A little Greenspan gossip...
WHAT'S KEEPING GREENSPAN AWAKE AT NIGHT?
By JOHN CRUDELE
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ALAN Greenspan is petrified about the stock market bubble but doesn't know what to do about it.
No, Greenspan isn't suddenly becoming chatty - at least not with the press. But Lawrence Lindsey, who worked alongside Greenspan at the Federal Reserve until 18 months ago, is having more luck breaking through Greenspan's mumbo jumbo.
Lindsey, who recently wrote a book called "Economic Puppetmasters" (The AEI Press) told me over a cup of coffee the other day that Greenspan "wants to prevent a market collapse. But he doesn't want the market to go any higher."
Lindsey believes the stock market is too high in price and extremely vulnerable. And he thinks that the current impeachment process, if it actually puts the president in jeopardy, could be very damaging to stock prices. (I'll tell you what I know later.)
Does Greenspan understand the vulnerability of the economy? "Yes," says Lindsey, who currently toils as managing director of Economic Strategies Inc. in Washington. "He's quite worried about the bubble in the stock market. If the bubble bursts the U.S. consumer will stop spending and the U.S. and world economies will be in trouble."
That, says Lindsey, is what happened in 1929.
In his book, Lindsey quotes Greenspan as saying to him: "There are all sorts of parallels to the late 1920s. But you have to be a little careful about the 1929-1932 analogies. The problem is that if actions in 1930 and 1931 were taken differently, we might have had a fairly significant recession, but we would not have had the deep fall that we know as the Great Depression."
The former Fed governor believes - and says Greenspan agrees - that U.S. consumers are being kept going by the exuberant stock market. "We are spending more than our incomes in part, because we are feeling rich" because of the market, Lindsey says.
Lindsey himself thinks the stock market's behavior is troubling. "I think price-to-earnings ratios are very high and there will be (corporate) profit disappointments over the next year," he says.
If the market were to ignore these bad earnings, "it will become more and more divorced from reality."
The economist also believes that the impeachment process - totally ignored so far by Wall Street - could be a crippler for the market. "If it looked like the president was in a protracted battle for his political life, it would have a very chilling effect on the market," he believes.
"It would raise uncertainty and create doubt about the future course of policy," Lindsey said of the impeachment. "The problem will be one more of appearances, because in fact, policy won't change."
Here's what I know and what I told Larry Lindsey over that cup of coffee.
The Republicans in the Senate know a lot more about President Clinton's behavior than has come out. Some of the information, I'm told by a very reliable source, is coming from people close to the White House.
And more information has been delivered by people described to me by my source only as "wanting to do their duty."
I've predicted in this column before that President Clinton is in serious trouble. I wrote those words back when nobody even considered congressional hearings possible, much less believed that an impeachment process would get this far.
Based on these recent conversations and others that I can't fully detail here, I'm even more convinced that Bill Clinton's presidency is on the brink of disaster.
Remember, Ken Starr investigated Bill Clinton's personal behavior, not just his sexual behavior. It wouldn't take the Republicans long to track down some of this information and bring all sorts of things up during the Senate trial.
And both Larry Lindsey and I would agree that the political situation in Washington could be the biggest bump that'll shake Wall Street's complacency.
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Consumers spending?
Not according to retailers and manufacturers who still tell me that only highly discounted items are moving well.
But sales on the Internet, where the novelty still hasn't worn off, are an exception.
The latest Internet success are Speedos, the abbreviated bathing suits that are selling well over their new website.
Owner Authentic Fitness, I'm told, did a brisk business on the first two days without any publicity.
Another K-Tel? You never Can-Tel. |
