Consider the Context of Greenspan's Words - TheStreet

Last fall, as rumors swirled of major problems at Long Term Capital, Fed Chairman Alan Greenspan gave a hawkish speech about risk premiums and the need to be tough on lending standards. I remember vividly reading the speech, outside in Philadelphia, across the street from the Liberty Bell.

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Message Boards. We had taken "Squawk Box" on the road that morning, and I was a proud son introducing my dad to the gang of that great show.

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had informed me that things were looking terrible in the market because of this Greenspan speech. I huddled with my dad and said that Greenspan's got it all wrong. He is being tough when he should be gentle. I told him the speech spooked me.

I called our trading desk and wanted out of a bunch of things.

Given the worries in the credit markets at the time, Greenspan's speech couldn't have been more poorly timed. He was talking sternly at the very moment when the credit markets were begging for easing, less the heavily leveraged hedge fund world would have to sell lower-rated bonds into an unwilling market. It seemed really stupid.

I had been looking for an ease because of the stress in the system. This speech kiboshed that. It contributed to my decision last year to get out at what amounted to the bottom, because I figured Greenspan was going to crush us. I thought he had us in his crosshairs and was definitely done easing. I thought our goose was cooked.


Soon after, Greenspan eased dramatically. His speech bore no relevance to what he did. I trusted his words, not his deeds, and I played the market wrong. I played him wrong.

Last night, I read Greenspan's speech in the

link from's


story about it. The talk was a balanced speech, and it seemed to make a lot of sense to me. But as soon as I saw the tulip-bulb reference, I figured the futures were down 12 points. Haven't lost my edge -- they were down 11.

Last year, if I had considered the context of Greenspan's speech, which was simply an alert that he likes to be tough against inflation, maybe I would not have been as bearish at the bottom.

This year, I am considering that context. He was speaking in front of banking regulators. He was not going to tell them, "Ease up, gentlemen. Turn the spigot on." He was not going to say, "Get long -- this market is oversold." He was not going to bless any level of equities. He was going to talk tough about inflation. That's his job.

So, send the market down. It was in weak shape anyway. But if you are selling

because of this speech

, you are doing what I did last year.

We know that's wrong.

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at