Insights from Former Fed Chairmen
by Doug Noland, PrudentBear.com:
CNBC’s Andrew Ross-Sorkin, March 15, 2013: “The question of the morning: Do you want to break out the phrase again, ‘irrational exuberance’?”
Alan Greenspan: “No, I don’t think it’s quite appropriate in this type of environment. In fact, a basic way of looking at this degree of exuberance or non-exuberance is to take a look at what we call the equity premium. As you know, it’s the extent of the measure of whether stocks are overvalued or undervalued. And right now, by historical calculation, we are significantly undervalued. The reason why the stock market has not been significantly higher is there are other factors compressing it lower. But irrational exuberance is the last term I would use to characterize what’s going on at the moment.”
Ross-Sorkin: “Is this a Fed-fueled rally?”
Greenspan: “I think you can fully explain the rally in terms of basically the issue of the removal of what economists call ‘tail risk.’ That is, what has been sitting out there virtually most of this year – and part of last as well – has been the European problems which have every characteristic of caving in the economies of the world as a whole, and that has been temporarily removed. The result is removing of that key factor has allowed the markets to move up. It’s not because earnings are moving all that well, as you know, earnings –expectations at least – have been either been flat or down for awhile. What’s basically been doing – the valuation structure and it still’s got a way to go as far as I can see.”
2013-03-17 07:03:26
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