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To: 2MAR$ who wrote (84875)	2/22/2003 10:28:52 AM
From: 2MAR$	Read Replies (2) \| Respond to of 208838

Is Greenspan Being Tuned Out by Markets? Saturday February 22, 8:50 am ET By Wayne Cole NEW YORK (Reuters) - Maybe Alan Greenspan is no longer the lionized "maestro" of old on Wall Street. When the head of the world's most powerful central bank drew the ire of the White House last week for his lukewarm support of tax cuts, investors were reminded that Federal Reserve chairmen are also mortal. ADVERTISEMENT The word "resignation" was whispered, though a top Republican generously conceded there was no reason for the Fed chief to step aside right now. Once even the hint of a suggestion that the great man would not always be in charge would send markets into paroxysms of self-doubt. This time all it drew was a yawn. In part, this new equanimity is due to a belief that Greenspan is too much a part of the political landscape to be removed, even by a president as popular as George W. Bush (News). But analysts also see it as a telling sign of how far from grace the central bank, and the man himself, have fallen. "Greenspan's too much of an institution for any president to dump him," said Ram Bhagavatula, chief economist at Royal Bank of Scotland Financial Markets in New York. "But it's also the case that the magic's worn off Greenspan and the Fed," he said. Having cut interest rates 12 times the economy's only sputtering and, far more unforgivable to investors, equities have still halved in value from the peak of the bubble in 2000. "People have opened their eyes and realized the Emperor has no clothes," was Bhagavatula's verdict. THE GREENSPAN PUT It was an axiom of markets during the bubble, and indeed may have helped inflate the stock market rally in the first place, that the Greenspan Fed would do all in its power to support asset prices and thus there was little risk in buying, even at historically outlandish levels. So pervasive was this idea that it became enshrined in market folklore as the "Greenspan put." The Fed itself has always claimed that monetary policy is not set with asset prices in mind. Greenspan went so far as to argue that there was nothing the bank could have done to stop the bubble from growing. But the same was not true when asset prices were falling so far and fast that the fabric of business and consumer confidence seemed to be threatened. When that happened in 2001 the Fed felt fully justified in slashing borrowing costs -- 11 cuts that year alone taking interest rates to four-decade lows. And yet stocks have not recovered. The S&P 500 currently cowers around 830, leaving its 2000 peak of 1,553 a fond but distant memory. The economy has done better but only in fits and starts, and sustainable employment growth remains elusive. In their defense, central bankers note monetary policy works with long and variable lags, though that's harder to argue when the bulk of the easing came more than a year ago. The Fed can blame geopolitical uncertainty for holding back the economy and Greenspan evinces confidence that all will be well once the Iraq situation is resolved. "Policy is pushing against a lot of headwinds right now and maybe it's better to ask what the economy would be like without all the easing; a lot worse I bet," argued Jim O'Sullivan, an economist at UBS Warburg (News - Websites) in Stamford, Conn. "As for Greenspan, I'd have to fall back on a baseball analogy. You're never as good as when you're winning and you're never as bad when you're losing." NO PROFIT IN SPECULATING Others are not as kind, noting that lower borrowing costs alone will not revive investment when industry is saddled with massive unused capacity built during the bubble years of the 1990s. Low interest rates are also a backdoor attempt at forcing investors to take more risk since they mean sharply reduce returns on safe investments like Treasuries and bank deposits. But instead of fueling demand for stocks, private investors have bought houses and cars. That has helped cushion the broader economy but it's done little for Wall Street. Perhaps it should be no surprise then that financial markets have reacted so begrudgingly to the Fed's supposedly aggressive rate cut in November. Or that investors now show scant alarm at the prospect of a Fed without Greenspan. Even the rumor mill has fallen silent. No longer do speculators whip up talk of Greenspan in a car accident, or Greenspan suffering a heart attack. There's no money in it. "Frankly, I think he's overstayed his welcome and the market will be glad to see the back of him," said Paul Kasriel, chief economist at Northern Trust and a long-time critic of the Fed in general and Greenspan in particular. "It seems the Fed knows so little about so much that it would be best for us all if it gave up trying to micro-manage the economy," said Kasriel