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Strategies & Market Trends : Cents and Sensibility - Kimberly and Friends' Consortium -- Ignore unavailable to you. Want to Upgrade?

To: stan s. who wrote (18865)	10/15/1999 4:50:00 AM
From: swisstrader	Read Replies (1) \| Respond to of 108040

Good morning Kim: Mr G speech a total rehash of Jackson Hole speech...more from Briefing.com on same...still think we're in for some pain: He's Baaaaack 15-Oct-99 00:47 ET Just what you don't need in October -- Alan Greenspan stepping to the podium armed with one of his irrational exuberance speeches. But that's what happened at 7 pm on Thursday, and the result was a quick 11 point dive in the S&P futures contract. Take a look at the speech, however, and you'll see that it's little more than a rewrite of the infamous Jackson Hole speech. Had you known the title of the speech -- "Measuring Financial Risk in the Twenty-first Century" -- you certainly would not have guessed that it would have market implications. You could have even read several paragraphs in without thinking much of it. Getting To The Point But eventually the risks to the market began to become apparent, with lines like this: "At least part of the observed fall in equity premiums in our economy and others over the past five years does not appear to be the result of ephemeral changes in perceptions." That's a mouthful. But it's a mouthful worth translating. Falling equity risk premiums are another way of discussing rising equity valuations -- if you perceive lower risks in an investment, you are willing to pay a higher price. Greenspan's claim that part of the decline in risk premiums is not ephemeral has a corollary -- the other part of the decline is ephemeral. In this rather arcane-sounding statement, Greenspan is saying that part of rise in equity prices is most likely ephemeral. Old News But for the market, the question is whether this constitutes news. Greenspan first discussed the possibility of ephemeral equity market gains back on December 5, 1996. Since then, he has revisited this issue on many occasions, most recently in Jackson Hole on August 27. In fact, many significant lines in this speech were cribbed from that Jackson Hole speech. The following paragraph, which on the surface looks to be somewhat threatening, is in fact copied verbatim from that speech. "History tells us that sharp reversals in confidence happen abruptly, most often with little advance notice. These reversals can be self-reinforcing processes that can compress sizable adjustments into a very short time period. Panic market reactions are characterized by dramatic shifts in behavior to minimize short-term losses. Claims on far-distant future values are discounted to insignificance. What is so intriguing is that this type of behavior has characterized human interaction with little appreciable difference over the generations. Whether Dutch tulip bulbs or Russian equities, the market price patterns remain much the same." The three paragraphs that followed this one in Thursday night's speech were also taken verbatim from the Jackson Hole speech. So apparently the message is that Greenspan hasn't changed his mind in the past seven weeks. Should we be surprised? No To 36,000 As far as we could see, the only new information in this speech was Greenspan's questioning of the recent bestseller "Dow 36,000" by James Glassman and Kevin Hassett. In that book, the authors argue that stocks are undervalued because investors will learn over time that stocks should not in fact be seen as more risky than bonds. If that lesson is indeed learned, significantly lower equity risk premiums will not be ephemeral. Greenspan does not dismiss this argument, but he clearly has his doubts. You can read the speech yourself for all the details, but have a latte handy for the endeavor -- there are a lot of lines like this: "This occurs because financial intermediation facilitates diversification of risk and its redistribution among people with different attitudes toward risk." And this is the stuff that can make world markets shudder and send the S&P futures down 11? Strange world... Greg Jones