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
Partly Cloudy
64° wxIcon
Hi: 65° Lo: 47°
Feels Like: 64°
Robinson
Partly Cloudy
60° wxIcon
Hi: 63° Lo: 46°
Feels Like: 60°
Indianapolis
Partly Cloudy
60° wxIcon
Hi: 61° Lo: 47°
Feels Like: 60°
Rockville
Partly Cloudy
62° wxIcon
Hi: 65° Lo: 46°
Feels Like: 62°
Casey
Partly Cloudy
63° wxIcon
Hi: 62° Lo: 46°
Feels Like: 63°
Brazil
Partly Cloudy
64° wxIcon
Hi: 65° Lo: 46°
Feels Like: 64°
Marshall
Partly Cloudy
64° wxIcon
Hi: 64° Lo: 44°
Feels Like: 64°
More Clouds Overnight
WTHI Planner
WTHI Temps
WTHI Radar

WTHI Events

 

Illinois Coronavirus Cases

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

Cases: 1343875

Reported Deaths: 24410
CountyCasesDeaths
Cook5380959996
DuPage893431270
Will74435981
Lake66368977
Kane57580768
Winnebago32526469
Madison30250518
McHenry28156284
St. Clair27650510
Peoria22686297
Champaign20373144
Sangamon18437233
McLean17818175
Tazewell16675277
Rock Island14720306
Kankakee13954207
Kendall1282791
LaSalle12286239
Macon10575194
DeKalb9728119
Vermilion9366131
Adams8345120
Williamson7340128
Whiteside7100166
Boone661671
Ogle601480
Grundy579771
Clinton574190
Coles564494
Knox5484139
Jackson495663
Henry487963
Livingston475184
Effingham470672
Stephenson466881
Macoupin466081
Woodford465474
Marion4447115
Franklin439872
Monroe434791
Jefferson4232119
Randolph411984
Lee410552
Morgan384180
Fulton382251
Logan381657
Montgomery368773
Bureau365882
Christian362073
Fayette315855
Perry314159
Iroquois296465
McDonough276345
Jersey268349
Douglas257435
Saline255153
Lawrence239925
Shelby227737
Union224240
Crawford210826
Bond201924
Cass197524
Jo Daviess179824
Pike178451
Clark178032
Warren177846
Wayne175852
Ford175446
Hancock174231
Richland173640
Carroll173536
White168726
Edgar168339
Washington163525
Moultrie159726
Clay148243
Mason147944
Piatt145814
De Witt145424
Mercer143833
Greene143233
Johnson141214
Wabash134212
Massac132940
Cumberland128819
Menard121512
Jasper114818
Marshall103218
Hamilton82915
Schuyler7305
Brown6996
Pulaski6837
Stark63023
Edwards56712
Henderson52214
Calhoun5152
Scott4761
Putnam4733
Alexander46511
Gallatin4574
Hardin38312
Pope3144
Out of IL70
Unassigned02344

Indiana Coronavirus Cases

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

Cases: 724214

Reported Deaths: 13363
CountyCasesDeaths
Marion989071736
Lake53172962
Allen40223675
Hamilton35354408
St. Joseph35270550
Elkhart28228437
Tippecanoe22297217
Vanderburgh22231396
Porter18560304
Johnson17832376
Hendricks17098313
Clark12897191
Madison12519339
Vigo12379244
Monroe11811168
LaPorte11691210
Delaware10571185
Howard9823215
Kosciusko9347117
Hancock8204139
Bartholomew8036155
Warrick7754155
Floyd7630176
Wayne7002198
Grant6986174
Boone6652101
Morgan6529139
Dubois6139117
Marshall5954111
Dearborn577177
Cass5769105
Henry5671102
Noble555783
Jackson499672
Shelby488196
Lawrence4470120
Gibson433791
Harrison432972
Clinton426353
DeKalb423284
Montgomery423088
Whitley392739
Huntington386380
Steuben381057
Miami379165
Knox370990
Jasper361347
Putnam357760
Wabash352478
Adams340354
Ripley338370
Jefferson328481
White312254
Daviess294399
Wells290281
Decatur282992
Fayette278362
Greene276085
Posey270733
Scott264453
LaGrange263870
Clay258945
Randolph239581
Washington239131
Spencer230431
Jennings228848
Starke213252
Fountain211846
Sullivan210442
Owen195856
Fulton194240
Jay190429
Carroll187820
Perry182537
Orange181854
Rush172625
Vermillion167643
Franklin167235
Tipton161945
Parke145416
Blackford134332
Pike132634
Pulaski115945
Newton106734
Brown101441
Crawford99014
Benton98114
Martin87415
Warren80515
Switzerland7808
Union70610
Ohio56211
Unassigned0413