Alan Greenspan, long a world-class hero, has suddenly become the biggest bum in the universe. Traders who used to attribute all sorts of spectacular talents to the bespectacled, avuncular Fed chairman are now saying that he's senile, that it's time to retire, that he's wrecked the stock market. They are adamant that Greenspan is being too stingy with the antidote to last year's slowdown poison, that he is not moving fast enough to resurrect their stock portfolios with his teeny-weeny 50-basis-point Fed Fund cuts. I am waiting for people to tell me he's been double-faulting more or that Andrea Mitchell's been making excuses for missed dinner dates because the chairman forgot the occasion.
What a crock of horse manure! I can't take it anymore. I can't believe people are blaming Greenspan for their own misfortunes. Alan Greenspan wasn't the one who told you to buy Firsthand Funds or Janus or Von Wagoner or AIM. He didn't tell you to listen to the Motley Fools. Did I miss his hotline update? I don't think he said, "Buy and hold aggressive-growth stocks like Inktomi and Akamai and Redback." He wasn't the one who said, "You gotta be long the Net." He didn't cost you a dime.
So, speculators, don't look to him to bail you out, either. You see he is targeting you with his methodical, intelligent, not-too-fast, and not-too-slow, Fed Fund easings. The greatness of Greenspan is that he targets whatever excess is in the system that might cause inflation and he doesn't quit until he breaks the spiral for certain. Last year, Greenspan and his team made it abundantly clear, through their private contacts and in their public speeches, that they were as unhappy about stock speculation as they had been in the past about speculation in real estate or gold or even paper, chemicals, and wood. They gave you repeated heads-ups, in the form of multiple raises of Fed Fund rates, and they made it clear to just about everyone who had ever been in the market before that the Fed wasn't going to quit until all of your trading profits since the bubble began in November of 1998 were wiped out.
But many people had never been in the market before. They thought you could buy the shooting stars and hold them through any sort of Fed tightening. They figured that buy-and-hold trumps any card that Greenspan might have up his sleeve.
Now the speculators have been caught red-handed and they are afraid that, unless the Fed takes rates down to 3.5 percent in one fell swoop, they will lose what they have left. They should be afraid, they should capitulate, but they will probably be left with something because in the end, Greenspan isn't out to make us poor, he is just out to smooth the economy into a reasonable growth mode with no inflation. That's what great central bankers do.
Lay off the chairman. I don't think anybody could have done a better job than he has.
Two weeks ago, when the Fed cut rates by "only" 50 basis points, you saw speculators throw in the towel furiously. The tech stocks and the Dow stocks reached levels that I think mark true "crescendo" selling. That's the term my wife, the Trading Goddess, coined when we traded together. A crescendo occurs when people who didn't want to sell have to sell -- because they are out of money and can't borrow any more to stay in the game.
The Fed correctly forced the speculators to close out their margined positions and took away their buy-and-hold security blanket with that 50-basis-point move, instead of the 75-basis-point move the traders favored. The carnage inflicted, with the NASDAQ down over 60 percent from its high, may have scared people deeply enough that they aren't going to treat the stock market like a casino again any time soon.
And if they haven't learned their lessons, the Fed will just take its time with the next couple of eases, to be sure the job is done and done right. You see, the Fed knows that the only post-World War II depression that hasn't been cured by a combination of monetary and fiscal policy started with a perma-bubble that the Japanese central bankers allowed to happen during the eighties. That endless Tokyo rally, which took away the whole notion that equities were risky, remains Public Enemy No. 1 for all central bankers. If the cost of avoiding a New York version of the lunatic Tokyo bubble is a year or two of lost 401(k) profits and a mass exodus of day-traders back to saner professions, big deal.
Greenspan's genius, and his ultimate legacy, may end up being that he punctured the U.S. stock bubble brilliantly, and, even more important, that he did it surgically. Once every last speculator has been cashed out, the chairman will take the jackboot off the market's jugular long enough to save the economy from suffering too much. From the looks of last week's stock prices, we are almost there.
Research analysts are finally being treated like "global piñatas," as a Merrill Lynch Internet analyst acknowledged publicly a few weeks ago. And after six months of pretending and hoping otherwise, no one believes anymore that in the long term they'll still be able to make back all the hideous losses that the tech-mutual-fund managers inflicted upon them last year. And then there are all those brokerage gurus -- the celebrated names who tried for a year to pretend that no permanent damage had been done, either to investors' averages or to their psyches -- who have at long last been revealed to be wearing matching birthday suits.
So lay off the chairman. I don't think anybody could have done a better job than he has. He is owed our congratulations and our best wishes as the best Fed chairman in history. It would be a terrible misjudgment, a real crime, if Fed history were written by those who blame the decline in their once-hot mutual funds on this great man. He deserves better.
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