Friday, July 22, 2005

Fed Head Cheerleader Exits Gushing on the Economy

What happened to the Surging Oil price, the Housing Bubble, the trade imbalance, etc..

As recently as May 26th of this year I wrote on the blog that Greenspan was shouting fire over the litany of woes and risks posed to the USA economy, from factors such as higher oil prices. Now the Fed Head is saying that; "The data released over the past two months or so accord with the view that the earlier soft readings on the economy were not presaging a more serious slowdown in the pace of activity".

While the economy may be on sounder footing higher oil prices, that had previously concerned the chairman, have not changed in price and are still hovering at $60 a barrel. What’s Up?

What is up that the Chairman Greenspan is making his last testimony before Congress before his term ends in January. It is apparent, as has been reported, that he wants to exit with "an upbeat view of the economy’ as reported by many media services.

The language about the economy, from someone who is a master of obfuscation are about as strong as he makes them. It is also apparent that he has become a cheerleader of sorts with his optimistic view.

It appears that Greenspan has softened his view of the impact of higher oil prices, but the fact remains that oil continues to trade at record high prices. The housing bubble which Greenspan had been previously been fretting about has continued to mushroom. Ditto for the trade and current account balances. The shape of the yield curve continues to be an anomaly in the eyes of many.

While the Fed Head did address his previous concerns, or risks to the economy, their influence seems to have diminished in his view. During his questioning period Greenspan said that the devaluation of the Chinese Yuan was "a good start". A sharp contrast to the street who sees it as not much of a change, or at 2% well below the 10% politicians were looking for.

It is clear that Chairman Greenspan wants to go out with a rosy scenario. Not to different from most Wall Street analysts and economists who consistently paint a rosy scenario about the companies they cover and the economy. As we learned from the Salamon brothers research scandal a few years back they (analysts/economists) do this because they have to sell stocks and underwriterings. Good news sells better than bad news. Today it is no different for Fed Head Greenspan who is trying to sell a hope and dream while ignoring reality as he heads for the exit... Not on my watch... Not on my watch......

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