Beware The Ides of Greenspan
March 15th wasn’t such a great day for Julius Caesar, but until former Fed Chairman Alan Greenspan started speaking today, it had been a pretty good day for Wall Street. Stocks gained ground despite a bigger-than-expected jump in the February Producer Price Index, and they maintained those gains despite what appeared to be a weak Philadelphia Fed report.
Then came Greenspan, who had already caused at least some investors a great deal of angst earlier this month, by daring to utter the “r” word -- recession. The fact that he said a recession was merely a possibility -- and not a probability -- was not enough to generate forgiveness among those who simply would like Greenspan to stop talking.
I’ve no doubt that the same people feel the same way about Greenspan’s comments today -- because they had a similar effect. His key statement to a Boca Raton, Fla. conference of the Futures Industry Association was that the subprime loan problem was “not a small issue.” Some would say that that’s obvious; but coming from Greenspan, the words carried weight.
We put his remarks on the air in deko (chyron) form as soon as they crossed the wires. The major averages immediately lost their gains for the day, though they did partially recover.
[Editor's note: "dekos," or "chyrons" = onscreen data caption boxes.]
We can draw two conclusions from all this: the subprime problem remains Wall Street’s most prominent at the moment; and what Greenspan says still matters to investors.
There are many who disagree, but I’m not among those who think Greenspan should stop talking. It must be quite liberating to be able to speak freely after two decades of wearing a Fed-related muzzle, and Greenspan has been careful not to comment directly on Fed policy and interest rates.
There’s no rule that says investors have to listen and react. And the argument can clearly be made that sometimes, investors overreact -- and that Greenspan is merely stating the obvious.
The Greenspan reflex is still well-ingrained among investors. And, I suppose, among financial journalists and broadcast producers. My Shakespearean writing isn’t all that good, but I can say that we neither came to bury Greenspan nor to praise him.
Until tomorrow. Or should that be “et tu” tomorrow?