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Greenspan Calls Market Top

I’m not certain I would give Greenspan great market as a stock market seer, but he may have gotten better over time. He saw the stock market as frothy in 1996 (the time of his famed “irrational exuberance” remark, and was a skeptic through most of the equity bubble, then threw in the towel and decided he was a believer less than 6 months before the market top.

Nevertheless, the Maestro seems to be calling an end to the current rally, based on his view that the fundamentals will not pan out and growth will falter next year. He sees growth coming in at 3% to 4% over the next two quarters, but as Ed Harrison has pointed out, a big chunk of that is “the mother of all inventory corrections.”

From Bloomberg:

Former Federal Reserve Chairman Alan Greenspan said he sees the U.S. economy slowing next year as the surge in stocks comes to an end.

“The odds are that we flatten out, even though earnings are doing very well,” Greenspan said in an interview with Bloomberg Television, referring to the equity market. That flattening out will probably “put some sort of dull face” on the economy in 2010, he added.

Greenspan said he expects the economy to grow at a 3 percent to 4 percent annual pace in the next sixth months before slowing down. As a result, unemployment isn’t likely to decline much from last month’s 9.7 percent rate, he said. Even so, he doesn’t expect the economy to relapse into recession next year.

The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in more than a year, the Commerce Department said today. An unexpected decline in a gauge of business activity released today, along with a private report showing employers cut more jobs than forecast, indicate a recovery may be slow to take hold….

“We are still by any measure in a disinflationary environment,” said Greenspan, 83. “Unless we sterilize or unwind the big monetary base we’ve built up, two, three years out inflation really begins to take hold.”

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14 comments

  1. Glen

    Given Greenspans key role in the financial mess of today, it surprises me that anyone still listens to him other than the establishment whom he served so well. This leads me to suspect that this a strategic call rather than the musings of some dottery old man.

  2. Skippy

    The Greenspan years, remind me of Popular Mechanics issues of my youth *Heady optimism* to sell print.

    Skippy…reconing of ones past mistakes is what separates the boys from the men.

  3. MarcoPolo

    I’ve made mistakes too. I know what it’s like to look back at the dumb things you’ve done and wonder how you might have done better. What do you say when you know you’ve just been wrong?

    “Unless we sterilize or unwind the big monetary base we’ve built up, two, three years out inflation really begins to take hold.”- AG

    Remember that, I’m betting he’s right about that and there is no exit strategy. The present policy is likely wrong too.

  4. fresno dan

    “the Maestro”
    Ow, I laughed so hard I hurt myself
    But it is why I doubt the efficacy of having a “super-maestro….er, I mean regulator”

  5. Ed

    “Unless we sterilize or unwind the big monetary base we’ve built up, two, three years out inflation really begins to take hold.”

    Not sure I would hang my hat on that either. 15-odd years later we are still waiting for inflation to take hold in Japan…

  6. But What do I Know?

    Man, I hate it when AG seems to agree with me–it makes me want to change my mind. Luckily, in this case, he just seems to be talking up the new consensus of “flat and slow recovery.” As in, don’t worry that things aren’t getting any better, we saw this coming.

    That, and he’s an aging rock star just dying for attention. I’ve wasted enough time on him already.

  7. FGR

    HMMMM… reading that, if i was bearish on stocks, i would start to cover some….Id wait for Alan to be Bullish to sell, that might be far away still, and if i believed in inflation, i would start selling TIPS, and buy Treasuries !!!!!

  8. FGR

    HMM… if i was bearish stocks, i would start to cover quick. id wait for ALAN to turn Bullish to sell stocks, that might be a few 1,000 points away on the DOW…
    and if i believed in Inflation and owned TIPS, i would start selling them, and buy TREASURIES instead…

  9. FGR

    but its true we are breaking a weekly trendline in US… a good correction is due now… Maybe for once ALAN will be right ? youre never too old to change…

  10. TigerPaw

    Well keep in mind that a broken clock shows the correct time twice a day. It doesn’t mean the clock is useful.

  11. flow5

    Market & economy have just topped. Monetary flows (the proxy for real-growth), has just crashed.

  12. Hugh

    I have been saying for a couple of months now that the current suckers rally will end in the Fall or Winter. It is fully mature and could go any time. All it needs is a precipitating event or the lack of a single greater fool.

    Note: the September jobs numbers will be coming out tomorrow.

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