Alan Greenspan: 'We have a stock market bubble'

Alan Greenspan is sounding the alarm about the booming stock market."There are two bubbles: We have a stock ma...

Posted: Feb 1, 2018 10:22 AM
Updated: Feb 1, 2018 10:22 AM

Alan Greenspan is sounding the alarm about the booming stock market.

"There are two bubbles: We have a stock market bubble, and we have a bond market bubble," the former Federal Reserve chairman told Bloomberg TV on Wednesday.

The trouble in the bond market "will eventually be the critical issue," Greenspan said, adding that "for the short term it's not too bad."

Many Americans recall that Greenspan, known as the Maestro when he led the Fed, described the dotcom mania of the 1990s as "irrational exuberance." That memorable phrase, from late 1996, ended up being right -- albeit several years early. The Nasdaq didn't peak until March 2000.

Greenspan, who was appointed Fed chair by both Republican and Democratic presidents, raised doubt in the interview about President Trump's economic agenda.

"I was very much surprised that in the State of the Union all those new initiatives were not funded," Greenspan told Bloomberg.

Trump's tax overhaul is expected to add to the federal deficit, something Greenspan has previously called a "mistake." Trump's plan to ramp up infrastructure spending could do the same. He has not detailed how he plans to pay for it.

Asked what happened to the "frugality and prudence of the GOP," Greenspan replied: "Good question. If you find out let me know."

The worry is that the government spending, from new programs and existing social safety nets, will blow a hole in the budget. That could cause interest rates to rise rapidly, speeding up inflation.

"We are dealing with a fiscally unstable long-term outlook in which inflation will take hold," Greenspan said. "We're working our way towards stagflation."

Greenspan's skepticism of the bond market isn't new -- or surprising. Last July he said that bonds, but not stocks, were in a bubble.

Bond prices have cooled since then, but the stock market has kept heating up. The Dow has zoomed another 4,000 points since mid-summer. Stocks retreated a bit this week: The Dow suffered its worst two-day percentage drop since September 2016.

Related: Turbulence returns to the stock market

There are valid reasons for stocks to be booming. The U.S economy is healthy, and the global economy is growing even faster. Corporate profits have never been higher -- and they're getting a big boost from the tax cut for businesses.

The relentless rally has led some analysts to warn that the markets are in a "melt-up," a rapid rise in prices based on emotion, not fundamentals.

Greenspan is going a step further by calling the market an outright bubble. The Dow has surged 44% since Trump's election.

Most market strategists acknowledge high levels of optimism, but not exuberance.

"I don't see big bubbles," said David Kelly, chief global strategist at JPMorgan Funds. "I see small bubbles, but on a rising tide of enthusiasm."

Kelly said there is no "obvious bubble like tech stocks in 1999 and the housing bubble in 2007."

The overheated housing market last decade laid the groundwork for the 2008 financial crisis, the worst since the Great Depression.

The Federal Reserve has been criticized for helping to inflate the housing bubble by keeping interest rates too low. The leader of the Fed at the time? Alan Greenspan.

Terre Haute
Scattered Clouds
56° wxIcon
Hi: 66° Lo: 45°
Feels Like: 56°
Robinson
Overcast
54° wxIcon
Hi: 67° Lo: 42°
Feels Like: 54°
Indianapolis
Few Clouds
51° wxIcon
Hi: 64° Lo: 47°
Feels Like: 51°
Rockville
Clear
48° wxIcon
Hi: 65° Lo: 44°
Feels Like: 48°
Casey
Few Clouds
52° wxIcon
Hi: 64° Lo: 43°
Feels Like: 52°
Brazil
Scattered Clouds
56° wxIcon
Hi: 65° Lo: 43°
Feels Like: 56°
Marshall
Scattered Clouds
56° wxIcon
Hi: 67° Lo: 44°
Feels Like: 56°
Showers Today!
WTHI Planner
WTHI Temps
WTHI Radar

WTHI Events

 

Illinois Coronavirus Cases

(Widget updates once daily at 7 p.m. CT)

Confirmed Cases: 290373

Reported Deaths: 8845
CountyConfirmedDeaths
Cook1436345210
DuPage17471561
Lake16892487
Will13984378
Kane13092326
St. Clair6607190
Winnebago5959149
Madison5698136
Champaign470320
McHenry4581118
Peoria349450
McLean327923
Rock Island299576
Kankakee274177
Unassigned2537244
Sangamon241145
Kendall200925
Tazewell177425
LaSalle171257
DeKalb157938
Macon154444
Coles146430
Williamson140145
Jackson126124
Clinton116920
Boone112523
Adams112310
Randolph93911
Effingham8702
Vermilion7704
Whiteside74320
Ogle7106
Monroe67416
Knox6703
Grundy6695
Henry6665
Morgan66123
Bureau64111
Jefferson61138
Marion5540
Macoupin5447
Christian53911
Franklin5393
Stephenson5236
Union51524
McDonough48015
Logan4641
Crawford4503
Woodford4246
Fayette4183
Cass39811
Livingston3956
Jersey39215
Shelby3904
Montgomery37213
Lee3711
Iroquois36519
Perry35015
Saline3404
Warren3322
Bond3285
Douglas3127
Wayne2805
Jo Daviess2632
Lawrence2562
Carroll2305
Greene22711
Cumberland2175
Hancock2173
Moultrie2143
Jasper2119
Washington2111
Richland2095
Pulaski1801
Fulton1760
Clark1732
White1680
Johnson1560
Clay1540
Wabash1543
Mason1471
Piatt1400
Mercer1395
Pike1281
Menard1251
De Witt1221
Edgar1138
Massac1122
Ford1065
Marshall1040
Alexander811
Scott780
Gallatin732
Hamilton682
Henderson660
Edwards630
Brown610
Calhoun600
Putnam570
Stark552
Schuyler500
Hardin400
Pope291
Out of IL20

Indiana Coronavirus Cases

(Widget updates once daily at 8 p.m. ET)

Confirmed Cases: 117450

Reported Deaths: 3580
CountyConfirmedDeaths
Marion21403766
Lake10618323
Elkhart6667111
St. Joseph6576110
Allen6292203
Hamilton4909109
Vanderburgh371931
Hendricks2747123
Monroe262736
Tippecanoe252313
Johnson2338124
Clark223657
Porter217647
Delaware198562
Cass19549
Vigo184327
Madison168975
LaPorte147441
Floyd138963
Warrick134440
Howard131863
Kosciusko124817
Bartholomew117957
Marshall101224
Dubois99119
Boone98646
Grant93334
Hancock93243
Noble92532
Henry80926
Jackson7689
Wayne76814
Morgan72938
Daviess67728
Shelby67729
Dearborn66528
LaGrange63911
Clinton60914
Harrison58724
Putnam58112
Gibson5305
Knox5259
Lawrence51529
Montgomery51121
DeKalb48711
White48614
Decatur45839
Miami4383
Greene42735
Fayette42313
Jasper3992
Steuben3877
Scott38111
Posey3400
Sullivan33812
Jennings31612
Franklin31125
Ripley3038
Clay3025
Orange28824
Whitley2796
Carroll27713
Adams2743
Wabash2718
Washington2691
Starke2677
Wells2654
Spencer2593
Jefferson2483
Huntington2453
Fulton2412
Tipton22822
Perry22113
Randolph2207
Jay1880
Newton17311
Owen1711
Martin1680
Pike1621
Rush1574
Vermillion1300
Fountain1282
Blackford1203
Pulaski1131
Crawford1080
Brown1043
Parke1032
Benton870
Ohio797
Union790
Switzerland690
Warren401
Unassigned0226