I've got to get a copy of
Weekend at Bernie's
wisecrack two weeks ago in a scrum among the Republican presidential aspirants broke me up. He referred to that film in saying that not only would he reappoint
chairmanship, but if he were to die in office, "I'd prop him up in a chair and put a pair of dark glasses on him." In my cultural backwardness, I missed the movie, but I get the picture. Say, Senator, did you like
Waking Ned Devine
Wasn't it almost a year ago that a major news weekly ran a cover portrait of Greenspan, backed up by
, as the savior of the global economy?
has lost Rubin to
and Summers doesn't quite fill his shoes, in the eyes of the Street, because he comes not from there but from some college in Cambridge. But we have Greenspan, alive or dead, as a bulwark of the bull market and an amulet against austerity.
Well, him or whomever -- somebody's on the job. Maybe Santa. This market just keeps climbing, ever higher, ever more narrowly and complacently, and in ever more casual disregard for the concerns expressed in the bond market. All sorts of once-trusty technical and valuation guideposts have been flashing warnings for months, nay, years, but the market keeps climbing.
No, let me be careful here. Some parts of the market keep on climbing. What we seem to have is a sort of valuation ziggurat. I'll save you a trip to the
Funk and Wagnall's
. A ziggurat is a "lofty Mesopotamian temple tower" built up of successively smaller stages until the result looks like a ragged edged pyramid. They don't build 'em like that anymore in Mesopotamia, as far as I know, but we have a dandy one climbing skyward on Wall Street.
You hear more or less serious arguments these days that earnings don't count, that interest rates are irrelevant, that the macro backdrop is a distraction. Otherwise erudite observers use the phrase "melt-up" in their analyses. Melt-up? It can't be a well thought-out market if it is represented by so unlikely an image. Millennial melt-up. What is that? I picture a hot fudge ziggurat.
The valuation ziggurat is built in stages, like the mud and wattles versions from the banks of the Euphrates. You lay a base of basic materials and energy, good solid stuff that you can touch and feel and then run to wash your hands. You can value these businesses against earnings or reserves and feel you have a good handle on what they're worth. You don't want to overpay -- that is one of the few unpardonable sins in investment.
But if money keeps coming in and you find you can bid more for these stocks, you don't. You move up and build another stage, maybe basic industries like cars and trucks, or tires, where perhaps a little bit of sex appeal can be added to differentiate the product and justify higher valuations. Likewise, as money keeps pouring in, for successive stages such as consumer staples, or media, or healthcare. You don't want to overpay for these any more than for sludge pumped from the decayed matter of a thousand millennia ago. So when the liquidity keeps sluicing in, you move up to the next higher valuation stage, where it can justifiably be put to work.
Until we get to the rarified reaches of techs and telcos. It's not easy to tell what they're worth because the businesses are moving so fast, the barriers to entry are so uneven, and the technology is shape-shifting like an ancient curse. You can pay a lot and not be accused of paying too much; who can say? These businesses may not have earnings, but you can value them as a multiple of fast-growing sales. Maybe, someday, that revenue will throw off something for the shareholders.
And at the very top of the ziggurat, like a spire on a Kuala Lumpur tower, are the IPO valuations. These opportunities are great ideas, and little more. You can't reliably value them against sales, because some of these opportunities don't have any yet. But what are you going to do with the liquidity you hold? Surely you're not fool enough to drop down the ziggurat and overpay for the easier-to-value but already-fully-priced sectors below. So growth, which we can take on faith, trumps value, which we can't.
Some investors caught on to this process quicker than others, but many more seem to be getting it now. The market is narrow because nobody wants to play in the dark, airless lower reaches of the valuation ziggurat. The move now is to pull money out of the base and put it to work higher up, closer to the angels. We can build a sleeker, loftier ziggurat in this way. As long as the money keeps pouring in, the relatively rigid valuation parameters will be sacrificed to the more ethereal.
At the top of the step-back pyramids of Mesopotamia were shrines, perhaps religious, placed there in worship of gods or goddesses. There is little doubt about whose visage will grace the pinnacle of Wall Street's millennial ziggurat. Alan Greenspan has allowed the liquidity to keep pouring in, the liquidity that trumps all pre-existing valuation parameters and licenses new paradigms in assessing worth.
His forbearance has proven wise so far. His tenure has produced spectacular economic results, in growth, inflation, jobs, profits, investment spending and general good feeling. Market returns have been good for most and astronomical for some. He's not alone in responsibility for these outcomes; we can thank Japan Inc. and the
, as well as the pragmatism of the U.S. public. But he has been at the very center of the successes so far.
A key has been his wisdom in interpreting feedback information: Evidences of excess that might have caused another central banker to bring down the curtain have not dissuaded him. Like the quickest among the investors who have climbed the valuation ziggurat, he seems to have had a view of the future that has persuaded him to transcend the limits of past norms.
But his term in office is up in June and it's not perfectly clear that he'll want to be reappointed. And he is, anyway, not immortal -- and John McCain is no shoo-in.
Prop him up and put a pair of dark glasses on him. McCain's wit reminded me that newspapers maintain obituaries in progress on prominent figures.
all have copy ready to go should Greenspan be called to the celestial open-market meeting. It's not hard to imagine where those obits stand right now -- glorification would be a pretty good descriptor.
But here's hoping Alan Greenspan has a long, healthy, happy life still ahead. What will the obit say in the distant future when publication date is at hand? (You know you will one day have to face your maker, right? But you may have forgotten your date with the obit editor. Live righteously, because it's a matter of nobody's faith that editors are merciful.)
If this market keeps going as it's going now, it may read: "A.G., First to Build a Pyramid Upside Down."
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