 Greenspan
Fading Away
Todd Stein & Steven McIntyre
The Texas Hedge Report
April 26, 2005
Courtesy of www.texashedge.com
It has been a long journey for Federal Reserve Chairman Alan
Greenspan. Say what you want about the man, but the impact of
his upcoming departure should not be underestimated. Watching
Greenspan mutter his doublespeak in front of Congress has become
an institution as American as baseball over the last 18 years.
And no matter what the current state of the market is, we have
always had Alan Greenspan to soothe our fears and renew our faith
in the American capital markets. But now he will be leaving us,
and investors will have to get used to someone else. Or will
they?
A new pope was elected recently. The media coverage was mixed,
but the one unquestioned fact coming out of Vatican City has
been that it will be difficult for Benedict XVI to replicate
the remarkable legacy of Pope John Paul II. Of course that's
the same thing pundits said when Alan Greenspan took over for
the great Paul Volcker. Some 18 years and a once in a lifetime
equity bull market and epic credit bubble later, Greenspan has
become a supernatural being to those on Wall Street and a cult
hero to millions around the world. We can only wonder what it
will take for the next Federal Reserve Chairman to earn such
a reputation.
Whether it is Ben "Printing Press" Bernanke, Martin
Feldstein, Glenn Hubbard or anyone else, you can bet that the
next Fed Chairman will have a difficult time soothing the financial
markets during the next crisis. Just picture a crew of airline
pilots vanishing into thin air with a group of flight attendants
trying to take over and fly the plane.
Subscribers to our newsletter know that we consider Alan Greenspan
to be one of the worst Fed Chairs of all-time. But the general
public doesn't share this view and maintains its blind confidence
in Greenspan. So when Greenspan leaves office at the end of
the year, investor confidence in both stocks and the U.S. Dollar
may do the same.
Greenspan's departure can be added to the list of investor worries
which include soaring trade deficits (soon to push 7% of GDP),
growing budget deficits, Americans' lack of savings, nosebleed
valuations for both stocks and bonds, unleashed inflation, and
a looming housing bubble. While it is true that stocks climb
a wall of worry, we fear that this is no ordinary wall. Poor
returns for virtually every asset class of stock, bond, and real
estate appear destined to plague the tenure of Greenspan's successor
- prices are high and fundamentals are poor.
The Fed and whoever materializes as its new Chairman next year
will be caught in a painful box. Raise rates and suffer a slowing
economy, a bursting real estate bubble, job losses and unhappy
citizens. Don't raise rates and inflation may spiral out of control
taking the dollar with it. What a nice little box to jump into
as the new Fed Chairman in 2006! Who would want to tackle such
a Catch 22? Most likely, someone who is too naive to grasp the
problems or someone who is too arrogant to think that disaster
can be averted with a quick fix. The best men for the job will
likely have no interest in taking the political beating the new
Chairman is sure to endure.
So when Bernanke or whoever takes office, unless he is cut from
the same cloth as Paul Volcker or Warren Buffett, we surmise
that the selection will only help the dollar fall (and gold rise)
further.
April 26, 2005
Todd Stein & Steven McIntyre
Archives
Texas Hedge Report
Todd Stein
& Steven McIntyre
email: admin@texashedge.com
For more information, go to http://www.texashedge.com.
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