Greenspan, Rear-View Mirror Driver??
siliconinvestor.com
Feb 10 8:20am ET
By Pierre Belec
NEW YORK (Reuters) - Federal Reserve Chairman Alan Greenspan looks at the
economy in the rear-view mirror, which is really not the smartest way to pilot the
world's biggest economy.
The reason is that Wall Street cares more about what's ahead than what just went by,
such as those monthly economic reports, which are simply lagging indicators.
"That is the way Federal Reserve Chairman Alan Greenspan drives his monetary
policy," says Don Hays, president of Hays Advisory Group, an investment consulting
firm. "Over the years, he veers wildly from the ditch on one side of the road to the ditch
on the other side of the road."
Let's look at the video tape. Stocks collapsed on Jan. 2, the first trading day of 2001,
as investors threw in the towel after the market showed no willingness to shake off the
bearishness that rocked stocks in the closing quarter of 2000, The next day,
Greenspan popped into the news like a Jack In The Box, with a surprise 50-basis-point
cut in interest rates.
More recently, the Conference Board, a New York-based research firm, said its
confidence index fell for a fourth straight month in January to the lowest since
December 1996. Greenspan reacted with another cut of 50 basis points in interest
rates.
The slump in consumer confidence, Hays says, was not predicting a recession, but
simply telling the Street what had actually happened. |
