Did Tuesday Meeting With Stock ProsLead Greenspan to Get Specific?

By Dave Kansas ,

One clear phrase and the whole world goes crazy.

Perhaps it was the bow tie. Perhaps it was the gala mood. Perhaps it was the room stuffed with pundits. Whatever the case,

Alan Greenspan

decided to morph from his usually cryptic self into a regular market commentator, terming the stock market "irrationally exuberant."

That blunt assertion from the Ayn Rand devotee rapidly socked stock prices around the globe. The

Nikkei

225 skidded 3%, the

FT-100

also dropped in London and in the U.S. stock prices swooned at the opening bell, with the

Dow Jones Industrial Average

sliding more than 120 points in the first 30 minutes of trading.

Throughout the year, economists have mused aloud about just how much Greenspan cared about the stock market¿s stupendous bull-market run. With inflation anemic and growth steady, some strategists wondered if Greenspan would raise short-term rates in order to knock a little steam out of the stock market.

The Fed certainly is paying close attention to stock prices. On Tuesday, The Fed board and staff met with Wall Street luminaries and academics. At that meeting, Byron Wien of

Morgan Stanley

, David Shulman of

Salomon Brothers

and Abby J. Cohen of

Goldman Sachs

all presented their market views. Richard Berner, chief economist at

Mellon Bank

, presented a view on the economy and academics prattled on about market behavior.

What transpired at the meeting remains mostly unknown, though it¿s clear that Mr. Greenspan heeded more of Mr. Shulman¿s bearish commentary than Ms. Cohen¿s bullish story. Coincidentally, Mr. Shulman turned more bearish on Wednesday morning, citing how expensive stock prices had become. And Mr. Wien, widely influential, has sprinkled several bearish caveats among his quasi-bullish commentary.

But in the aftermath of the Greenspan speech, some Wall Street economists expressed dismay at the market¿s reaction. And with a softer-than-anticipated November jobs report, stock prices rebounded from their worst levels by mid-session. Moreover, some economists even tried to sow a little of that old Greenspan as The Great Confuser back into the debate.

"His comments were taken totally out of context,¿ said Mickey D. Levy, chief economist at NationsBank, and a member of the Shadow Fed, a group that tracks the Fed¿s activities. "He was speaking on the challenge of being a central banker in a democratic society, and he was simply providing examples of non-monetary issues that a central bank in a democracy should keep an eye on. It¿s very perplexing as to why the markets, especially the European markets, dropped so much on the speech.¿

Levy¿s comments notwithstanding, the Federal Reserve officials were remarkably quiet on Friday morning. Instead of clearing up any market misinterpretations through wire service leaks, as the Fed has done in the past, markets have simply twisted in the wind on the heels of the early morning downdraft.

Clarity, however, could come shortly. Greenspan speaks at 1:15 EST P.M. in Philadelphia. Do you think anyone will pay attention to that one?

By Dave Kansas

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