Even Lloyd Blankfein Is Getting Worried: “Things Have Been Going Up For Too Long”
Earlier today, we reported that Deutsche Bank CEO John Cryan called for an end to Europe’s cheap-money policies and asked that the European Central Bank not use the strengthening euro as an excuse to keep printing money.
According to Bloomberg, Cryan said that the bank is “seeing signs of bubbles” across capital markets while low interest pummel European banks’ earnings.
“We are now seeing signs of bubbles in more and more parts of the capital market where we wouldn’t have expected them,” Cryan said, adding that the interest-rate policy has been partly responsible for the decline in earnings at European banks.
“I welcome the recent announcement by the Federal Reserve and now also from the ECB that they intend to gradually bring their loose monetary policy to an end.”
Now, barely a day later, Goldman Sachs CEO Lloyd Blankfein has joined his fellow bulge bracket bank chief in expressing his uneasiness with contemporary valuations and the central-bank money printing that has helped pump up asset prices around the world.
Blankfein said that “things have been going up for too long” and that “when yields on corporate bonds are lower than dividends on stocks, that unnerves me.”
Here’s more from the Wall Street Journal:
“Goldman Sachs Group Chairman Lloyd Blankfein on Wednesday sounded a warning about the markets, saying that some of what he sees “unnerves” him.
Mr. Blankfein said the current market environment “doesn’t feel like tulip-bulb-mania,” a reference to the famous speculative bubble in the Netherlands in 1637, but was nonetheless concerning.
‘Things have been going up for too long,’ he told attendees at a Handelsblatt business conference in Frankfurt.
‘When yields on corporate bonds are lower than dividends on stocks? That unnerves me.’”
Here’s a breakdown of Blankfein’s other remarks, courtesy of WSJ. The CEO was speaking via a video link from Goldman’s headquarters in New York:
…On speculation that Goldman alum Gary Cohn could become the next chairman of the Federal Reserve, Blankfein said Cohn would do a “different job but a great job.”
“I think Gary is very very capable. He would be a different kind of person. Not an academic. I don’t know that he reads a lot of policy papers, let alone writes then, but there’s nobody who understands markets better?.”
Relative to current chair Janet Yellen, Mr. Cohn is ‘much less theoretical.’”
‘Who’s to say what’s better or not??’ he said, noting that past Fed chairs have had more of a markets bent. ‘I’d be willing to give that a try. I think he would do a different job, but a great job.’”
“Things could have gone better but I’m not without hope. A lot of what [President Trump’s] trying to accomplish I’m friendly to. There are a lot of layers of protectionism and regulation that have been built up that impede progress. I think his good intentions are to take a lot of that away.? ?I have some disappointment but also some hope.?”?
…Asked about the bank’s “Government Sachs” moniker, Blankfein said the bank happens to have a lot of employees who are “civically minded.”
“We have a lot of people who are civically minded…I’m proud of it. Their qualities are recognized. ?T?hey make a sacrifice and we feel the cost of that sacrifice, because they’re very capable people.”
…On the Volcker rule:
“’You have people sitting on desks who are paralyzed out of fear… It has had chilling effect in people’s willingness’ to make markets.”
…On declining revenue at the bank’s trading division:
“’We have always had periods of time where we haven’t done well. I’m not terribly aggrieved by it. It’s a level playing field for everyone. I think we can do well in this environment, and we can do well if they relax the rules.’
‘We’re running in a horse race against our competitors. If it rains, it rains for everyone and we’ll run in the mud. If it’s sunny, we’ll all run in the sunshine.’”
Could Blankfein’s and Cryan’s remarks portend a selloff in the coming months? Certainly, their publicly voiced concerns about asset bubbles probably represent the most bearish comments made by the leaders of systemically important banks since July, when J.P. Morgan Chase & Co. CEO Jamie Dimon warned investors that the Federal Reserve’s unwinding of its balance sheet wouldn’t be like watching paint dry, but instead that it could be “a little more disruptive than people think.”