Greenspan Not About to Shuffle Off the Monetary Coil

Over the past few years, traders caught on the wrong side of the bond futures have found recourse in one of the following three rumors: Treasury Secretary Robert Rubin is going to resign; Russian President Boris Yeltsin died; Federal Reserve Chairman Alan Greenspan has just had a heart attack.

The Rubin rumor doesn't work anymore, and the Boris rumor, which sends money scuttling into Treasuries, is strictly the province of longs. For anyone caught short in a market going long, the only thing left is a variation on the Greenspan theme. That was the one that got sprung today. And old though this chestnut may be, it still packs a wallop.

The bond and stock markets both took a turn lower midway through the morning in New York as rumors that Greenspan is planning his resignation hit the market by way of Chicago and London. There was chatter that the Fed head was leaving because he doesn't like working with the new Treasury secretary, Lawrence Summers. There was talk that a hedge fund adviser -- either Medley Global Advisors or Johnson Smick International -- had said the chairman was on his way out. There was even, apparently, some chatter about the G-Man having gotten himself embroiled in a sex scandal (like that's enough to get someone kicked out of Washington).

This thing was so patently untrue that it's almost surprising it could knock the market down even as briefly as it did.

A spokesman for Medley says the firm never said Greenspan would resign and, moreover, that the rumors weren't, in the firm's estimation, true. Johnson Smick wouldn't comment (it never does), but market sources said that it hadn't said anything about Greenspan leaving.

Alan Greenspan
Happy to be here.
Photo credit: AP/Ron Edmonds

Not that they'd be the ones to break the story anyway. "It's unlikely that it would come up through sources like a consulting firm," notes Tony Crescenzi, bond market strategist at Miller Tabak Hirsch. The ability of both firms to come up with dope on the Fed has diminished in recent years as the central bank has become more and more open.

In any case, it's extremely unlikely that Greenspan will resign anytime soon -- if only because the Senate and President Clinton probably couldn't agree on a replacement. "In an election year, anyone who Clinton comes up with would have trouble getting through the Senate," says J.P. Morgan Fed watcher Mark Wanshel. "I would be very surprised if he leaves prior to the election, because I don't think anyone could be confirmed until after that."

There are other things that are keeping him at his desk. He won't want to quit the post until after he's certain that the Federal Open Market Committee has finished the current tightening cycle -- until he's seen if he can bring the economy in for an unprecedented second soft landing. He will also want ensure the system doesn't get hurt by any Y2K-related shocks.

We haven't heard the last of these rumors. At 73, Greenspan probably finds himself wondering what it would be like to devote a little less time to monetary policy and a little more time to his backhand overhead. As Y2K passes, as the tightening cycle ends, as a new president is sworn in, there will be more and more chatter of Big Al taking his final bows. Eventually it will be true.