Greenspan: U-Shaped Recovery

Alan Greenspan certainly is not viewed in the same light now as he was during a large part of his tenure as chairman of the Federal Reserve. That said, when the former Fed chair speaks, people do listen. What is he saying now? Greenspan is throwing some cold water on the topic of a V-shaped economic recovery. Bloomberg highlights his views this morning in writing, Greenspan Sees ‘Slow’ Recovery, Is ‘Concerned’ if Stocks Drop,

Former Federal Reserve Chairman Alan Greenspan said a U.S. economic recovery is “going to be a slow, trudging thing,” and that he “would get very concerned” if stock prices continue to fall.

A drop in stock prices is “more than a warning sign,” Greenspan said yesterday on NBC’s “Meet the Press” program. “It’s important to remember that equity values, stock prices, are not just paper profits. They actually have a profoundly important impact on economic activity.”

I will be perfectly frank, I am more than a little surprised by Greenspan’s comment here. Why the primary attention on the stock market? The stock market ultimately is a reflection of the health of the economy not a driver of that health.

On other topics, Greenspan offered the following assessments and Bloomberg amplified them:

1. Unemployment: likely will stay around 9 or 10 percent for most of this year, Greenspan said. “It’s very difficult to make the case that unemployment is coming down any time soon,” the former Fed chief said.

2. Job Growth: Greenspan, who served as Fed chairman from 1987 until 2006, said the most useful step Congress could take to create jobs at this point would be to enact tax cuts for small businesses.

3. Housing: In the residential property market, Greenspan said home prices are “bottoming out.” The housing market was the epicenter of the recession, and foreclosures are projected to set a record this year, according to private forecasts.

4. Deficit: Regarding the federal budget deficit, which the Obama administration projects at more than $1 trillion for the second consecutive year, Greenspan said a tax increase will be needed and that the budget shortfall threatens the country’s standing in financial markets.

Greenspan’s opinions here are consistent with the views offered by the CFO survey embedded in my commentary this morning, When Will Our Economy Return to Normal?.

While neither Greenspan nor the CFOs are so bold as to assign a letter to our future economic recovery, this writer is not going out on a limb to qualify the former Fed chair as decidedly in the U-camp.

How do you read his opinions or those of the CFOs?

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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