Despite Greenspan Jawboning, Still Heading UpBy Rev Shark
Street.com Contributor
5/24/2007 8:24 AM EDT
"But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?"
-- Alan Greenspan in speech on Dec. 5, 1996.
When Greenspan made his infamous "irrational exuberance" speech in 1996, the Nasdaq was trading around 1300. It then proceeded to go up about 388% before it finally topped out around 5050 in March 2000. As far as market timing goes, that certainly looks like a very poor call.
Yesterday Greenspan commented that the China stock market, which is up 90% so far this year, is "clearly unsustainable,'' and that "there is going to be a dramatic contraction at some point.''
Should we ignore Greenspan this time because of his poor timing way back in 1996? Back then he probably had a different agenda because his primary job was to manage the economy and keep inflation in check so perhaps there was something else at work than a desire to predict market movements.
Greenspan's circumstances are quite different now and many are wondering if he is missing the limelight and making dramatic comments that he knows will gain attention. It isn't any great stretch at all to conclude that there is very likely to be some painful pullbacks in China at some point given the level of speculation there. The issue here is all about timing and there simply is no way of knowing if Greenspan is identifying a turning point.
Regardless of the jawboning, the indices both here and in China remain in solid uptrends. There still is no clear technical reason to hit the panic button and head for the safety of cash. We certainly want to make sure we are locking in some gains as opportunities arise and we may want to temper our buying a bit rather than jump on every minor pullback, but the market continues to look fine right now.
The intraday reversal yesterday, while unpleasant and a technical negative, was really very minor when you step back and look at the bigger picture. It could develop into something much worse but there is no way to determine that now. We simply need to keep an open mind and consider the action. If we see some failed bounces and a continued slowing in momentum then we get more defensive. However, given how often this market has come back from the brink in recent months, we should be watching for dip buyers to make at least a few tries at re-igniting the momentum.
We have a weak start to the day as overseas markets are mostly lower. We have some economic data this morning that may shake things up a bit.
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