When I turned the front page of Friday's Wall Street Journal to read David Wessel's take on Alan Greenspan's testimony, my eye was drawn to the display ad on the opposite page. Lease a Bentley Arnage for only $2,494 per month for 24 months with a down payment of only $27,500. That seems like a good deal on a $200,000 car. I hope my wife and I can agree on a color because, well, two of these would seem ostentatious, don't you think? The ad didn't mention chauffeurs -- at that price it's probably a self-drive -- but I'll bet there are superior cup holders.
What is going on here when a maker of automobiles designed for barons, robber or otherwise, chooses to troll for business in the pages of a mass-circulation newspaper? Can times be so tough for the rich that their purveyors are forced to go down-market to cater to the merely affluent? Or is today's affluence so steroidally enhanced that two hundred large is a manageable consideration for decent transportation?
And while you're taking questions from me, explain once again, please, about price stability. And please go back over the notes on the many implications of our current imbalance of imports against exports. (British car, don't you know?) And the problem of getting good help these days, reliable men or women with drivers' licenses. Oh, and why did my old textbooks declare that tax cuts were for hard times and tax hikes were for good? Will tax cuts mix felicitously with steady monetary policy in the face of an even larger trade deficit when the Joneses try to keep up with my new car?
Excuse me. I'm getting testy. I had to read every word of
Greenspan's latest and I'm getting tired of the drill. I mean, you have to scrutinize his every nuance, right? Everybody in this particular guild pores over his serial texts with medieval dedication. But I picture him and his cronies sitting around a big table, drafting these things and laughing uproariously. "Let's put this in -- it'll drive them nuts!"
I'm beginning to long for the days when the
was inscrutable. At least there was some dignity in trying to find someone who was trying to hide. But today's operating style is more open; the Fed tells us, all of us, pretty much exactly what they're about. I'll summarize Greenspan's latest this way: "We're not sure what's going on, so we can't tell just what we're likely to do next, but when we get it figured out, you -- all of you -- will be among the first to know."
Back to the job. He put a lot of emphasis on the tightness of labor markets and the likelihood that still tighter markets might lead to upward pressures on costs and prices. So our markets are going to be extra jumpy whenever publication dates approach for the monthly employment report or the quarterly employment cost index. He restated that it is "useful to pre-empt forces of imbalance before they threaten economic stability." In fact, his restatement was virtually word-for-word what he used in his June 17 testimony before the Joint Economic Committee. That seems like a clue. "When we can be pre-emptive, we should be."
He then went on to explain that pre-emption can work in either direction, up or down, and mentioned the tightenings in the spring of 1994 in the same breath with the easings during the fall of last year. That seems to equate the two. I read it as a warning that future actions may be more "forceful" than the most recent one. Then he said, "In the face of uncertainty, the Federal Reserve at times has been willing to move policy based on an assessment that risks to the outlook were disproportionately skewed in one direction or the other, rather than on a firm conviction that, absent action, the economy would develop imbalances." His text downloaded at eight pages and I saw nary a syllable about the risks of recession or deflation, so I infer that he perceives a distinct skewness right now.
He ruminated once again on what I've come to think of as his second derivative questions. Will productivity growth do more than just maintain its pace -- will it accelerate? Will earnings outpace even the substantially marked-up expectations of a thousand securities analysts? Will emerging conditions justify price-to-earnings multiples that are still higher than today's historic levels? These are the chin-scratchers that trouble the world's maximum banker.
Perhaps they can be restated this way: It's not just whether business conditions are improving faster, but how fast they are improving faster. If productivity keeps on improving faster
, we'll be OK, but if not, the system may overheat.
Under a subhead of Other Considerations, Greenspan mentioned "a significant shortfall" in domestic private saving and the offset of "a major shift of the federal budget to surplus." He squared the circle, as a good Flow of Funds man would, by noting "a sizable increase in saving invested from abroad" and worried out loud that, as U.S. international indebtedness mounts, such inflows "may be difficult to sustain." "Any resulting decline in demand for dollar assets could well be associated with higher market interest rates, unless domestic saving rebounds." That is, unless domestic demand fades sufficiently -- the slowdown always just around the corner -- or the federal budget surplus gets large enough.
don't seem to share his concern. The
last week approved a 10-year $792 billion tax reduction. The Democrats think something less than half of that makes sense. The difference is over what sort of tax cuts make good social, or political, or ideological sense, not whether tax cuts in current conditions are good stabilization policy.
The dollar, by the way, had a tough week last week, falling by more than 3% against both euro and yen. It took a hit on evidence that investors, whether Japanese or otherwise, seem to be moving money back into Japan. A rising currency is not in the best interests of Japan's fledgling recovery, but that country has a lot of reserves, currently invested in
, to shovel against that tide. Think about that. The euro bounced as it approached par against the dollar. It may be nothing more than a failed attempt at breaching that psychologically potent level, but the euro also derives support from an improving perception of Euroland economic conditions and talk of a tightening bias on the part of the ECB.
If you, like me, are growing weary of the cult of personality that has grown around Alan Greenspan and of the constant def-con-three Fed-watch it forces upon us all, then consider this alternative: We could attend less anxiously on his every utterance and pay more attention to what the dollar/yen and dollar/euro markets do.
These markets reflect the changing perceptions of a banker even more influential than the Fed chairman is. When that banker, the great collective global asset allocator, decides to reduce or withdraw funding from the United States, the Fed will be forced into the position of reacting to it. Said differently, under current conditions of global imbalance, the Fed is no longer the sole first cause in all the metaphysics of U.S. markets. When global markets call our notes, the Fed -- like the rest of us -- will be forced to adjust.
I read this testimony as beyond hawkish; relative to expectations, it bordered on harsh. But I perceive that I'm an outlier on this. The Wall Streeters who cover us seem much more tepid in their reaction -- which I must admit I see as "wishing it were not so." I can't see how Greenspan can carry a small stick and talk of pre-emption, of skewness of risk and of acting "promptly and forcefully." He plays fast and loose with his cult of personality if he does.
Meanwhile, I suggest you consider carefully this exceptional opportunity to lease or purchase a Bentley while the dollar is strong and markets are receptive. It seems good value at $203,800, to put a precise figure on it. But if the dollar fades, these sorts of imported bagatelles might become quite pricey. In my conservatism, I've decided against getting two. I'll lease just one -- for my wife -- and then sit in the back. If I can get away with it.
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