead…

Yellen warned the investing public yesterday that stocks and bonds look risky in this ultra-low interest rate environment.

But as you’ll see, Ms. Yellen’s crystal ball is notoriously foggy…and we might even make our money by ignoring her fortunetelling…

“In a conversation with Christine Lagarde, the managing director of the International Monetary Fund, Yellen said that equity market valuations were ‘generally quite high’ and that ‘there are potential dangers there,’” MarketWatch reports.

(Gee, if only we knew who was responsible for this low-rate environment. They spike the punchbowl then blame investors for drinking it. But never mind that…)

Now, this ain’t Yellen’s first shot warning about investor exuberance. Let’s take a look at psychic Janet’s last attempt and see what happened. Back in July 2014, the great seer told us this:

Valuation metrics in some sectors do appear substantially stretched–particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year.

Since she brought up those lofty stock prices last summer, I figured we’d check in on a couple of those high-flying names she predicted trouble for:

Oops. I guess expensive can get more expensive. Maybe Miss Janet’s future as a 1-800 psychic is in doubt?

So what about her latest warnings about investor exuberance? What the heck are you supposed to do with these new comments?

Let’s check the history books. That’s where you’ll find the Fed’s not-so-stellar track record when it comes to timing these booms and busts. Remember, Greenspan delivered his “irrational exuberance” speech in late 1996. The speech happened after the Nasdaq had jumped 74% in two years and hadn’t seen a 20% decline in more than six years.

We know what happened next of course. The Nasdaq dropped initially after Greenspan’s comments, only to soar to new highs and climb more than 50% through mid-1998.

Back to the present: Chief Yellen has obviously been too busy looking into that murky crystal ball of hers to look at a chart lately. Because if she had, she’d already know that biotech, social media, and other high-flying stocks haven’t exactly seen a lot of irrational exuberance recently (we’ve been all over some of these recent disasters as recently as Tuesday).

The lesson of course is to keep a close eye on the trends–not market comments from the Fed, which can be anything but accurate. In fact, I recommend completely ignoring anything they say. It just won’t help you make money trading—that’s a fact.

Regards,

Greg Guenthner

for The Daily Reckoning

P.S. Follow the charts, not crystal balls. If you want to cash in on the biggest profits this market has to offer, sign up for my Rude Awakening e-letter, for FREE, right here. Stop missing out. Click here now to sign up for FREE.