In this week's Markets Happy Hour Podcast we celebrate the life and times of Alan Greenspan, who died this week at the age of 100. His rich and multi-layered career in which he worked in multiple Presidential administrations and had a close to 19 year tenure as the 18th Chair of the Federal Reserve. The rich phenomena and quotes attributed to him deserve some analysis because of what they teach us about the fabric of markets and the tendency (or not) for patterns to repeat.
The first thing to note is the collection of quotes attributed to him, which are in the slides for your viewing pleasure. He clearly relished and practiced the art of deliberate ambiguity in central bank commentary, and coined some pivotal terms, such as “irrational exuberance”. He presided over a relatively stable era, between recessions, in which the triple mandate of low unemployment, low inflation and a low 10 year yield were largely delivered, although there was a challenging “conundrum” towards the end of his tenure when the 10 year yield remained stable despite a steady bout of consecutive rate hikes (17 at one stage).
He also gave rise to the Greenspan put, which may have reinforced the concept of “moral hazard” in markets – after 1998 traders believed that Greenspan would step in with monetary easing to steady the stock market. This has been hard to shake and as we saw subsequently in 2008 and during Covid institutions around the world remain ready willing and able to step in most times.
The other Greenspan phenomenon was the calling of “irrational exuberance” in markets (pre LTCM in 1997) many years before markets finally cracked in 2000. This is a salutary reminder that markets can be irrational for far longer than one might think.
Moving to today’s price action, the oil price has fallen to its pre-war levels, taking some of the sting out of inflation concerns and leading to a fall in the Euro as the pressure on European inflation fell. This echoes a similarly low print in the UK recently, where core inflation had actually fallen into line with the US. The expected rises in Apple device prices came to pass, reflecting a tightened supply of components and upwards pressure on prices.
Bonds remained strangely sanguine, both in the UK where a change where the Prime Minister resigned on Monday and the heir apparent looked to be more to the left. The demand for SpaceX bonds was buoyant, particularly as a juicy yield had materialized and the 10 year yield fell in the US as the dollar jumped. There remains divergence in the jobs data alongside other economic indicators although the stock market has continued to sour on some of the Mag 7 stocks – now being referred to as the “Lag Seven). Another interesting data point this week has been the Korean stock market, which I refer to as potentially the “Korea in the Coalmine” as the heightened tech sensitivity in that market led to a steep sell-off by close to 10% earlier in the week.
Other notable developments of the week were gold falling to an 8 month low (again reflecting the reversal of the debasement trade) and the fall in Bitcoin to below $60,000.
