Seems many on this thread could use a little extra money (me included now) <gg>. Okay, so, here's my $0.02 fer ya:
I'd say that the tone of the AG commentary here and elsewhere goes a long way to "explain" what the market did today. That is, there is the distinct impression that what AG does determines in some major way what the stock market will do, or is a primary force driving market trends. While obviously FOMC actions cause short-term market repercussions, I think this greatly overstates AG's power, and serves to focus attention on things other than the cause.
IMHO, stock markets, or any market for that matter, will sooner or later align themselves with basic economic driving forces. Reality always wins. Markets get out of whack with economic reality as greed or fear-tinged perception of that reality gets further from the truth, and the further the deviation, the harder the snap back tends to be. That's why bubbles tend to collapse violently, not drift harmlessly down to earth. But in the end, global economic cycles and forces dictate terms, sometimes rather harshly. Alan Greenspan is not such a force.
In the face of mounting evidence indicating fundamental global economic deterioration, investors have largely remained optimistic to a degree that is inappropriate and completely unwarranted by reality: growth is slowing inexorably, the credit markets are approaching a critical point, if not a crisis; inflationary forces are threatening to burst to the surface (particularly energy costs); there is deterioration of currencies tending to exacerbate the above. And Americans in particular have thrown caution to the winds, in that they have not only failed to save for a rainy day with dark clouds rapidly gathering, but have incurred still greater debt on a personal level; the real estate markets are showing signs of weakening and softness; capital to support growth is rapidly drying up, again secondary to that smart money seeing the economic writing clearly on the walls, and making them unwilling therefore to take exorbitant risk of default just to support prospects of growth in an economic environment increasingly favoring contraction.
And it should come as no surprise, then, that we are seeing increasing manifestations of these: downward earnings revisions, downside surprises and forward warnings, economic reports consistent with slowing growth of the economy, evidence of changing consumer spending habits, decreased capital expenditures, even outright business failures.
In short, the Promise of the [Letter]2[Letter] New Economy Internet I-Have-A-Dream-Today Future and its attendant can't miss EZ money treasure for all is rapidly morphing into something of a Dot Bomb Nightmare on Chapter 11 Street.
Alan Greenspan did not cause this. He cannot singlehandedly solve it.
That's not at all to say that his actions do not affect economic forces and trends; of course they do. But they do not constitute such a force or trend. Central bank loan policy is not a fundamental economic force, merely a reflection of, or a reaction to them. And an attempt to favorably alter their impact.
I'm not defending AG's actions, or arguing against them either, for that matter. It just seems to me that this has become something of a diversion, a smokescreen, and AG himself something of a scapegoat. It nevertheless has real effects in stock prices because in the short term, stock prices can and do move completely independently of any rational driving force such as earnings growth or economic growth, as greed, fear, and misperceptions of reality vary within investors. But reality always wins in the end.
I'm not directing this at anyone in particular. It's just a comment on investor perceptions: call them good, bad, or indifferent if you must, but IMHO you must also call them out of sync with economic reality.
But nine months or so from now they won't be. Reality will win yet again.
As always, JMVHO.................YMMV
Walkingshadow |
