Is Greenspan Sealing the Market’s Fate?

Tyler Durden's picture

Submitted by Pater Tenebrarum of Acting Man blog,

The Third-Biggest Living Contrary Indicator of All Time Speaks Up

There once was a time when it was fair to say that Alan Greenspan was the biggest living contrary indicator of all time. Long before he became known to a wider audience, in early January of 1973, he famously pronounced (paraphrasing) that 'there is no reason to be anything but bullish now'. The stock market topped out two days later and subsequently suffered what was then its biggest collapse since the 1929-1932 bear market. That was a first hint that stock market traders should pay heed to the mutterings of the later Fed chairman when they concerned market forecasts: whatever he says, make sure you do the exact opposite.

More proof was delivered in 1996, when Greenspan bemoaned the 'irrational exuberance' in the stock market, just as it embarked on one of its biggest rallies ever. Then in 2000, Geenspan finally agreed that a 'new era' had indeed arrived; that investors according billions in market capitalization to companies that would never make a dime were acting perfectly rationally, and that there was surely no end in sight to the productivity miracle. It was the biggest sell signal he had yet produced.

The reason why we feel he must be relegated to third place is that since then, arguably two even bigger living contrary indicators have entered the scene: Ben 'the sub-prime crisis is well contained' Bernanke, and Olli 'the euro crisis is over' Rehn. Admittedly it is not yet certain who will be judged the most reliable of them by history, but in any case, when Greenspan speaks, we should definitely still pay heed.

As CNBC reports:

“Although blue-chip stocks are hitting all-time high after all-time high, former Fed Chairman Alan Greenspan told CNBC Friday that "irrational exuberance" is the last term he'd use to describe today's market. Greenspan said in a "Squawk Box" interview that stocks by historical standards are "significantly undervalued" even considering the recent moves higher. He added that the payroll tax increase didn't dent spending because of rising asset prices.”

Oh Boy! Is a crash imminent? After all, the 'Dow 36.000' guys are back as well, believe it or not. Here is James Glassman, shamelessly piping up again after leading countless investors down the garden path with his 1999 book:

“The Dow Jones Industrial Average set a record this week, but it’s still far from the mark that economist Kevin Hassett and I forecast in our 1999 book, “Dow 36,000.”

We wrote in the introduction that “it is impossible to predict how long it will take” to get to 36,000. Then, in the same paragraph, we rashly made a guess anyway: “between three and five years.”

 

Today, the far edge of that time frame is clearly in reach. From its low of 6,547 on March 9, 2009, the Dow has risen 117 percent. Another 117 percent in four years would put it at 31,022, just 16 percentage points shy of the magic number.”

(emphasis added)

The argument he forwards is just as specious today as it was then. It is of course no great feat to 'forecast' that the DJIA will 'reach 36,000 points in an unpredictable period of time'. Monetary inflation practically ensures that it will one day get there. Since the Fed's founding, the purchasing power of the currency it issues has plunged by 97%. That plunge is likely to accelerate in coming years, given the massive increase in the money supply since 2000 (US broad money TMS-2 has increased by 214% since then, i.e., there is today more than three times more money in the economy than 13 years ago).

Recognizing that making such a prediction, but not pinning a specific time frame to the magic number would make the whole exercise useless, Glassman and Hassett decided to throw their 'three to five years' target out there, just in time to mark the beginning of the worst secular bear market in a century.

Glassman offers a raft of excuses for why the forecast didn't pan out, but that is just telling us that he was never qualified to write this book. Anyone who didn't understand the dynamics of the credit and asset bubble that led to the historic market peak should have refrained from getting his unqualified opinions in print, if only for the sake of saving gullible investors from making the costly mistake of believing in this overly rosy outlook.

Incidentally, Glassman is correct when he says that it would be a good idea to enact economic policies conducive to economic growth, but he seems not to realize that this means that his renewed optimistic forecast is plainly contradicted by the economic policies that are actually pursued at present.

Dow-36000

The 'rock-solid' investment advice of yesteryear, to be 'placed on an altar next to the works of Benjamin Graham and Peter Lynch'  – it's back!

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buzzsaw99's picture

ole greedscam can sniff out a bubble from a mile away

cifo's picture

Why would the market crash with $85 billion injected every month?

MiguelitoRaton's picture

Greenspan is quite the bubble blower

american eyedol's picture

bill gross said the other day

"money is running out of time"

Bear's picture

Unfortunately "Our Time is running out of money"

Thomas's picture

This is the guy who, the other day, was on tube describing the "earnings-price ratio". Maria tried to hold it together, and then he finally corrected himself. I don't think he is valid contrary indicator. I think he is brain dead--Karen Anne Quinlan of central bankers.

James_Cole's picture

No one comes close to Greenspan, his stupidity is legendary. The ultimate Ayn Rand disciple. 

sun tzu's picture

I didn't know Rand wanted a centrally planned economy. I thought she advocated free markets. You are right up there with Greenspan and Krugman

James_Cole's picture

I wasn't stating opinion, it's a fact. Greenspan was literally Ayn Rand's disciple, protege might be even more appropriate. 

Here they are together at the white house, such great times:

http://1.bp.blogspot.com/-HGm2yiSd8D0/Td7VYaNv_dI/AAAAAAAAA-4/L6X_sM2gLm...

Here's Greenspan talking about how she influenced him:

http://www.noblesoul.com/orc/bio/turbulence.html

Rand's Collective became my first social circle outside the university and the economics profession. I engaged in the all-night debates and wrote spirited commentary for her newsletter with the fervor of a young acolyte drawn to a whole new set of ideas. Like any new convert, I tended to frame the concepts in their starkest, simplest terms. 

Ayn Rand and I remained close until she died in 1982, and I'm grateful for the influence she had on my life. I was intellectually limited until I met her. All of my work had been empirical and numbers-based, never values-oriented. I was a talented technician, but that was all. My logical positivism had discounted history and literature -- if you'd asked me whether Chaucer was worth reading, I'd have said, "Don't bother." Rand persuaded me to look at human beings, their values, how they work, what they do and why they do it, and how they think and why they think. This broadened my horizons far beyond the models of economics I'd learned. I began to study how societies form and how cultures behave, and to realize that economics and forecasting depend on such knowledge -- different cultures grow and create material wealth in profoundly different ways. All of this started for me with Ayn Rand. She introduced me to a vast realm from which I'd shut myself off.

toys for tits's picture

 

Judas Iscariot was a disciple of Christ but he isn't known now as a loyal follower.

The following is from the Ayn Rand Center:

Alan Greenspan claims that the free market failed to prevent the financial crisis, and that he is “shocked” that his professed “free-market ideology” turned out to contain a “flaw.”

But why should we take him seriously? Greenspan, while once associated with laissez-faire philosopher Ayn Rand, hasn’t advocated genuinely free markets for decades. Remember, this is a man who for two decades reveled in being, as the New York Times put it, “the infallible maestro of the financial system.”

Free markets don’t have “infallible maestros”; they liberate us from such “maestros”--the central planners who have time and again falsely claimed the ability and the right to orchestrate millions of economic lives. Free markets enable each of us to be our own maestro, conducting our own affairs, producing and trading as we judge best, and taking responsibility for the consequences when we fail.

http://www.aynrand.org/site/News2?page=NewsArticle&id=21857&news_iv_ctrl...

James_Cole's picture

 

But why should we take him seriously? Greenspan, while once associated with laissez-faire philosopher Ayn Rand, hasn’t advocated genuinely free markets for decades. Remember, this is a man who for two decades reveled in being, as the New York Times put it, “the infallible maestro of the financial system.”

The author of this is a high school student or what? Where's the citations? What is "for decades"? Is that twenty years? Thirty years? At what point is it consequential? 

In an article published in 1963 as part of Ayn Rand's book Capitalism: The Unknown Ideal, Greenspan declared that protection of the consumer against "dishonest and unscrupulous business was the cardinal ingredient of welfare statism."

"Regulation which is based on force and fear undermines the moral base of business dealings," he wrote. "Protection of the consumer by regulation ... is illusory."

Fast forward to 2008:

"You found that your view of the world, your ideology was not right, it was not working?" said Rep. Henry A. Waxman (D-Calif.), the committee chairman.

"Absolutely, precisely," Greenspan said. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

Keep in mind Greenspan worked in successive Republican governments as different forms of economic advisor since Nixon, maintaining his close ties to Rand until her death.

His influence grew considerably at the end of the 80s & with his encouragement, banks ballooned in size, various forms of exotic derivatives were allowed to run wild without oversight & long-held banking regulations were tossed out the window all to predictably disastrous result.

http://www.businessinsider.com/the-warning-brooksley-borns-battle-with-a...

“You failed to prevent many of our banks from consolidating and growing to size that are now too big or too interconnected to fail,” Born added. She added that Greenspan’s views on deregulation, which he took as an article of faith, contributed to the Federal Reserve’s failure in delivering on its mandate.

Looking as angry as he could at his advanced age, Greenspan replied, “The flaw in the system I acknowledged was an ability to fully understand the state of potential risks that were fully untested… That means we were under-capitalizing the banking system for 40 or 50 years.

It's interesting you bring up Judas though, Greenspan did become something of a Judas to her (to be fair he really was her only disciple of note so he was also John, Paul etc.) by implementing her ideas on regulation directly in the financial markets on a grand scale he proved how foolish they were and thus crucified her relevance...At least in the minds of anyone with intelligence - zealots excepted. 

 

The last great note on Greenspan is how he was appointed by Reagan to 'reform' social security at which point they jacked payroll taxes and used social security 'surplus' as a semi-secret way to fund government largesse, bankrupting the program (which neither believed in to begin with) in the process.

 

 

Raymond K Hessel's picture

What did the protagonists working with John Galt conspire to do?

I think Greenspan is working to take down the economy, Galt style.

lewy14's picture

He makes her sound like a hippy guru, lol.

I actually like this passage because it humanizes both of them.

Who wouldn't want, or need, an encounter which would introduce you to a vast realm from which you'd shut yourself off?

NotApplicable's picture

You need to separate Rand the author from Rand the ideologue. Her books were her ticket to power. We all know what that does. She was very proud of Greenspan's entrance into DC.

kchrisc's picture

I normally don't comment on ignorance, it comments on itself, but I'll make the exception here.

The worse thing about Greenspan is that after several years around Rand he DOES know better but deliberately sold-out to do the opposite of what he knows is right. Now that is pathological and criminal.

Same goes for Keynes, as he was a free-market and gold-standard adherent, but then he sold-out.

There are special guillotines--dull blades--and places in hell for these people.     hujel

 

 

Divided States of America's picture

What is in common between Greenspan and Glassman? Both lying Jbags.

AlaricBalth's picture

From 2008
ALAN GREENSPAN: ...And what I'm saying to you is, yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact.

REP. HENRY WAXMAN: You found a flaw in the reality...

ALAN GREENSPAN: Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.

Why does Greenspan even still get airtime?

Crisismode's picture

Because he spins the Bullshit better than most.

 

LeisureSmith's picture

He has special glands for that. But it has been many winters since his bullshit web was strong enough to capture prey. Look at the guy, he's clearly malnourished.

Theosebes Goodfellow's picture

Ah, fer' Pete's sake, have some mercy, will ya'? The poor sod still has to climb between Andrea Mitchell's legs, (when he can). That sort of thing is bound to affect his ability to reason. If it was you, yer' sanity be'd tested too!

traderjoe's picture

He is a paid shill for his banker masters.

sgt_doom's picture

And I believe he is seriously channeling Andrew Mellon now....

EscapeKey's picture

on a long enough inflationary timeline, every notional figure eventually goes to 36,000

eigenvalue's picture

I'm waiting for shills like Jim Sinclair and Eric Sprott to offer excuses for why $5000 gold and $100 silver haven't panned out.

Precious metals are going to crash on Monday. Target price-> ZERO!

ihedgemyhedges's picture

Yeah, Cypriots will pull their cash from banks, open a margin account and short the GLD. You fukin' idiot........

eigenvalue's picture

Do you think TPTB will refrain from pommelling precious metals when contagion spreads from Cyprus? Before the Swiss central bank pegged CHF to EUR in 2011, they created a flash crash in the gold market.

WmMcK's picture

Do you think TPTB will refrain from pommelling precious metals when contagion spreads from Cyprus?

I only hope they do not refrain.  More for us with strong hands to buy.

My LCS only has Au teeth right now, though.  And that Ag is so bulky.

Oh, well,  time to donate some more things to make room (or go boating again).

SilverDOG's picture

eigenvalue,

 

 

That is called a SALE.

For TPTB and anyone utilizing 20/20 hindsight as a reference, while considering probabilities beyond quarterly reports.

Got PM's

disabledvet's picture

if you lose your 12% return on cash in the bank don't be surprised if something needs to be sold to compensate. obviously the term "zero" seems a little extreme though. "free" does not however. http://www.youtube.com/watch?v=rN_pBqg9VY4

EscapeKey's picture

oh eigen, hi, could you make sure to press the world's central bankers for replies as to why the "recovery" hasn't yet set in anywhere, despite repeated reassurance of "it being just around the corner"... that would be greeaattt.

Thomas's picture

That must be sarcasm, right? Please tell me it is.

disabledvet's picture

it's music man..."you just gotta feel it." it's all good.

Silveramada's picture

Gold and silver worth zero? the Dow and the S & P, the US$ and Treasury Bonds, these are the candidates in the run to the bottom boo boo... 

andrewp111's picture

If you hold 1 oz US Gold Eagles, their value will never go below $50 :)

Money Squid's picture

If your gonna rail on stock market predictions why not include PM price predications also. Hitler kitty has a point.

Silveramada's picture

yeah, has more than a stupid point: PM's due to intrisic value can't go to zero, never have ( unlike paper assets, remember Weimar Republic, you little german pussy cat?). And to say or predict : " On monday PMs goin to crush, price target ZERO" is totally turd-bs talking

GrinandBearit's picture

What a desperate, pathetic troll you are.

Croesus's picture

@Eigenvalue:

I hope they do! I'll be sure to get my money out of my bank in Cyprus, and wire it to my sweep account at JPM, so I can buy some more!

DosZap's picture

I'm waiting for shills like Jim Sinclair and Eric Sprott to offer excuses for why $5000 gold and $100 silver haven't panned out.

Ever heard of MANIPULATION?.There's your answer.

nodhannum's picture

Oh, I hope you are correct ev! I have been looking for another entry point. I lost my previous stash while fishing and need to get some additional sinkers for my hooks.

Gromit's picture

Yes probably.

VIX 11.20 is my number. Gotta buy some SPY puts if we hit it.

 

Yen Cross's picture

 Greenspan knows he's going to straight to (Dantes') ninth circle.

prains's picture

that's where his favorite virgins reside, puppies

Yen Cross's picture

  Thanks for the upvote. You have some pretty good ideas yourself. ;-)

Daily Bail's picture

And he'll be singing his theme song every step of the way:

The Bubble Man - Greenspan Song

 

JustObserving's picture

Greenspan sealed America's fate as easily the largest debtor nation in the world.  And he gets credit for creating the financial crisis of 2008.  For that he deserves the title "maestro."  The irony may be lost on CNBS though.

NoDebt's picture

Oh, we'll get there all right.  If only by (hyper) inflation.