Yellen's Finger-Pointing Folly

 | Jul 15, 2014 | 2:15 PM EDT
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Did Fed Chief Janet Yellen just tell us to short Yelp (YELP)? Did she say to bang out of Twitter (TWTR)? Does she hate Epizyme (EPZM)? Did she mean that we should sell cloud and e-commerce plays?

I know this, her brief comments in front of the Senate today have crushed the Nasdaq and haven't done any favors for the rest of the market, which she didn't exactly praise, but didn't dump on either.

I don't like it when Fed chiefs address the stock market. If they think there is too much speculation, they have a tool at the ready: the margin requirement (how much money you are allowed to borrow from brokers to buy stocks). Right now it is at 50%. If the Fed chief thinks there is too much speculation, which is certainly the veiled charge she made when she said that valuations are substantially stretched, "particularly those for smaller companies in the social media and biotechnology industries," she can take margin rates up to 60% or 70%, forcing people to put up more money per trade. That has always worked to tamp investing in speculative securities. Instead, Fed chiefs have chosen to raise all rates, as Alan Greenspan did, which killed the real economy in order to stop speculation in Internet stocks back in 2000.

You have a tool, use it.

Yes, it is true that she admitted that prices aren't as high as they were. But to me this was a needless swipe, perhaps to give her more credibility with those who think she isn't tough enough on inflation. Honestly, are we supposed to guess which ones are overvalued? Is Celgene (CELG) if it sells at 17x 2015 earnings? Was Idenix (IDIX), before Merck (MRK) paid more than 3x for what it was selling? Is Yelp overvalued even as it is coveted by many companies? How about Zillow (Z)? Twitter? I mean, that company doesn't make any money.

Or is it Facebook (FB) and she doesn't like the price-to-earnings multiple?

Anyway, it was a fatuous reference. You have an ability to curb speculation. Use it.

But, may I ask, where were you when many of these stocks were dramatically higher?

Just a useless exercise that will cause some pain in all stocks as we figure out which are guilty and which are innocent and which ones she really meant. 

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