Tuesday, April 08, 2008

‘The Undertaker’ Bares His Inner Soul

He says rock-bottom interest rates actually went against his "19th century" aversion to easy money. "My inner soul didn't feel comfortable," he says.

—Alan Greenspan, “Greenspan Goes on Defensive,” the Wall Street Journal

Are you feeling depressed?


Nervous about the housing market? The job market? Oil prices at all-time highs? Gasoline prices cracking $4.00 a gallon?

Can't sleep with iron ore prices going through the roof? Coking coal prices soaring? Rice-rationing triggering social unrest and mass starvation?

Then read your Wall Street Journal today—specifically “Greenspan Goes on Defensive”—and have a good laugh.

Not since Bill Clinton told the world he “did not have sex with that woman” and George Bush gave his Nixonian “mistakes were made” speech on Iraq, has a public figure of such stature tried to brazenly downplay his role in a public failing entirely of his own making.

To whit,
Alan Greenspan’s Federal Reserve’s Bubble-inducing 1% interest rate monetary policy—the fallout of which we are all dealing with today.

Here's just a sample, but you must read the entire piece for yourself:

"I was praised for things I didn't do," Mr. Greenspan said during one of three interviews at his sun-drenched office in downtown Washington, D.C. "I am now being blamed for things that I didn't do."

It is difficult to recall Mr. Greenspan ever denying whatever undue credit he was given back when his legacy was still untarnished. But now that his legacy has been not only tarnished, but bound with duct tape, he has come out swinging.

And not merely with logic and numbers.

Turns out, the man called “The Undertaker” by his role model—the androgynous, free-market, absolutist Ayn Rand—has a softer side that he never revealed to the capital markets denizens who once idolized him, until today:

He says rock-bottom interest rates actually went against his "19th century" aversion to easy money. "My inner soul didn't feel comfortable," he says.

Makes one wonder what Ayn Rand is doing right now. Rolling in her grave, perhaps?

More likely she is trying to summon the spirits with which to contact her broker, in order to buy more gold futures for her estate.

Jeff Matthews
I Am Not Making This Up

© 2008 Not Making This Up LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


mh497 said...

Thank you for calling Greenspan on this.

He ought to stay in the hot tub and stay away out of the spotlight at this point, because he's starting to sound ridiculous.

Mark said...

Remember all of the deliberately indecipherable gobbledegook Greenspan used to speak? In fact, remember how on any relevant topic, it was virtually the ONLY thing he used to speak? Well, now he's just being kind enough to "translate" for us what he was "REALLY" saying.

Jack Straw said...

Jeff - just a comment on housing. I know you "reversed" your call, but I dont understand what you mean when you say "Anybody who buys a home they don’t need is a moron". Rental properties are investments like any other, certainly no one "needs" to buy a market index or a stock either. In fact, I would argue that over the long-term, few investments are as good as homes you dont need to live in. Rental properties provide a steady stream of income which can be used to pay down debt at the same time as the property appreciates in value. Not many investments offer that. Where it gets ugly, of course, like with all other ugly investment situations, is when people bite off more than they can chew and don't think things through. I'm assuming this is what you are referring to? In that case, I agree. But it goes for everything - stocks, real estate, gold, whatever. In fact, it seems to me that virtually all of the "busts" in various investments over the years can be tied together by one piece of string - TOO MUCH LEVERAGE. One needs only to read the myriad of non-fiction business books (Predator's Ball, Barbarians at the Gate, When Genius Failed, etc to name a few)to see how too much greed and too much debt will bring everyone down at some point. But... unfortunately... a few years from now, something else will come along...and we will just rinse and repeat.

Jeff Matthews said...

Jack Straw--

Here's the background: in the summer of 2005 I wrote a piece about Time Magazine's cover story ("Why We Love Our Homes" or some such nonsense) in which I said this was the absolute classic "Cover Story" top-of-market indicator in the housing market.

We received many comments on the piece asking precisely what that meant. Specifically, readers wanted to know, did that mean 'short homebuilders'?

Since we never EVER comment on specific stocks in these pages, or make stock recommendations long or short EVER, I responded as follows: "Okay, what I'm saying is anybody who buys a home they don't need is a moron."

The point I was trying to make was that if you were buying a house to flip it, or buying a condo to rent it, or buying anything other than a house you actually needed to live in...well, you shouldn't, because if Time Magazine is saying it's the thing to do, then you shouldn't be doing it.

By reversing that call recently, I'm simply saying that I no longer believe "anybody buying a house they don't need is a moron," as I said in August 2005. In fact, I think it may not be a bad idea to look for precisely the kind of investment property you suggest.

But we make no recommendations on stocks here, ever. And if anybody thinks they can read into these comments a suggestion too buy, sell, or hold any specific security...well, they're a moron too.

jimmy105 said...

"The creation of the real estate bubble was an absolute necessity due to the bursting of the dot-com bubble. This created unprecedented pressures on our banking system. Had we ignored these issues we would have risked possible failures of multiple financial institutions, resulting in a global liquidity crisis. This scenario had to be avoided at all costs." A.G.
I wonder if this admission of the first bailout of the financial system in the Greenspan era will ever be made?

BelowTheCrowd said...

I'm with Jeff on housing, unless you live in one of the formerly "superhot" areas, which I do.

If you're buying a house for long term investment, you can start looking now, in most of the country. That said, I hardly think there's a rush. Most housing booms and busts end with a long, flat bottoming period that can last as long as the boom and bust combined. There's rarely a rush.

And if you are in one of those formerly "superhot" areas, there is probably still room on the downside before we hit that long flat bottom.

Sadly, many people looking at this market are expecting a "V" style bottom. Historically, housing has never bottomed out like that. More often than not it's 10-12 years before the peak values are regained, with much of that time being a slow grind along the bottom.

If you buy at a price that allows your cashflow to pay down the debt and leave over some for ongoing maintenance, taxes, contingencies, etc., it's a good investment. If you have to count on capital appreciation, it's still too early.


Mogar the impaler said...

I think when we discuss Greenspan, or for that matter, any Fed chairman, we need to consider the fact that we did not get here over night or even in the last twenty years. I think that the totality of all the missteps from 1913 forward needs to be considered.

Greenspan didn’t create the Federal Reserve in 1913. Greenspan did not confiscate the gold in 1933. Greenspan didn’t kill the Bretton Woods agreement and sever the last ties to gold in 1972.
I mean what’s he supposed to do? It is not reasonable to expect that Greenspan could make a fiat currency system work when nobody in the entire history of mankind has ever been able to pull that off.
What is happening is what always has happened with fiat currencies. Gnashing our teeth over the twist and turns that a currency goes through as it returns to its intrinsic value, zero, misses the point I think.

Finn Kristiansen said...

Gnashing our teeth over fiat currency and lamenting being on a gold standard misses the point I think.

It's like debating what type of cheese the moon is made of.

Bill said...

One of your best ever...from an avid reader and hf analyst... thx for all your postings.. this is required reading for me every week!