Oracle of Wall Street

Greenspan, oracle of Wall Street

Greenspan spoke, market spooked

The Fed left interest rates unchanged but did change two words in the statement announcing the decision. Instead of pledging to keep interest rates low for "a considerable period," they said they would be "patient."

The reaction was immediate:

Nasdaq intraday chart Nasdaq intraday chart, 28-Jan-04. All the other indexes showed the same pattern.

I don't know exactly how it came about that investors have come to place such faith in Alan Greenspan, but I do know it's not healthy. (I've written about this before.)

The irony is that companies are turning in some of the best earnings reports in years: the vast majority are meeting or beating Expectations; results are coming from increased sales, not just cost-cutting or "productivity" enhancements (i.e., making fewer workers do more for less money).

In the grand scheme of things, perhaps the market did need to be tamped down a bit. After all, the Dow Jones Industrial Average and the Nasdaq composite are both at two-year highs. Perhaps the exhuberance is getting a bit irrational. But people are acting as if interest rates are the only variable to consider in making investment decisions. That is definitely irrational.