“The Bank for International Settlements has reportedly summoned central bankers to Basel this weekend on fears banks have returned to the risky behaviour that led to the crisis in 2007-08, and some inside the Fed are already calling for a more hawkish rate policy. Kansas City Fed president Thomas Hoenig, a voting member of the FOMC, said yesterday the Fed should move “sooner rather than later” to “curtail its emergency credit and financial support programmes, raise the federal funds rate from zero back to a more normal level, probably between 3.5% and 4.5%, and restore its balance sheet to pre-crisis size and configuration”.
“Stockmarkets are still shy of their record peaks in most countries. The American market is around 25% below the level it reached in 2007. But it is still nearly 50% overvalued on the best long-term measure, which adjusts profits to allow for the economic cycle, and is on a par with two of the four great valuation peaks in the 20th century, in 1901 and 1966.”