Imagine outgoing Chairman Ben Bernanke joyfully wrapping things up at the Fed while humming “tiny bubbles make me feel happy” from Don Ho’s song Tiny Bubbles. Creating bubbles seems to be a job requirement for a Fed Chair.
The Fed is putting on an air of solidarity for incoming Chair Janet Yellen. The broad show of support for Mini “Tapering” is part I. Any concerns about the stock market are cloaked in Fed speak. Take the recent Fed meeting minutes for example. “Several [Fed officials] commented on the rise in forward price-to-earnings ratios for some small-cap stocks, the increased level of equity repurchases, or the rise in margin credit. One pointed to the increase in issuance of leveraged loans this year and the apparent decline in the average quality of such loans.”
What the Fed needs to do is stop the easy money and stop with the silly comments. Take a look at the “rise” in margin credit—borrowing money to buy stocks. I’d say there’s a problem brewing. But no one wants to ruin the introduction to the big stage for Yellen who may be quietly humming to herself, “tiny bubbles make me feel fine”.