Former Federal Reserve Chairman Alan Greenspan is sounding the alarm about a bond bubble.
During an interview with Bloomberg Television, Greenspan said it was appropriate to be very afraid of the bubble. He said the bond market price-to-earnings ratio was at an “extraordinary unstable position.”
Greenspan said “normal” interest rates have always been in the 4% to 5% range.
Yields on the 10-year Treasury have been below 4% since the summer of 2008. The yield this morning is 2.217%
“We have pressed the interest rates well below normal for a protracted period of time and the danger is they will come up to back up to where they have always been,” the former Fed chairman said.
“There are two possibilities. Either we move slowly back to normal, or we do it in a fairly aggressive manner. History tells us it’s the latter which tends to be more prevalent than the former,” Greenspan said.
The market impact will be “not good,” he said.
Greenspan is very right here. The bond market is a very dangerous place to be right now.
-RW
(ht MarketWatch)
Given Greenspan's admitted understanding of the bond market and the credit expansion that fueled the bubble, do we have enough evidence to officially give his legacy the Bill Cosby treatment?
ReplyDeleteI'm sure we could find more people whose lives were ruined by his policies than we can find women who have come forward about Cosby.
If anyone knows what it means to blow asset bubbles, it's Greenspan. Of course, he'll never admit it while he can do something about it.
ReplyDeleteNotice how truth-telling always occurs after the fact?
Since the Originary Interest Rate is unknowable, how does anyone know when rates are too low? There is no reason to expect that Greenspan is any better at economic forecasting now than he was as Fed chief.
ReplyDeleteHe should know. He created a good portion of the bubble.
ReplyDeleteWell, Brian, when the big Wall-y traders and the Fed throw out all stops to keep it lower, it is a no-brainer that the 'natural' ratea are somewhere north of where they are now.
ReplyDeleteCan anybody provide a good reason why 30yr bond rates can't go negative? Just because Greenspan says bonds are in a bubble doesn't mean we aren't in the midst of a 5yr mega-bubble in treasuries. Read Harry Browne to understand that nobody can predict the future. Even Browne, who predicted the greatest silver Bull in history, attributed his successful prediction to luck. Beware the Bernanke's, Greenspan's, and even wise Austrians who extend their predictions of the future, economic or otherwise. use Harry Browne' risk-parity-model Permanent Portfolio and you won't care what interest rates are, you'll be busy counting your dividends. If I had only listened to Austrians (of which I am one) I'd have missed out on 32% returns on TLT in my portfolio. Thank you, Harry.
ReplyDelete