Why You Should Be Worried Alan Greenspan Says Market Will Keep Going Up

by Burke Speaker | October 24, 2013 9:04 am

Why You Should Be Worried Alan Greenspan Says Market Will Keep Going Up

Former Federal Reserve Chairman Alan Greenspan is predicting that the stock market will continue to go up — even to record levels.

But based on Greenspan’s history, there may be a reason to worry about his speculation.

“In a sense, we are actually at relatively low stock prices,” Greenspan said in an interview with Sara Eisen on Bloomberg Television yesterday[1]. “So-called equity premiums are still at a very high level, and that means that the momentum of the market is still ultimately up.”

Greenspan pointed out that the stock market is “just barely above 2007” — which he says opens up the possibility for a huge rise.

While the potential for growth is undoubtably real, here is one reason to reconsider (via Gawker[2]):

Greenspan in 2004: “American consumers might benefit[3] if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.”

Greenspan in 2005: “Although a ‘bubble’ in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets.”

Greenspan in 2005: “The resolution of our current account deficit and household debt burdens does not strike me as overly worrisome.”

The housing bubble then burst and the economy tanked.

Greenspan in 2008: ““I still do not fully understand why it happened[4].”

Greenspan to Bloomberg, 2013: “In a sense, we are actually at relatively low stock prices… [the market has] gone up a huge amount, but it’s not bubbly[5].”

Based on that history, investors are likely taking Greenspan’s current prediction with a grain of salt.

Meanwhile, the Standard & Poor’s 500 Index increased 23.03% through the year (up through yesterday), so it’s on par with its 23.5% surge in 2009.

This of course comes as insiders say the Fed will put off cuts to its monthly bond purchases until the market improves.

Endnotes:
  1. on Bloomberg Television yesterday: http://www.bloomberg.com/news/2013-10-23/greenspan-says-stocks-are-relatively-low-and-heading-upward.html
  2. via Gawker: http://gawker.com/oh-my-god-alan-greenspan-says-the-stock-market-will-ke-1450945196
  3. American consumers might benefit: http://en.wikiquote.org/wiki/Alan_Greenspan
  4. why it happened: http://www.nbcnews.com/id/27335454/#.UmgvGiQZwnE
  5. but it’s not bubbly: http://www.bloomberg.com/news/2013-10-23/greenspan-says-stocks-are-relatively-low-and-heading-upward.html

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