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Apparently, one of the many perks of being

Federal Reserve

chairman is you get to turn back the clock. On Thursday,

Alan Greenspan "tried to rectify" his views on the economy, which he believes is turning.

For those who believe in the so-called "Greenspan Put," the result was a red-letter day. For almost everyone else, the predominant color was green, as major averages rallied in reaction to Greenspan's do-over, although they closed well below intraday highs.


reported earlier, Greenspan made some subtle but significant changes to the speech he gave in San Francisco on Jan. 11, during an appearance on Capitol Hill today.

Omitted from today's speech was this line from Jan. 11: "But I would emphasize that we continue to face significant risks in the near term." There was also some reordering of his discussions of various issues facing the economy, as we'll address in a moment.

In the Q&A that followed his testimony, Greenspan also made a stunning admission that if he had the chance to do Jan. 11 all over again, he would have used different "phraseology." We'll address the implications of that in a minute as well.

In explaining his mind-set on Jan. 11, Greenspan said today that "the markets had been assuming a far more rapid snapback than I think is likely to happen." But market participants and the financial press focused on the more optimistic aspects of the speech, which was largely similar to the one he gave Jan. 11.

"Greenspan's speech

today shows how market sentiment, along with its anticipation of events can affect the interpretation of those events as well as the market's eventual reaction," commented Anthony Crescenzi, chief bond market strategist at Miller Tabak. "Today's speech shows how market participants can see things differently when they put on their rose-colored glasses and look for positives that were there all along."

Regarding anticipation, Crescenzi referred to recent articles in

The Wall Street Journal


Washington Post

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in which anonymous Fed officials were quoted as saying the market had "misinterpreted" Greenspan's Jan. 11 speech. Among others in attendance, I thought there were notable positives in the Jan. 11 speech, specifically Greenspan's

homage to productivity. But prior to Jan. 11, a series of speeches by various Fed governors provided a dour backdrop for Greenspan's remarks and the interpretation thereof, as my colleague Justin Lahart noted in's

Columnist Conversation.

In terms of

today's speech, a key element to the market's positive interpretation was that Greenspan dramatically moved higher these comments about inventories:

The runoff of inventories, even apart from the large reduction in motor vehicle stocks, remained sizable in the fourth quarter. Hence, with production running well below sales, the potential positive effect on income and spending of the inevitable cessation of inventory liquidation could be significant.

These comments were in paragraph three of today's speech vs. paragraph 10 on Jan. 11.

The terms "inevitable cessation" and "positive effect on income and spending" are a clear indication of Greenspan's view on the economy, Crescenzi observed, noting the same language was used on Jan. 11. "You can't get stronger" verbiage from the chairman.

The bond market certainly took those comments to heart today. Prices of two- and five-year Treasuries fell steeply as expectations for a rate cut at the

Federal Open Market Committee's meeting next week fell sharply.

Deep Thoughts on Greenspeak

First, was the market negative after San Francisco because of the media coverage of Greenspan, or was the media coverage negative because of the market's reaction? Yes, it's a chicken and egg conundrum, but I believe the latter to be dominant. I contend equity markets were in a negative mode on and around Jan. 11 and thus took a downbeat view of Greenspan's speech, while the reverse occurred today.

Second, does the Greenspan Fed try to manipulate the markets, i.e., the Greenspan Put? Few serious Fed watchers would say it does, but "markets move on the relation between perception and reality," according to Woody Dorsey, an expert in behavioral economics and president of Market Semiotics. That many investors believe a so-called "plunge protection team" exists may be as important as whether it's fact or myth. Such beliefs may explain why many investors rode the markets down in the past 22 months, and why most continue to have faith in the stock market, and in Greenspan.

Third, and most critically, the issue at hand is that the market hasn't cooperated with monetary policy for the past year. A lot of attention has been given to the failure of equities and long-term interest rates to respond to massive Fed easing. But Miller Tabaki's Crescenzi noted the dollar and credit spreads also have failed to react as desired to the Fed's rate cuts.

Furthermore, the Fed has pushed the "real"

fed funds rate well below 0% in an attempt to prompt investors to take money out of saving accounts and put it into the market. Yet, taxable money market assets continue to rise, by $13.9 billion in the week ended Tuesday to $2.050 trillion, according to

Greenspan knows very well how to communicate his intentions after all these years as Fed chairman. Perhaps the planting of "misinterpretation" stories by Fed officials and Greenspan's request for a mulligan today show just how misaligned the Fed and the financial markets have become.

In any case, to paraphrase Bill and Ted from their

Excellent Adventure

something is definitely amiss at the Circle-K.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.