Alan Greenspan, a.k.a. the Maestro, sees stock market dissonance up ahead. In fact, the former Federal Reserve chairman believes the long bull run is over.
Looking at the market’s latest slump, Greenspan warned in a CNN interview Tuesday that the market could nudge up again, but will suffer a big, bad dive shortly thereafter—in Wall Street parlance, do “a dead cat bounce. “At the end of that,” he advised, referring to the brief upward blip, “run, run for cover.”
Greenspan’s jeremiad came a day before the Fed is expected to increase short-term rates by another quarter percentage point. Some investors fear that the central bank will go too far and push the nation into a recession, which obviously means a painful market pratfall.
What’s more, Greenspan also told CNN that the US could be moving toward “stagflation,” a nasty brew of high inflation and high joblessness, last seen in the 1970s. “How long it lasts or how big it gets, it’s too soon to tell.”
The market has been wheezing since October, owing to Fed fear, along with trepidation over the trade war with China and a global economic slowdown. The benchmark S&P 500 finished up a fraction on Tuesday, which may end up being just a momentary respite.
Of course, Greenspan, like other fallible mortals, has not always called the market correctly. In December 1996, he decried that decade’s monster stock run-up as “irrational exuberance,” soon to end. If you listened to Greenspan at that point and unloaded your equity holdings, then poor you. The S&P 500 went on to double over the next three-plus years until the dot-com bubble burst.
During his tenure helming the Fed (August 1987 to January 2006), he drew kudos for keeping the economy on a mostly even keel, and acting to forestall problems from getting worse, such as with the collapse of Long-Term Capital management and the Asian monetary crisis. Hence, the laudatory sobriquet, the Maestro.
Certainly, however, he had his critics, who lamented the so-called “Greenspan put,” the notion that the Fed stood ready to bail out the economy—which in turn arguably led some investors to take crazy risks, with the unhappy result of the global financial crisis of 2008-09 after he left office. Some contend that his easy-money policy helped pump up housing prices to a dangerous and unsustainable level.
Nevertheless, as he indicated to the cable channel, hindsight is 20/20, looking forward is not. “There are always toxic assets, you just never know which ones are viable,” he said. “Right now … it’s hard to tell what the toxic asset is.”