Does it seem to you too that this market is rather suggestible? Whatever happened to the spirit of questioning authority?! Can it be that instinctive rebelliousness was a characteristic of the baby-boomer cohort and the people running the money these days are much younger than that? I mean, it feels like this market scurries about trying to stay on Alan Greenspan's good side. He hints that maybe he ought to take back one of the three quarter-point easing moves with which he had calmed the tempest last year, and the market cringes in alarm. Then he soothes with comments suggesting that productivity marvels are semipermanent, and the market purrs.
What was it last week? He addressed the
Independent Bankers Association of America
with a dissertation on agricultural productivity. The message might be reduced to something like: "If American farmers weren't so smart, you bankers would probably be broke." Technological advances in farming have insulated U.S. farmers from the worst of the global crisis that is affecting commodity producers in most of the rest of the world. More milk from fewer cows. I wonder how they do that. Surely not with whips. Maybe they've replaced the old Jerseys and Guernseys with lowfat and skim?
Greenspan sure gets treated a lot better by the markets than some of his predecessors did. In the late 1970s,
G. William Miller
would crank up interest rates in measured steps in order to reduce speculation in houses, and people would just borrow faster. It wasn't until
became chairman and began raising rates in giant steps that speculation came to a halt. Hmm. Maybe there's a parallel here. Greenspan keeps trying in measured tones to talk the market down, but with no more success than Chairman Miller had. The house speculators figured that Miller wouldn't pay the price and take the risks to stop them. Volcker quickly proved to them that he would. Greenspan, the market may infer, doesn't want to incur the risks to global economic recovery that effective restraint of market excess would entail. So investors conclude that it's no more risky than usual to go out and play in the market traffic. And so they do.
It makes me nervous that the productivity argument gets waved like a magic wand at the puzzles that surround the astonishing performance of the U.S. economy. Greenspan himself cycles more positive and then less positive on the transformational miracles of technology: He says "unsustainable" when he's cautious and "awe-inspiring" when he's constructive, and the rest of us run back and forth in slavish response. There can be no doubt about the gee-whiz nature of the .coms, backbones and telcos: They are clearly the stuff of the future, and their productivity implications are unbounded. But cows are learning only just barely quickly enough to keep farmers and their bankers out of the poorhouse. This is a divergence on the ground, so to speak, that is amplified in the market. It will be one year next week since the peak in the
daily cumulative advance/decline line; breadth is now down by more than 40% from that peak. If it's true that the peak in breadth leads the peak in the market, you have to wonder just how elastic that relationship might be.
Productivity is one thing. Profitability is another. Some of the miracle cures that technology is serving up may be solutions in search of problems. How about this one from
Soon vacationers won't have to worry about buying stamps and finding mailboxes to send postcards. With a new radio chip technology called Bluetooth, they'll be able to send a picture from their cameras to their palmtop computer or mobile phone, add a message and a signature and send the greeting via email -- all from the beach and without wires.
Cool. Nevertheless, I'm happy that my colleagues wear suits and ties at the office. I don't want them to send me vacation pictures from the beach, and I'll bet the feeling is mutual. Bluetooth, hopefully, will have much more valuable applications than this one. Say's Law may insist that supply creates its own demand, but not necessarily at a price that generates a positive return. Milo Minderbinder of
was highly productive in the creation of chocolate-covered cotton, but he couldn't get anyone to eat it.
I'll take it on faith that productivity miracles will persist, but I'll wait for proof about profitability miracles. After all, where are the cows' yachts? Some productivity miracles produce Gatesian profits and some produce poorhouse avoidance. I don't think that sort of divergence on the ground can last forever -- it's "unsustainable" -- but I don't know how long it can be sustained in the market.
touched 10,000 three times last week -- touched it as if it were a hot stove. Maybe 10,000 on the odometer means it's time to go in for a bit of routine maintenance. Lube, oil, filter, check the tires. The Dow is up by 30% since the October 1998 lows. Since that time, long bonds are up by 65 basis points in yield and two-year notes are 90 basis points higher. Consensus earnings expectations have been marked up from the gloom of last year to a high-single-digit best guess today, but 30% is quite a bit more than high single digits, especially against a background of a steeper yield curve. But with inflation exhibiting no sign of threatening behavior and with Chairman Greenspan in a mellow phase of his own productivity-perception cycle, it seems that a bit of routine maintenance is all that is called for at the present time.
Jim Griffin is the chief strategist at Aeltus Investment Management in Hartford, Conn. His commentary on the financial markets is based upon information thought to be reliable and is not meant as investment advice. Aeltus manages institutional investment accounts and acts as adviser to the Aetna Mutual Funds. While Griffin cannot provide investment advice or recommendations, he invites you to comment on his column at