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also interesting. well, interesting to me. every single entry on the ABX index (mortgage derivatives) closed on an all-time low today. extremely sharp plunges even on the AAA's, especially of recent vintage.
http://www.markit.com/information/products/abx.html
First time I've seen this!
QID was #2 in positive moneyflow today, per WSJ.
http://online.wsj.com/mdc/public/page/2_3022-mfgppl-moneyflow.html
MSFT was, of course, #1 negative moneyflow. In a big way.
First time I've seen this!
QID was #2 in positive moneyflow today, per WSJ.
http://online.wsj.com/mdc/public/page/2_3022-mfgppl-moneyflow.html
MSFT was, of course, #1 negative moneyflow. In a big way.
today's gap down or yesterday's gap up?
"focusing on Tech"
the focus on tech is very narrow: look as SMH, CSCO or INTC. ick. and why GOOG and AMZN are considered tech, i never underatand. except as stocks, these companies are uncorrelated to other techs.
aapl vs dell: this isnt really news, this has been the trend with college students for the last few years. (maybe skewed even more, based on your daughter's major.) nevertheless, its still the case that this is not just a casual choice: its an entirely different operating system with a mostly-different set of applications.
well, something's up. abx (subprime) indices have been making new (sub-august) lows every day for a week in the A and BBB tranches. now the 07-AA has joined in.
http://www.markit.com/information/products/abx.html
25 cents on the dollar. that's got to hurt bad.
"The amount of dinosaur carcases needed to create the Saudi Gawar (sp?) oil field would have needed to be about 9-miles high, 9-miles wide, and 9-miles long according to one study I read, and that kind of clinched it for me."
You really find this a compelling argument? Dinosaurs existed for 160 million years. With 5280 feet per mile, that's about 920 cubic feet of dinosaur carcass per year. A brachiosaur was about 85 ft long and 40 ft tall. Conservatively, that's just a couple brachiosaur carcasses per year.
Nevertheless, the argument itself is actually just a straw man. No theory says that oil comes from dinosaur carcasses; its plankton and small marine organisms, which are superabundant.
Note that the 9x9x9 cubic miles of living organisms is small when compared to other large scale natural remnants of living organisms. Coral reefs, for example, cover about 284,300 square kilometers of the earth's surface.
As Tech Heats Up,
Sages Dust Off
Bubble Indicators
Goofy-Names Index Rises,
Perks Gauge Glows Red;
A 5th-Grader as Founder
By REBECCA BUCKMAN and KEVIN J. DELANEY
October 9, 2007; Page A1
http://online.wsj.com/article/SB119189215196852951.html?mod=djemTEW
are you/is he suggesting that lots of cargo is still being shipped to the U.S. and then just consumed out of cargo containers at ports?
The Maestro says "buy buy buy":
"Greenspan said that given the current climate, the odds that the U.S. will skirt a recession now look to be better than 50/50. In March he put the odds of a recession over the next six to nine months — at one-third. That could be offset though by stock market prices, he said, if they continue to rise."
getting close!
$1 under! that's a 3% intraday drop on the qid!
if everyone's expecting it, it must be so!
Party like it’s 1999? Emerging markets fuel equity rally
By John Authers
Financial Times
Published: October 2 2007 19:41 | Last updated: October 2 2007 19:41
On Monday morning, as fresh news of severe losses by the giant financial groups, UBS and Citigroup, revealed even more damage inflicted by this summer’s credit squeeze, the reaction of stock markets was clear. They rallied.
In Monday’s trading, the Dow Jones Industrial Average, still the most widely watched index of the US stock market, managed to top the all-time peak it reached on July 19. This was broadly representative of the most important developed market indices. The US S&P 500 index and Germany’s Dax index are within 1 and 2 per cent respectively of their mid-July highs.
Neither the S&P nor the Dow have closed as much as 10 per cent below their highs since July. Thus, technically, they never even suffered what analysts would call a “correction”. They were briefly more than 10 per cent below their highs at noon on August 17, but that afternoon regained all the ground they had lost as traders wagered, successfully, that the Federal Reserve would be forced to intervene the next day.
Meanwhile, emerging markets are on fire. The MSCI Emerging Markets Index is up more than 50 per cent over the past 12 months, and it has leapt up by more than 25 per cent since August 18, the day the Fed cut the rate at which it lends to banks. The biggest emerging markets have rallied even though they were already in nosebleed territory; in dollar terms, China’s Shanghai Composite is up 416 per cent since the beginning of last year, India’s Sensex is up 112 per cent, and Brazil’s Bovespa is up 133 per cent.
All of this has been achieved in the face of credit market conditions that have made finance much more expensive for companies. Cheap credit had been seen as a key factor in supporting equities, but now this crutch has been removed nobody seems concerned.
Emerging markets growth
The rally also comes in spite of continued exceptionally tight conditions in the money market, which suggest that the big banks at the heart of the world’s financial system are still anxious. Further, gold has just touched a 27-year high. Normally, when investors rush for the perceived safety of gold, it is because they are anxious about other securities and fear inflation.
US stocks
So why are equities rallying? The instinctive reaction of many in the fixed income markets is to put this down to stupidity. Equity traders simply do not know what they are doing, or at least do not understand the ramifications of the damage that has been done to the structured credit market.
Emerging markets
But there are more rational reasons for the equity rally. First, and most importantly, there is the Fed. Rate cuts tend to be good, at least initially, for stocks. If they are not, it is because they tend to coincide with the start of a recession. But the Fed’s action last week was plainly inspired less by worries about the economy than by a concern to avert a crisis.
MSCI World sector
Recent history, in turn, suggests that such “emergency” rate cuts by the Fed have the effect of inflating asset price bubbles. That is potentially great news for equity investors.
In October 1998, when the Fed under Alan Greenspan was forced to cut the Fed funds rate to bring back liquidity to the markets after the near-meltdown of the Long-Term Capital Management hedge fund, the result was also to stimulate markets that had not needed the help. Large technology stocks, and the growing wave of dotcoms, were the greatest beneficiaries. The Nasdaq Composite index gained 40 per cent in three months, and tripled in less than 18 months as it roared through 1999. This helps explain why many in the market now refer to stocks as “partying like it’s 1999”.
There is another example. In 1987, after Alan Greenspan’s Fed cut rates to avert a crisis in the wake of the Black Monday stock market crash, the response was again a bubble. That time, however, it was in Japanese stocks, which more than doubled in the two years after Black Monday, before beginning a long drawn-out collapse. “This is a classic event, which happens every decade. You have the Fed tightening, then there’s some kind of crisis, and then the Fed bails out, and when they do there’s another leg up for someone,” says Nick Raich, director of equity research at National City bank in Cleveland. “Each time it’s a different sector than it was in the previous decade.”
Traders know that both these incidents created bubbles that eventually burst. But they also know that in both 1998 and 1987, the euphoria created by the rate cuts lasted more than a year – plenty of time to make strong short-term profits.
Teun Draaisma, European equity strategist at Morgan Stanley, advocated selling in June, and then aggressively re-entering the market in August, for exactly these reasons. He says another “equity mania” is possible, with retail investors piling in and companies indulging in strategic mergers and deals. “If we are right, then equities could be set for a big, big rally,” he says. “Bulls will say that this uptrend is unbreakable after all the trouble that has been thrown at it. Emerging markets will be seen as the new growth engine that cannot be derailed.”
He also predicts that the episode will “end in tears” – but that still leaves time for investors to make fat profits in the interim.
As everyone is working on the same assumptions, gains could be limited this time. Tobias Levkovich, US equity strategist at Citigroup, who has been strongly optimistic on the market for most of this year, sounds a note of caution. “As most investors are now searching for performance data on past beneficiaries of Fed actions,” he says, “we suspect some ‘institutional herding’ may arbitrage away much of the opportunity fairly quickly.”
The Fed itself is also acutely conscious of what happened in 1999. If crisis in the money markets is indeed averted, the Bernanke Fed might well move much quicker than the Greenspan Fed did to raise rates and avert the risk of a big bubble.
A second, perhaps more solid reason for the equity boom comes from corporate earnings. Profits made by S&P 500 companies grew at a clip of 10 per cent or more for a record 14 consecutive quarters, until that streak ended at the beginning of this year. But results for the second quarter of this year – published to little attention as the credit crisis was intensifying – remained very robust, with an increase of 8.7 per cent. This was much ahead of expectations.
Now, expectations for the third quarter, which is just finishing, are very low indeed. According to Reuters, analysts expect a rise of only 3.3 per cent year on year for S&P 500 companies. Many are betting that it will be easy to beat those expectations and land a surprise. This is a well-established dynamic.
Bulls also point out that abnormally few companies have taken the opportunity to “guide” the market into cutting their forecasts, and that the big specialist Wall Street investment banks, whose third quarter ended in August, have already reported results that could have been far worse.
However, expectations for the fourth quarter and beyond suggest that analysts are banking on the credit squeeze to blow over completely, and for the US to avoid recession. According to Reuters, they are expecting growth of more than 11 per cent both for the fourth quarter and for the first quarter of next year. These numbers could turn out to be wildly optimistic in the event of a consumer-led slowdown in the US, which looks a real possibility. If growth is this strong, moreover, it would seem likely that the Fed would raise rates.
A third reason for optimism comes from the most popular valuation systems. They all suggest that stocks are cheap. The price/earnings ratio on the S&P 500 has dropped to its lowest level since 1996. The p/e on the UK’s FTSE 100 is similarly at its lowest level in more than a decade.
Another popular valuation system involves comparing earnings multiples on stocks with the yields on government bonds. When bond yields are low, the argument is that it becomes defensible to spend more on stocks, until equity yields have come down to a similar level. This is often called the “Fed Model” because at one point Mr Greenspan himself appeared from congressional testimony to be using it.
Bond yields have dropped sharply over the past few months as investors have pulled money out of the credit market and other relatively risky assets. Thus this model makes the stock market look like a very appealing “buy”. The 10-year US Treasury bond currently yields 4.64 per cent, while the S&P yields 5.56 per cent – one of the biggest gaps in decades. During the 1990s, bonds usually yielded more than stocks.
T here are strong theoretical arguments against both these valuation models. Profit margins tend to be cyclical, and appear to be peaking. Earnings multiples, in turn, tend to be lowest when profit margins are high. Thus, some analysts would say current low earnings multiples simply show that the market wisely does not expect corporate profits to continue at their current heady levels.
Rob Arnott, chairman of Research Affiliates in California, said: “What we have are earnings that are 50 or 60 per cent above their 10-year average. Historically, that happens about 5 per cent of the time. And historically, that’s a negative sign for earnings going forward.” The best performance on record after earnings had reached such a peak, he said, was for profits to grow by only 4 per cent the following year.
Another reason cited for optimism is that companies have been heavy buyers of their own stock (using cash, generally, rather than debt) to boost their earnings per share. This buying picked up during the crisis.
A further driver is the weak dollar. In many ways, the rally is a bet that the dollar, already at all-time lows following the rate cut, will fall further still. Among US stocks, the strongest performers of the past few months have been large multinational companies – laggards since the tech bubble burst in 2000. Their profits in dollar terms are directly improved by a weakening dollar. The Russell 2000 index, the most widely followed index of smaller US companies, is still down significantly since its peak this year, even with large caps at new peaks.
Meanwhile, for US investors, continued falls for the dollar make international investing look more profitable. For example, Germany’s Dax index is up 28.6 per cent in dollar terms this year, and only 19.2 per cent in euros.
With the Fed cutting, the dollar lost critical support. One of the simplest ways to bet on further falls for the dollars was to buy emerging market equities and switch out of smaller companies into multinationals.
This ties in with a final theme that has sustained equities: faith in the story of secular growth in the emerging markets remains intact. According to Emerging Portfolio Fund Research of Boston, last week alone $5.53bn (€3.9bn, £2.7bn) went into emerging markets funds, the strongest inflows in almost two years.
Mining and materials stocks, most exposed to demand from emerging markets, have performed best during the rally: consumer discretionary stocks, vulnerable to a consumer slump in the US, have done worst.
So the boom in equities is more than a rally based on the belief that cheaper money from the Fed will be enough to avert a systemic financial crisis. Equity investors are also betting that growth will come more and more from the emerging markets, which successfully “decouple” from the US, while the US economy will continue to weaken. And they are ready to pull their money out as soon as the bubble seems ready to burst.
Copyright The Financial Times Limited 2007
testing testing testing
qid dividend date is oct 1.
‘Cowboy Keynesianism’ that the Fed may soon regret
Published: September 28 2007 03:00 | Last updated: September 28 2007 03:00
From Prof Jeff Frank.
Sir, Martin Wolf makes a good point about how “the Fed must weigh inflation against the risk of recession” (September 26).
The test may come very soon. It is likely that the Fed cut rates by 50 basis points precisely because the window for cutting is short. Prices fell sharply between August and September last year. Next month’s change in the base for year-on-year CPI inflation to September leads to some ugly arithmetic. Even if prices didn’t rise at all in September 2007, headline CPI will rise from 1.97 per cent to 2.47 per cent. But we know that energy prices rose sharply in September, so the headline will rise to nearly 3 per cent. The baseline shift effect is even worse for October! Further, the moderation in core inflation may be due to lagged effects from the fall in energy input costs in the second half of 2006. If so, this is likely to be reversed as well. Inflation may well be over 4 per cent by the end of the year.
The big US inflation of the 1970s was set in motion in 1968. In June 1968, headline CPI crossed over 4 per cent. In September 1968, perhaps under political pressure, the Fed lowered the Fed funds rate by 25 basis points to 5.75 per cent. It reversed this by December and then started raising rates sharply, peaking the next year over 9 per cent. In hindsight, that was viewed as an irresponsibly accommodative Fed. In comparison, the 50bps cut by the Bernanke Fed is “cowboy Keynesianism”.
US public and private debt is hugely out of equilibrium. There are four ways equilibrium can be restored. US consumers and the US government can cut their expenditure to repay the debt. They can default on some of the debt. They can renegotiate some of the debt. Or the Fed can inflate away the real value of the debt.
Mr Wolf recognises that inflation is the easiest course. Realistically, it may be the only option open to a country that finds it difficult to live within its means. The US will have traded toxic debt to China for lead-painted toys.
Jeff Frank,
Professor of Economics,
Royal Holloway,
University of London,
Egham, Surrey TW20 0EX, UK
http://www.ft.com/cms/s/0/920fb34c-6d5e-11dc-ab19-0000779fd2ac.html
well fwiw (probably nothing) but oct 17 *is* an interesting date. that's when we'll hear sept CPI, which should be remarkably high based on yoy comparisons.
"The US dollar heading down the toilet bowl is not a thing to celebrate!"
the dollar plunge is truly spectacular. this is not good.
http://quotes.ino.com/chart/?s=NYBOT_DX
damn. where are shorts when you need 'em.
oh yeah, forced to cover through relentless rallying on declining volume.
hmm. i guess that depends on what one means by "dead on".
if this is the correct chart
http://www.amanita.at/e/faq/e-bradley-com.htm
then it seems like it missed the july top by a month and the august low by 10 days.
"Perhaps you should move to Iran if you like it so much more than here. I'm sure it's a much better country than here except you'd be dead already for criticizing your government like you have the right to do here."
hmm. so in your mind i should have one of two options: move somewhere where i don't have this right, or cherish this right by not exercising it. interesting. yet silly.
"fwiw, Bradley turn period Oct 13-21."
hmm. astrology?
Save the Day
By STEPHEN S. ROACH
Hong Kong
September 25, 2007
Op-Ed Contributor
CURRENCIES are first and foremost relative prices — in essence, they are measures of the intrinsic value of one economy versus another. On that basis, the world has had no compunction in writing down the value of the United States over the past several years. The dollar, relative to the currencies of most of America’s trading partners, is off about 20 percent from its early 2002 peak. Recently it has hit new lows against the euro and a high-flying Canadian currency, likely a harbinger of more weakness to come.
Sadly, none of this is surprising. Because Americans haven’t been saving in sufficient amounts, the United States must import surplus savings from abroad in order to grow. And it has to run record balance of payments and trade deficits in order to attract that foreign capital. The United States current account deficit — the broadest gauge of America’s imbalance in relation to the rest of the world — hit a record 6.2 percent of gross domestic product in 2006 before receding slightly this year. America must still attract some $3 billion of foreign capital each business day in order to keep its economy growing.
Economic science is very clear on the implications of such huge imbalances: foreign lenders need to be compensated for sending scarce capital to any country with a deficit. The bigger the deficit, the greater the compensation. The currency of the deficit nation usually bears the brunt of that compensation. As long as the United States fails to address its saving problem, its large balance of payments deficit will persist and the dollar will keep dropping.
The only silver lining so far has been that these adjustments to the currency have been orderly — declines in the broad dollar index averaging a little less than 4 percent per year since early 2002. Now, however, the possibility of a disorderly correction is rising — with potentially grave consequences for the American and global economy.
A key reason is the mounting risk of a recession in America. The bursting of the sub-prime mortgage bubble — strikingly reminiscent of the dot-com excesses of the 1990s — could well be a tipping point. In both cases, financial markets and policy makers were steeped in denial over the risks. But the lessons of post-bubble adjustments are clear. Just ask economically stagnant Japan. And of course, the United States lapsed into its own post-bubble recession in 2000 and ’01.
Sadly, the endgame could be considerably more treacherous for the United States than it was seven years ago. In large part, that’s because the American consumer is now at risk. Consumption expenditures currently account for a record 72 percent of the gross domestic product — a number unmatched in the annals of modern history for any nation.
This buying binge has been increasingly supported by housing and lending bubbles. Yet home prices are now headed lower — probably for years — and the fallout from the subprime crisis has seriously crimped home mortgage refinancing. With weaker employment growth also putting pressure on income, the days of open-ended American consumption are likely to finally come to an end. That will make it hard to avoid a recession.
Fearful of that possibility, foreign investors are becoming increasingly skittish over buying dollar-based assets. The spillover effects of the subprime crisis into other asset markets — especially mortgage-backed securities and asset-backed commercial paper — underscore these concerns. Foreign appetite for United States financial instruments is likely to be sharply reduced for years to come. That would choke off an important avenue of capital inflows, putting more downward pressure on the dollar.
The political winds are also blowing against the dollar. In Washington, China-bashing is the bipartisan sport du jour. New legislation is likely that would impose trade sanctions on China unless it makes a major adjustment in its currency. Not only would this be an egregious policy blunder — attempting to fix a multilateral deficit with more than 40 nations by forcing an exchange rate adjustment with one country — but it would also amount to Washington taxing one of America’s major foreign lenders.
That would undoubtedly reduce China’s desire for United States assets, and unless another foreign buyer stepped up, the dollar would come under even more pressure. Moreover, the more the Fed under Ben Bernanke follows the easy-money Alan Greenspan script, the greater the risk to the dollar.
Why worry about a weaker dollar? The United States imported $2.2 trillion of goods and services in 2006. A sharp drop in the dollar makes those items considerably more expensive — the functional equivalent of a tax hike on consumers. It could also stoke fears of inflation — driving up long-term interest rates and putting more pressure on financial markets and the economy, exacerbating recession risks. Optimists may draw comfort from the vision of an export-led renewal arising from a more competitive dollar. Yet history is clear: no nation has ever devalued its way into prosperity.
So far, the dollar’s weakness has not been a big deal. That may now be about to change. Relative to the rest of the world, the United States looks painfully subprime. So does its currency.
Stephen S. Roach is the chairman of Morgan Stanley Asia.
"QID paid a dividend of .55 cents yesterday...I think this distorts the close price yesterday which in turn distorts the gain/loss of today. Then again...I might be completely wrong.:)"
actually QID went ex div yesterday open.
no argument here. although, so far, its a pretty good roadmap to what the fed has been doing. although his scenario prices in pretty modest inflation, which may have to be rethought.
fed governor mishkin's projections of what happens in the next four years (and what the fed should do):
http://www.federalreserve.gov/pubs/feds/2007/200740/200740pap.pdf
mike swanson translates fedspeak into english:
http://www.howestreet.com/articles/index.php?article_id=4783
who is eli? boolah boolah?
"Besides they have no homosexuals in Iran. LOL."
he does need a better speech writer. maybe he should have said "marriage has been successfully defended in iran." a tad less moronic?
ignoring gay people is maybe laughable. systematically demonizing us, like our current ruling party has done every election season, isn't even laughable.
"What a f'n morong. Iran is a danger. Like it or not. A real danger."
we americans know well the danger of morons with power.
good god. the hang seng looks like nazdaq in march 2000.
where do you see this dollar rally?
http://www.forex-markets.com/quotes.htm
looks like 1.4105 to me ...
"That is the whole point. Global warming will eventually lead to a new ice age that should wipe of the face of the earth most of earth population leaving in the upper mid to northern hemisphere."
maybe. but that ibd oped was about 1971 research that came to that conclusion for a very different reason.
this IBD article is so bogus. there was much less data available in 1971. climate models were more primitive. and, maybe most important, the computer power to do large scale climate simulations - to validate those models and to test new theories - has evolved radically since then. (all those "high performance computing" inititiaves by the government, massive supercomputer development with climate modelling as one of the five main challenge projects, etc.)
skepticism is always good. but sowing doubt just to make folks feel more comfy with the status quo is hard to justify. (this particular article argues on the edge of ad hominem.)
"Volume also rose before the quarterly rebalancing of the S&P 500, which took effect after exchanges closed today." Bloomberg
interesting observation: sharp decline in the ABX indices again.
http://www.markit.com/information/affiliations/abx.html
"I mean, the hedgies were setup ..."
you misunderestimate what hedge funds do if you don't think that most will profit handsomely from this volatility. at least those that were not caught in strategies that everyone else was also following.
speaking of the fair dr. greenspan: he was/is on tonight's "daily show" on comedy central. john stewart did his usual good job at asking some fundamental questions, especially the very blunt "isn't a rate cut favoring investors in stocks and penalizing common workers and savers".
Hi LG,
no, the greensperm quote wasn't from 60 Minutes. (that interview seemed to me to pretty heavily edited. or maybe he's just old.)
its from a Q&A in Fortune,
http://money.cnn.com/2007/09/16/magazines/fortune/greenspan_transcript.fortune/?postversion=20070917...
TJ
"... and over the past few years had begun to notice the influence of exuberance during bull markets and fear during bear markets."
i'm not a huge greenspan fan, and i do think he's trying to revise - or at least reshape - history, but i don't think your statement here is fair. he wasn't just talking about how fear and greed influence markets, but how their influence was not symmetric. that fear is more damaging than "euphoria" is um, un-damaging
on the other hand, i think its entirely possible to argue that it just wasn't his job to burst bubbles. if i give you money and you do something reckless with it, is it my fault?
by the way, LG, i'm glad i found you again. you saved me oodles of money back in 2000 and i'm eternally grateful and a major fanboy.
Said the Maestro:
“There’s something we don’t model appropriately, which is a profoundly important statistic, and that is the unchanging, innate character of human nature. The behavior of what we are observing in the last seven weeks is identical to what we saw in 1998, what we saw in the stock market crash of 1987, I suspect what we saw in the land boom collapse of 1837, an certainly 1907,” when a major bank panic was only stopped by the intervention of J.P. Morgan.
Economists try to build a model of the economy whose structure is the same during expansions and contractions, he said, and “when we endeavor to apply [it] to periods like this [it] gives us very little.”
There’s a basic euphoric aspect to human nature, he said, that kicks in when an expansion has been going on for several years, and produces bubbles. “Those bubbles cannot be defused until the fever breaks,” he says. “For example, we at the Fed raised the federal funds rate by 300 basis points starting in February, 1994. We stopped … the nascent stock market boom, stock prices did not change in that period. As soon as we stopped, prices took off… We tried to do it again in 1997,” when the Fed raised rates by a quarter of a percentage point, “and the same phenomenon occurred.”
If the economy behaved as models suggest, “we should be able to defuse bubbles by pushing the appropriate elements in the model and the problem that is very evident is the world didn’t work that way.”
He urged future scholars to study the fact that expansions are quite different from contractions. “Fear as a driver, which is going on today, is far more potent than euphoria” which drives the upside. “It happens all the time and it all works the same. The human race has never found a way to confront bubbles. [There’s a] long list of various bubbles, all of which broke because the fever broke and none of which was defused prior to breakdown.”
Greenspan on Republicans: "They Deserved to Lose"
Alan Greenspan isn't happy with Republicans. He also says the housing boom during his tenure as Chair of the Fed was caused by the end of communism, not Fed policy to keep interest rates low:
Greenspan Book Criticizes Bush And Republicans, by Greg Ip and Emily Steel, WSJ (free): In a withering critique of his fellow Republicans, former Federal Reserve Chairman Alan Greenspan says in his memoir that the party ... deserved to lose power last year for forsaking its small-government principles.
In [his new book] "The Age of Turbulence: Adventures in a New World," ..., Mr. Greenspan criticizes both congressional Republicans and President George W. Bush for abandoning fiscal discipline. ...
Mr. Greenspan, who calls himself a "lifelong libertarian Republican," writes that he advised the White House to veto some bills to curb "out-of-control" spending while the Republicans controlled Congress. He says President Bush's failure to do so "was a major mistake." Republicans in Congress, he writes, "swapped principle for power. They ended up with neither. They deserved to lose."
Many economists say the Fed, by cutting short-term interest rates to 1% in mid-2003 and keeping them there for a year, helped foster a housing bubble that is now bursting. In his book, which was largely written before much of the recent turmoil in credit markets, Mr. Greenspan defends the policy. "We wanted to shut down the possibility of corrosive deflation," he writes. "We were willing to chance that by cutting rates we might foster a bubble, an inflationary boom of some sort, which we would subsequently have to address....It was a decision done right."
He attributes the housing boom to the end of communism, which he says unleashed hundreds of millions of workers on global markets, putting downward pressure on wages and prices, and thus on long-term interest rates. ...
Mr. Greenspan writes that when President Bush chose Dick Cheney as vice president and Paul O'Neill as treasury secretary -- both colleagues from the Gerald Ford administration, during which Mr. Greenspan was chairman of the Council of Economic Advisers -- he "indulged in a bit of fantasy" that this would be the government that would have resulted if Mr. Ford hadn't lost to Jimmy Carter in 1976. But Mr. Greenspan discovered that in the Bush White House, the "political operation was far more dominant" than in Mr. Ford's. "Little value was placed on rigorous economic policy debate or the weighing of long-term consequences," he writes. ...
He devotes chapters to each of the major economic challenges facing the U.S. and the world. On energy, he recommends more use of nuclear power, and he predicts efforts to reduce global warming with carbon caps or taxes will fail. Rising income inequality could undo "the cultural ties that bind our society" and even lead to "large-scale violence." The remedy, he says, is not higher taxes on the rich but improved education, which can be helped by paying math teachers more.
Mr. Greenspan returns repeatedly to the far-reaching importance of communism's collapse. He says it discredited central planning throughout the world and inspired China and later India to throw off socialist policies. ...
In coming years, as the globalization process winds down, he predicts inflation will become harder to contain. Recent increases in the price of imports from China and a rise in long-term interest rates suggest "the turn may be upon us sooner rather than later."
Left alone, he said, the Fed's policy-making body, the Federal Open Market Committee, can keep inflation between 1% and 2%, but that could require forcing interest rates to double-digits, a level "not seen since the days of Paul Volcker," his predecessor as Fed chairman. "I fear that my successors on the FOMC, as they strive to maintain price stability in the coming quarter century, will run into populist resistance from Congress, if not from the White House," he writes.
If the Fed succumbs to that pressure, inflation could rise from a little over 2% at present to an average of 4% to 5% by the year 2030, he writes. Ten-year Treasury yields, now below 5%, will rise to "at least 8%" with the potential to go "significantly higher for brief periods." This, he says, will lead to stagnant returns on stocks and bonds and much smaller gains in housing prices.
Mr. Greenspan won plaudits for achieving low inflation and unemployment with just two mild recessions during his tenure at the Fed. But more recently his record has taken some knocks. Some critics fault him for not doing more to restrain the stock bubble of the 1990s, and for responding to its eventual bursting with such low interest rates that housing prices subsequently soared.
Mr. Greenspan writes that in early 1997, he told his colleagues the Fed should raise interest rates as a "preemptive" move against a stock-market bubble. But transcripts of Fed meetings from that period do not support his book's version of events: They show Mr. Greenspan argued for a rate increase principally because of inflation.
After that, they will start to work on inter-species marriage.
living in new york, i often have trouble forgetting that your species isn't yet extinct. oh well. cheers.