‘Abnormal Situation Cannot Go On Indefinitely’: AG
Some housing bubble news from Wall Street and a former central banker. “MDC Holdings Inc. shares fell on Wednesday, weighed on by a bearish call from Bank of America Securities that cited expected earnings declines over the next two years due. As for the rest of the homebuilding industry, analyst Daniel Oppenheim said he was cautious based on declining traffic trends, slower price appreciation and rising inventory levels.”
“Along with declining housing activity and increased stock trading, the latest data reinforce the suspicion that aggressive investors are moving out of real estate and heading back into stocks. But equity strategist Scott Wren says that’s not happening en masse yet. Most real estate speculators ‘haven’t come to grips yet with what’s happened.’”
“Mills Corp. shares gained as much as 7% Wednesday morning after the company said its bank group issued waivers of default through year’s end and that it has refinanced the mortgage on one of its properties, the REIT said. The troubled company, which has seen its shares plunge more than 35% so far in 2006, is looking into a possible sale and has yet to restate previous financial results due to accounting errors.”
And the former Fed chairman spoke in Korea. “Former Federal Reserve Chairman Alan Greenspan warned on Wednesday a global glut in liquidity would result in a fall in asset prices. He said the market value of assets worldwide had been rising faster than nominal gross domestic product globally due to a decline in real long-term interest rates over the years and a significant fall in real equity premiums.”
“‘A good part of this expansion is a direct function of the decline in real equity premiums,’ Greenspan said. ‘That cannot go on indefinitely.’”
“He said asset prices would begin to fall, but did not predict when that would happen. ‘I am reasonably certain that what we are looking at today is an abnormal situation,’ he said.”
‘A good part of this expansion is a direct function of the decline in real equity premiums,’…
WTF? I can’t even parse this. He’s not saying anything.
Um, Robert, I think the chairman is saying people are paying too much for stuff. All kinds of stuff. There is an old maxim in politics, that he who points out the piece of sh*t will immediately accused of putting it there. Greenspan’s genius is that he may wind up being lauded for pointing out the pile he, er, put in place, before it hits the fan. Remarkable.
I believe the decline he’s speaking of is a decline in investors’ required return on equity (or specifically the premium above a risk free return). Lower yield requirements have driven higher asset values. The question is whether or not recent yields have been commensurate with risks. He would probably say no.
INTEREST RATES ON A TEAR! 10 year note up over 5% now and at a new multi-year high. What’s that smell….
Think of it this way, you have two investment choices. Option A is a bond backed by berkshire hathaway (warren buffet) which has $40 billion in cash. This bond costs $1000 and will pay you $50/yr. Option b is bond issued by Daimler Chrysler. It will also pay $75 per year. How much do you think option b is worth? Obviously less than A, but how much? If we say $1000, it’s yield is $75. The difference between the two is the risk premium on the second bond (in this case 2.5%).
The trick is if our second bond suddenly is suddenly backed by berkshire which will bring it’s yield to the same 5% it’s value will rise by 50% from our initial story (this is the value of the risk premium in the asset price). Mr. Greenspan is referring to very high asset prices (relative to the income the generate) because most people perceive less than average risk.
The curve (of asset prices to interest rates) that these follow is very steep at low interest rates, so when risk premiums increase (through the adjustment of asset prices) asset values fall substantially.
Language is very powerful and Mr. Greenspan uses it very well. As with all central bankers his communication must signal his intents to savvy market participants, without being so obvious as to spook everyone in the market.
In plain english he is saying that asset (stock, real estate, bonds) everyting are exceedingly high and very likely to decline substantially (ie more than 25%) and they are built on very insubstantial reasoning.
The last poster got it right. It’s econ geek-speak for “Investors are overpaying for assets (stocks, bonds, real estate) without adequately weighing the possible returns against the risk of a decline.”
You see some of the CAP rates on real estate these days ?? 5%-6% for anything decent…At least in the West…Its just gotten stupid…
I have seen a few deals at these rates. Only a fool would participate at these cap rates.
Dude, Los Angeles particularly South Bay has been at 3-4% for some time
Crispy, Income & LA;…Yeah, I have seen your stuff down there….I guess its Dumb (Northern Ca.) & Dumber (Southern Ca.)…Just absurd…
3 or 4% here in LA…
In parts of Dublin (Ireland, the original :)), there are stories quoting 1%.
Even the most hardened UK RE Bulls are shuddering.
3-4% is quite normal in the Netherlands as well …
“WTF? I can’t even parse this. He’s not saying anything.”
Robert, did you really expect a coherent comment from the hebmeister?
My interpretation of “real equity premiums” is a fancy way to say speculation and the greater fool.
equity is the amount of money you have in an asset.
Premium is the amount paid above the equity amount.
Due to the lax lending enviroment there is no real equity out there so if this is what greenspan was trying to say he maybe should have chosen better words. But as usual greenspeakc goes, who knows.
Real means adjusted for inflation in all things economic and fianancial.
Equity in this case is the stock market, because they are the benchmark for risk premiums (over bonds or especially treasuries-which are as risk free as you get from the markets). Greenspan, unlike this board worries about more than just house prices.
He is saying that asset prices are very high because if you take inflation out of asset returns the expected return is not much higher than that of short term treasury bonds even though most asset classes are riskier than short term treasury bonds. This is very true across all asset classes (not just housing). Since income is tough to adjust in a substantial way, asset prices will be the adjusting factor when risk premiums return. Asset prices will necessarily move a lot, and volatility is central banker’s biggest dislike, if you want to think like them start writing naked puts on the market and see how you sleep).
Repeating my earlier example, let us say the return on short term treasuries is 5%, and the P/E ratio of stocks is 15 so the earning’s return of the equity markets is 6.7%. Pull inflation of 3% out of both of those, and you have real treasury returns of 2% and equity returns of 3.7% (so the risk premium is 1.7%). If the risk premium returns to more historic levels of 5-7% the required return on equities would rise to say 9% and the P/Es would fall to 11 or a roughly 27% decline in equity asset values. The volatility that comes with moves like that generally is associated with what central bankers like to call systemic events, and they really don’t like those.
IMHO the market has priced in long term gains in asset value without pricing in unlikely negative occurances. Everyone says “over the long term, the stock market has a return of x%” without keeping track of the fact that these calculations are WITHOUT EXCEPTION made on a timespan that doesn’t include the great depression. Even if you assume that major negative events are completely random and unpredictable, you have to price in the chance of an unlikely major negative event.
Look at it this way, it’s as if you were buying a house with no flood insurance. If the house were in the 100year floodplain, but not the 20 year floodplain, you have to price in not only 30 years of appreciation over the course of the mortgage, but also the 30% chance that you will be flooded out.
I think that this is what the equities market has done. The government has done such a good job of mitigating the immediate effects of minor recessions that there is the illusion that a major recession or depression is impossible. Given the parimutual nature of the stockmarket, (winners=loosers + a small adjustment for dividends) even those who think that they know better base their decisions on their perception of the lowest common denominator investor. Arguably the stock market may STILL be 50% overvalued.
The government has done such a good job of mitigating the immediate effects of minor recessions that there is the illusion that a major recession or depression is impossible.
and this illusion is called … the Greenspan put.
You know what I love? How “Easy Al” Greenspan is NOW warning about a global glut of liquidity. Well, gee, Al … how do you think the global money glut got there? Oh yeah: A certain competely reckless central banker kept interest rates way too low for way too long. So did his wussy CB pals overseas in Japan and Europe. Result: Gold has soared to $600+, oil is at $70, a global housing bubble has inflated, etc., etc. What an idiot.
Don’t forget Japan and China in the liquidity pumping contest. Not to parden easy Al, but he did have a lot of help.
What a dick!!!!!!! Al, you created the liquidity glut you jerkoff. Crack dealers acroos the globe say crack can be addictive and bad for you as well.
Alan Greenspan warned on Wednesday a global glut in liquidity would result in a fall in asset prices. He should know best. He had a major role in creating this with artificially low interest rates, running the printing presses, and then he had the gall with long term rates at 40+ year lows to encourage people to refi/purchase with short term arms.
Why would anyone pay him to speak? Maybe to cure insomnia?
The utter gall and hypocrisy of this man defies mere words. I believe there is a special circle of Hell waiting for him.
I agree with the Maestro. I wonder who is to blame for this liquidity glut? Maybe OJ can look for the liquidity accomodaters. He really was a good politician. Got out at the top.
Interesting point. Seems the market is kinda in denial. Inventory has shot up but sellers are not ready to admit the fact they will need to lower prices to sell.
Builders however began cutting prices through incentives & discounts as early as December 05 here in Florida.
If inventories are not reduced soon, then using supply & demand models yes, prices will have to come down. They will be forced down by excess inventory and competition between sellers but also price declines will be artificially aided by tighter lending standards, io, option payment and other exotic loans will be regulated & higher rates combined with less money in the pool for lenders and we might be looking at banks requiring down payments & excellent credit before they lend money for home purchases. Especially when we start seeing the waves of foreclosures due to poor lending standards.
“Builders however began cutting prices through incentives & discounts as early as December 05 here in Florida.”
Builders, at least the ones who have been around for a while, are the smart money. They aren’t swayed by emotion or an apparent God given right to get 10% more than their neighbor did last summer. They know what the score is. They didn’t buy high and therefore can afford to cut prices. A couple years from now when sellers are writing “why you should buy from me letters to prospective buyers” and are bidding against each other, the builders will be back in buying mode.
very true. Most of the home builders in Florida have had land for years. In Palm Beach county the big home builders bought that land years ago. In the panhandle, St Joe has had 800,000+ acres with a lot of beachfront land for probably a century, they just went from producing paper to producing planned communities.
They can easily cut prices, a lack of demand on new houses will cause all kinds of prices to fall on building materials, labor just about everything that goes into a house from the land to the labor could be looking at price declines since the demand is no longer there to justify the higher prices.
Yup,Yup,Yup….
They’ll lead the charge of price reductions, so they can sell before all the reposessions hit the market and REALLY drive down prices.
DON’T WORRY, THE CHROME-DOME ECONOMISTS WILL SAVE US!
Gonna miss “greenspeak” lol. Basically he just said said that asset prices (stocks, bonds, RE, etc) have been bid up due to a perceived low risk based on immediate past performance combined with low interest rates. As interest rates begin to adjust upwards globally and the concept of “risk” returns, ALL asset classes will begin to get affected.
Oh and for those who think RE doesn’t go down, good luck selling that idea in Japan. Some real estate markets experienced 70+% drops from the peak of the RE bubble here. They are JUST NOW recovering after about 13 years. Hard to believe but true.
I say: “Tokyo condos for everyone!”
you say that to everyone! lol
Does that 70% drop reflect the historic flooding of the market with Yen? or just the nominal price?
“Former Federal Reserve Chairman Alan Greenspan warned on Wednesday a global glut in liquidity would result in a fall in asset prices.”
Wait a sec. A Global glut in liquidity means more money chasing less goods, right? So how does this indicate that asset prices will fall, at least in nominal terms? Did I miss something here?
I think he’s pointing out what happens if the liquidity starts to evaporate.
Not less goods. The easy money makes it easier for uninformed buyers of any asset able to outbid a more conservative buyer, which equals a rise in asset prices. Don’t just think this is related to residential pricing, same goes for anything you borrow money to buy.
Notice how he never mentioned the “D” word?
I think he is referring to the Global Carry Trade. Japan has zero percent interest and until recently flooded its economy with money to break the spiral of deflation. It wasn’t until recently that people in Japan began to borrow that money. So where did all that money go? Thats a large portion of the glut he is referring to. This glut of money can create momentum markets running up asset valuations beyond any economic justifications (housing bubble). Once the valuations are maxed out this glut of money finds a new home, right now it looks like commodities judging from the price of precious metals. Once the favored assets fall out of favor the price of those assets will revert back to the mean.
Once the valuations are maxed out this glut of money finds a new home, right now it looks like commodities judging from the price of precious metals.
I agree, and I suspect that commodity prices could spriral even further. Consider this scenario: rising commodity prices (especially for metals used in manufacturing) begin to work their way into the core inflation numbers. This drives investors to shift further into non-dollar-denominated assets like, you guessed it, metals. Other speculators, watching the prices climb, jump on board and send prices even higher. This in turn creates more producer- and consumer-price inflation, and feeds the vicious cycle. The Fed, finding itself behind the curve in the inflation fight, tries to chase it down with rate hikes, to little avail. Suddenly, inflation is pushing 8-10%. Finally, the Fed gets some cojones and brings the hammer down, just like Volcker did in the 80’s.
I don’t believe for a minute that the FED (or ECB) are going to raise rates much further; the signs from the lasts month are very clear. They are going to print themselves out of this mess (at least, that is what they think they can do) and totally ignore inflation.
Probably they will adjust the CPI calculations a little more (after all, if with 8-10% real inflation the public accepts a CPI of around 1% in Europe, they can probably get away with anything). Apart from that, there is more emphasis on wage inflation lately above anything else. That is because they know that with the global labor market of today, a strong rise in US/EU average wages is simply not going to happen.
But just in case: wake me up when the 10-year Treasury rises above 6%, that would be a sign that the market is finally discovering that Emperors Bernanke and Trichet are wearing no clothes.
They are going to print themselves out of this mess (at least, that is what they think they can do) and totally ignore inflation.
Not implausible, but the results would be disastrous and I believe they know it.
I agree, they are definitely in between a rock and hard place on this one. IMO the FED will preserve the dollar asset bubbles be damned.
Well M3 has approximately doubled since 1997. We don’t need a loosening by the fed to cause inflation to spike. All that we need is for a few trillion to slosh back out of the real estate market and back into the rest of the economy. Once this happens and the inflation rate spikes the FEDs only choice will be between hyperinflation and stagflation. I certainly HOPE that we get a decade of stagflation because the alternative is EVEN WORSE.
to jim A:
yes, good point. inflation spikes like this usually come long after the actual liquidity creation, and by the time central bankers notice inflation is getting out of hand it is ALWAYS too late
I think that is what the Gold price is telling us.
I don’t think the FRB has a choice. They have to defend the dollar or their creditors will pull the plug. Without Asians purcashing USA debt the government is in deep doodoo.
Another point I would like to make is in regards to the thinking that RE money will “move into other assets”. RE is illiquid. In order to take the money out you must first sell it. If you sell it now, most of the speculators will lose their money because they are highly leveraged. The money either a) disappears through default or b) stays in their asset and slowly drains away their cashflow (death through a thousand payments). So tell me, where the heck is all of this money going to come from?
Either way you are talking about the contraction of debt, and thus the money supply. That is the definition of deflation.
I think what I am addressing regarding the carry trade is the money from overseas that had been flowing into US Treasuries resulting in lower interest rates and then into mortgage backed securites resulting in lower mortgages and lax lending standards which fueled rampant RE specualtion is now heading for greener pastures - commodities. I am not addressing the money in actual RE purchases, its more the pipeline of money now flowing into other assets. I call the people who speculated in RE and still have those properites “bag holders”.
The show must go on or the government is toast. The FRB knows this so they will keep raising rates. I think commodities will go down when recession hits due to demand factors. When deflation hits in earnest cash will be gaining in value and there will be wide spread debt defaults and unemployment will spike. Once the government steps in to “fix it” watch out. IMO debt monetization will be a last desperate reaction to the destruction that deflation has already wrought. That’s when you get everything out of dollar denominated paper and into commodities. I’m just throwing this idea out there. I just don’t think the government will be so quick to trash the dollar when they need the Asians to keep buying their paper.
But money doesn’t disappear through default. It disappears maybe from my pocket when I buy the house, or the banks pocket when I default, but the person who sold me that house, he has that money. And the cycle goes on like that. The money is stlil in the system, it does not disappear. What actually makes money apparently disappear is the nice lenders investing it elsewhere. Them Chinese and others.
LARenter & John in VA,
The “glut of money” isn’t fueling the runup in PMs, the resulting inflation is. A quote from FSO:
Money supply growth rates of this magnitude are one reason why inflation is on the rise. It can be seen in asset bubbles around the globe in equities, bonds, mortgages, and in real estate. It is also one reason why commodity prices are on the rise, especially precious metals. The rise in gold, silver, platinum and palladium are all signaling the coming age of inflation.
Truthfully, there simply isn’t enough bullion in the world to absorb even a fraction of the liquidity out there.
OTOH, John, your scenario for rising prices overall is dead on.
What I see happening is a viscious cycle developing as John pointed out. You are correct, the attraction to PM’s is a hedge against inflation, that is the legitimate fundamental of the current runup in commodities. What happens is that any runup of assets attracts the attention of this global glut of liquidity which in essence is causing this inflation, so yes PM’s are going up on inflation concerns but they are attracting speculators looking for a place to grow their money (momentum) which runs these assets up further and given they are commodities increase inflation and on and on until these asset valuations can no longer be justified. This global glut of liquidity likes to party, what I fear is what the global hangover looks like. I think this thing is more out control than any of the central banks would like to admit.
maybe he is just explaining why Helicopter Ben and Tricky Trichet are ramping up the money supply like never before in history (except maybe during the Weimar Republic)?
They just discovered the same truth as Easy Al, and are afraid that asset prices are really going to fall (this is similar to those cartoon movies where someone runs of a cliff, keeps running for some time in the air and after some seconds looks down and discovers there is no road beneath him).
Declining asset prices are a no-no, because those are bad for politicians and overpaid banksters.
Obviously, it is just more nonsense, lies and smoke & mirros from the guy who is more responsible for this mess than anyone else on the planet
The Weimar republic, and three other hyperinflationary periods (collapse of Rome, French Revolution, and US Civil war) are chronicled in
“The Penniless Billionaire” by Max Shapiro. A great book I highly recommend.
This is a MAJOR EYE OPENER for anyone wanting to learn how inflation can turn an economy on its head.
I am seeing way too many comparisons to the situation today.
And I might add that the previous historical inflationary periods did not end well…
yes, unfortunately there are many comparisons to the current situation; not only at the financial level but also regarding politics, military buildup and overstretch, social changes etc.
So Big Al is unemplyed for about a month and already he has done a 180? Wow , that’s a surprise. The man has lied his entire career and was responsible for mutliple recessions and financial disasters during his 17 year stretch. Funny how he conveniently is throwing Helicopter Ben in the grease after one month on the job.
Way to go Al- when you were in charge everything was rosy. Eight weeks later, we’re screwed.
Sounds like the Jeff Skilling defense - “everything was great at Enron when I left and cashed in all my options”
When Alan Greenspan was head of the Fed, he could not exactly get up on a soap box and tell people what investments would decline and what would surge, it would be a major conflict of interest. The Fed’s purpose is maintain stability in our currency. A lot of smart investors with a lot of money tend to listen to the Chairman of the Fed, thats why Greenspan gave a lot of vague answers, to avoid an all out panic and fire sale of home builder stock.
Now that he no longer has the title he could say what he wants.
he is not exactly unemployed; from just a few snippets I have read, he probably made already more than a million with some speeches for financial pundits and politicians.
hehehhe
AL says “I lowered rates blame the new guy !
As the phalanx of wing-fitted porkers trotted down the runway and took flight, Mr Greenspan said, “I am reasonably certain that what we are looking at today is an abnormal situation.”
I really like that quote. “… reasonably certain… is abnormal.”
I’ve been saying the same thing for a while now… actually, for quite a while (the dotcom thing, too).
What/where is the next round of “abnormalcy”?
If memory serves, about the time I started reading this blog last spring, posters here were raging about comments AG had made in 2004 encouraging adjustable rate mortgages:
Banking & Finance
Greenspan: adjustable mortgages can save $
Dallas Business Journal - March 12, 2004by William Hoffman
Print this Article Email this Article Reprints RSS Feeds Most Viewed Most Emailed
In an uncharacteristically intelligible address Feb. 23 to the Credit Union National Association Governmental Affairs Conference in Washington, D.C., Federal Reserve Chairman Alan Greenspan lamented that American homebuyers are willing to pay higher fees and an interest premium in exchange for rate predictability and the right to refinance.
This, the Fed chief continued, despite Fed research suggesting Americans could have saved tens of thousands of dollars if they’d financed their home purchases during the past decade with adjustable-rate mortgages.
Bingo — you hit the nail on the head. Anyone who chose a 1-year ARM back then instead of a 30-year FRM has gotten his head handed to him. He literally made one of the worst personal finance moves you could have in the last two years. By the way, how many Fed speeches have we heard in the last two years saying oil prices were done going up … housing was not a bubble, etc., etc. These guys are truly just as clueless as your average economic forecaster — which is scary given the power they wield to inflate or destroy the economy.
Greenspan, speaking to a financial conference in Seoul via satellite, also said…
It seems things are so bad here that Greenspan is camped in orbit!
if despite the excess global liquidity there is an economic contraction or recession (or depression) what else do you think can the fed do to turn around the economy? i am no economist, but *easing up* would simply add more liquidity and more asset bubble, right? is that what is called stagflation? are we really this screwed that we just have to wait until the inefficiencies or excessess are squeezed out of the economy?
thanks.
Standard Keysian response would be to stimulate demand via liquidity. Based on the tremendous amount of debt the US govt and citizens hold right now, inflating away the value of the debt might be seen by the Fed as possible solution.
Basically we’re screwed.
But — that only works if you don’t need to borrow any more money. Once you start inflating away the future returns on debt, lenders start to demand higher interest rates. The cost of borrowing, for the Federal government, goes through the roof.
Unless they have a printing press….
“He said asset prices would begin to fall, but did not predict when that would happen. ‘I am reasonably certain that what we are looking at today is an abnormal situation,’ he said.”
Am I the only one who thinks that this is very significant? “Abnornal situation” is not something that a (ex) Fed Chair would say lightly.
Peterbob,
To me “Abnormal situation” is quite a bit more significant than “Irrational exuberance” circa 12/96, which roiled the mkts (stock and bond). The difference is he is the ex Fed Chairman. If this comment get legs (picked up by the mass media) I would expect reaction. The mkt recently ignored his comment about history not being kind to low risk premium pricing a few months ago. People want to believe what they want to believe…
Volker has been saying the same thing for a couple of years now.
My take on history is that normal situations don’t last long either. That’s why my grandparents tried like crazy to convince us kids to be prudent and aware of our surroundings.
For what it’s worth I bumped into an economist friend of mine today at lunch, and we chatted about the bond market, rates, etc. I asked him about global liuquidity and he said it is still enormous but starting to recede. Exact quote: “the tide is starting to go out”.
liquidity starting to recede?
just ask the Gold market and you will see that reality is very different. I think liquidity is ramping up like never before (that is why Helicopter Ben first of all removed the M3 numbers, despite his promise of much more transparency from the FED).
ever heard of lags? wait.
In fairness to AG, he pointed out “irrational exuberance” in the stock market in 1998 and that barely caused a blip. In the last year or 2, he referred to the housing market as “froth”. I was racing my sailboat and the conditions were described as “froth”, I and about 30 other boats were circling a half dozen boats that broached rescueing the fellow sailors from Lake Michigan in the froth was not fun and for those unfortunate ones it was pretty scary. When AG said “froth”, is when I got worried.
Greenspan uttered “irrational exuberance” in December 1996.
Greenscum is saying that everything’s too pricey now but denies knowing about a bubble until after it bursts! This guy has too many mouths he talks out of, and he should start putting his feet in them.
Two questions:
1) If inflation comes back at 8-10% a year as one poster suggested, would early signs of this not cause all those highly leveraged ‘05 purchasers to hang on tooth and nail as their homes once again started accelerating in value? This could derail a correction, no?
2) If metals have already been bid up in response to excess liquidity, and if real estate seems poised for a decline, then where is a good place to invest? A recession could easily take the stock market with it…
Any thoughts?
They can hang on, but inflation of 8-10% does not measure housing prices, it is measuring things people buy beside food, energy, and housing. Ie, clothes, cars, appliances, and the like.
You can hang on, but even when your food bill and energy bill and gas bill and children clothes bill keeps accelerating at the same time your credit card interest rate keeps going up????
Wait for the revival of the “Misery Index”.
I’ve got your “Misery Index” right here.
Also known as the housing market for first time buyers in San Francisco.
i heard, in general, a well diversified stock holding is better off compared to most investment because its yields/earnings will rise to match, more or less, the inflation rate. not like bank deposits or similar investments. correct me if i am wrong. thanks.
1. inflation IS 8-1% you in the US and Europe if you use the CPI calculations of 20 years ago. It simply doesn’t show because they take nearly all necessary items out of the CPI calculation.
And yes, I think it is part of the explanation why the RE bubble keeps growing (and has been growing in Europe for about 15 years now).
2. no way to hide … but precious metals probably have some years of upside left until deflation really hits (and even then they might be a good store of value). I don’t see deflation happening as long as the central banks (guys like Bernanke and Trichet) run the show and have some kind of control over the economy.
And the former Fed chairman spoke in Korea. “Former Federal Reserve Chairman Alan Greenspan warned on Wednesday a global glut in liquidity would result in a fall in asset prices. He said the market value of assets worldwide had been rising faster than nominal gross domestic product globally due to a decline in real long-term interest rates over the years and a significant fall in real equity premiums.”
“‘A good part of this expansion is a direct function of the decline in real equity premiums,’ Greenspan said. ‘That cannot go on indefinitely.’”
“He said asset prices would begin to fall, but did not predict when that would happen. ‘I am reasonably certain that what we are looking at today is an abnormal situation,’ he said.”
Wow, he sure does speak the plain truth these days, now that he is no longer the oracle of Delphi.
http://en.wikipedia.org/wiki/Delphi#Oracle