With the 30-year Treasury yield having hit a record low in January and the S&P 500 index just 2 percent below its record high, many experts are worried about froth in financial markets.
Andy Redleaf, CEO of hedge and mutual fund manager Whitebox Advisors, is one of them. "I think it is a truly scary time," he writes in an internal memo obtained by CNBC
The Federal Reserve's massive easing program that has pushed its balance sheet to $4.5 trillion could come back to bite the financial system, Redleaf argues.
"We do not know exactly where all the credit creation of this cycle has gone. Certainly money sits idly as excess reserves, but just as certainly money that would not exist but for unconventional monetary policy has distorted prices and resource allocation," he notes.
The current period resembles the run-up to the 2008 financial crisis, Redleaf explains.
The dollar's surge to a 12-year high against the euro this week could signal trouble too, he cautions.
"It strikes me as completely plausible that a further decline in the euro triggers a recession in the U.S.," Redleaf adds.
That combined with "a market tightening of credit [would] probably make the recession global."
Others are concerned about equity valuations too.
"We have been relatively bullish on the market in recent years and believe the bias for stocks remains to the upside, but investors should be concerned," Dan Greenhaus, chief strategist at BTIG brokerage, tells the Financial Times
"One thing is clear, whenever the Fed has raised rates at times when equities are richly valued, it has been problematic for investors." Economists' consensus is that the Federal Reserve will begin raising interest rates around mid-year.
As for valuations, The S&P 500 index carried a trailing price-earnings ratio of 20.19 Friday, up from 17.72 a year earlier, according to Birinyi Associates.
And when it comes to earnings forecasts, analysts predict profits will fall 4.9 percent in the current quarter, according to FactSet.
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