Looking for a Cause for Thursday's Sell-off? Blame Greenspan

We had a real chance to complete a third wave up Thursday in the S&P 500, the Nasdaq, and the Dow. So what stopped that move dead in its track? Was it the lower than expected GDP, was it the higher than expected job claims, or was it the impulsive move oil made Wednesday?

Actually, it was none of these. Sure we gapped down yesterday morning on the GDP and jobs reports, but then the indices rebounded and climbed throughout the day.

In my blog post Wednesday I cautioned that the S&P and Naz would meet resistance at their respective 50-Day exponential moving averages [EMA]. And at least for the Naz, the 50-Day EMA appeared to be a real drag. The S&P and Dow however, simply fell short and could move above previous session highs. None of the indices could muster the strength, or the conviction when it came down to it.

Apple (AAPL) behaved in a similar manner, virtually mirroring the indices behavior. AAPL gapped down, just like the indices, rose to previous session highs, and then hung there for most of the day.

So what brought us down? Was it the GDP, the jobs report? It certainly wasn’t oil, which acted like a normal stock yesterday, subject to the same lemming-like behavior.

So what was it that broke us down late in the session? How about our friend, that lovable Mr. Magoo? That’s right, the former Fed chairman Alan Greenspan went on CNBC, grabbing the spotlight again, and proclaiming that the mortgage crisis wasn’t over, that the global slowdown is increasing our chances of recession, that the worst is not over. WTF? As soon as he finished his diatribe, the markets fell.

Why this guy is still given any airtime is beyond me, he’s lost all credibility! He’s the one that got us into this mess in the first place! Who is he to dictate the direction of our economy with his insidious lip flapping? Man, retire already, go home and play tennis with Andrea, take a cruise, something, just stay off the television! Enough is enough! Ok, I’m alright…I need a drink!

Disclosure: Long AAPL

Comments

[Vox Rationalis:]

"[Greenspan's] the one that got us into this mess in the first place!"

Really? How exactly? Did he make bad loans? Did he try to buy billions of dollars of property he couldn't afford? The Fed under Greenspan kept certain short-term interest rates low, and did so because it was (appropriately) concerned primarily with conducting as accommodating a monetary policy as possible without allowing inflation to creep up.

That market actors then made poor decisions is not the Fed's fault.

Now let's look at what you're complaining about in his words. Greenspan said "the mortgage crisis wasn’t over, that the global slowdown is increasing our chances of recession, that the worst is not over."

Do you disagree with ANY of this?

2008 Aug 01 08:26 AM

[redbaron:]

What Detector said!

2008 Aug 01 08:37 AM

[kmanm:]

Wallstreet listens to Greenspan because he has knowledge and he is probably one of the few people who can actually understand what kind of mess we are in.

May be CNBC should give you airtime for your "analysis" instead of Greenspan who is by far probably one of the smartest economist around.

2008 Aug 01 09:03 AM

[2snazzy:]

Yes, Greenspan pushed low interest rates as a cure for a sagging economy after 9/11. It was like pushing booze to a chronic alcoholic. The real culprits in this sorry saga were the mortgage sharks who saw an opportunity to take advantage of a rising real estate market, and more importantly a Republican majority house and senate who continued to legislate in favor of "Big Business" by refusing to enact the controls that were just placed on the mortgage industry. The motto of the party in power is "What is good for Big Business is good for the country." The truth is that capitalism does not have a conscience, and if you let Big Business run without any checks or regulations, you will get abuses, and we did. Now we're paying for the abuses. Maybe Greenspan should have been smart enough to see the results of his cheap money policies, but ultimately the mortgage industry should have been regulated long ago, and our good friends in the Republican led Congress were drunk on power and rich on the funds being provided by the Big Business lobbyists.

2008 Aug 01 09:15 AM

[chiller:]

Greenspan could have been more stern with the banks because he knew we were heading into a bubble. It was his policy to let the bubble run its course that got us here. Now the bubble is too big and wide spread for us to have a quick recovery. Thats really bad judgement on his part.

2008 Aug 01 09:27 AM

[sleiii:]

Talk about lip-flapping diatribes--this is about as loose a cannon as it gets.

2008 Aug 01 09:29 AM

[tom1234:]

i could not agree with you more---i have attorneys that when asked how do you think we will do-- answer --we got a 50/50 chance --which is like kissing one's sister there is nothing in the responce---greenspan would do everyone a great service by saying nothing ---in fact when he did make his reports --everyone would respond "what did he say" he was-- never clear --and that is what should be put on his tomb stone

2008 Aug 01 09:44 AM

[taojones:]

Greenspan had to deal with an administration that was hell bent on looting the treasury and lining their pockets for decades to come. I remember the blank stares from the senators when greenspan explained that the surplus that the clintons had left behind could not simply be returned to the bond holders(to reduce the national debt) because most were bearer bonds and with out offering incentives to offset the tax advantages we just did not know who(as a group) they are. thats why we all got that first 600 dollar check the government by law could not keep the money.He is a guy who see what is going on in a world of class "C" dunderheads but he should realize that pointing out that the emperor is naked will have consequences

2008 Aug 01 09:49 AM

[Shorting Sh...:]

We needed Greenspan to state the obvious?
In any event, he has had him time in the spotlight and he should refrain from the rhetoric. The "irrational exuberance" in the mortgage and housing markets was a direct result of his excessively low interest rate regime.

2008 Aug 01 09:51 AM

[Toni +:]

Is this rant an article ?

2008 Aug 01 10:57 AM

[User 143167:]

Did Greenspan actually the chance of recession is just "increased"? Wow, I am really surprised.
Wake up, you guys, the US has been in a recession over half a year already.

2008 Aug 01 10:58 AM

[20smoney:]

I disagree with this. And, if you are so confident in our system/markets, you should be happy that Greenspan caused the markets to fall because then you can get into some stocks at a cheaper price.

why are you so worked up over a single day's performance? If Greenspan is completely wrong, then the day's losses will be evaporated big time eventually anyways.

Why in the world does a single day's drop based on one man's comments warrant an article on Seeking Alpha?

2008 Aug 01 01:12 PM

[Dar Kangel:]

Actually taojones, Greenspan was very enthusiastic to spend the
surplus in tax cuts for his republican buddies. Remember he is a liberterian/republican and Ayn Rand disciple (greed is good). He loves corporate welfare, as he loves their back rubs when he is out of office. Even other big money honchos, like RUbin warned him not to support the tax cuts. Greenspans logic was we had too much surplus, and he was worried there won't be debt left. I kid you not, his own words, read his book!

Also, theres the issue of his "froth", which has become one big giant bubble now. This guy is a disaster to others, and a true friend to some big corporations.

2008 Aug 01 01:51 PM

[Tom Lutzenb...:]

I think the big boogy monster in all of this is that the general population is quite willing to enjoy the antics of investing and institutional investors when everybody is making money, but when the house of cards falls down, as it does every cycle, then everybody looks for a scapegoat. Greenspan did rights and wrongs like anybody else in a leadership position, and he had the uncanny ability to take tomes of government data and crunch them down to their essential meaning. His style of speaking "nothing" or fedspeak was simply being cognizant to the fact that institutional investors were so wired after the great fall in 1989 to jitter on anything, that he would not let himself be the cause of avoidable panics. Sounds pretty downright smart to me.

And who was he to be able to stop a free market from bubbling? All he controlled was the rate at which currency exchanged between banks. It was the banks, the lenders, the borrowers and the investors that ginned this whole house of cards up to where it got to. And while we all made money we all were in agreement. Good job, keep doing whatever you're doing. Bravo.

Until it crashes. Then we need a scapegoat.

2008 Aug 01 07:37 PM

[LeOracle:]

It is still the Fed's fault under Greenspan because the Fed didn't have the proper controls to reign in predatory lending under their super low interest rates of 1% or so levels and none to control overextension of investment/commercial banks. They are bright enough to have at least hypothesized that those two events could go wrong along with a possible housing bubble (which they still did nothing to control while it was becoming apparent) under their historically low rates. Yes, I wish magoo would get off the air for good, but lets face it, it's the market that values his words and that is why he moves markets, only time will fade his influence, until then, we'll have to deal with him. On a side note, maybe the Fed should adopt a law that does not allow former chairmen to comment on the economy, markets etc for at least five years after their appointment ends...

2008 Aug 02 07:40 AM

[JHancock:]

"Until it crashes. Then we need a scapegoat."

scapegoat? The people responsible for regulating (that term is used losely) our economy basically did little or nothing to regulate the criminals. It was all ideology all the time. That includes Mr. Greenspan as well as the Congress.

Just make the numbers look good so bush could be re-elected. That was Greenspan's main job. Now he is full of warnings. Where was he years ago when all this was going like gangbusters. Now its all just busted.

2008 Aug 02 10:07 AM

[chinooking:]

somebody throw a couple of salt licks in Greenspan's pasture to keep that old fool occupied in his retirement

2008 Aug 02 11:15 AM

[mollytjm:]

greenspan said nothing new and nothing we didn't already know and nothing Warren Buffet isn't saying every 5 minutes. there's just a herd mentality among investors that's hard to fathom, because it's like trying to explain why the cows went off the cliff when there are 5000 of them and only one skinny guy on a horse.
it's just incredible ignorance. since this is an Apple site, i'll use Apple as an example. here's a great company, meets all the qualifications for a long term investment, is $ sound, secure, innovative and steadily rising, as a company. it obviously sells even into a poor global economy. so what's going on? investors (and i use that term loosely!) look at moving averages, how the stock performed, its highs, its lows, etc. ...and they miss the real assessment... what about the company?! is it fiscally sound, profitable and careful? does it have a 'moat'? does it expand with innovation and good customer service? are it's products good? questions like these aren't even asked by a lot of investors.
certainly they weren't asked by people who invested in financial stocks.
so when you have people basing their investments on 'data' that is just about the stock and not about the actual business or company, it's a pretty risky situation and means that those people will react to just about anything, even one skinny guy on a horse... or, in this case, on t.v.

2008 Aug 02 11:30 AM

[Fedman:]

It was all a question of pay me now or pay me later. If Greenspan had not drop the rate so low for so long, and if regulators had clamped down on shady lending practices, the party would have come to a halt in 2004 and everyone would hate the Government/Fed for spoiling the fun. Now, letting the banks and lenders "manage their risks" and the "experts" invest in CDOs and AAA rated securities we see that the free market isn't perfect. The party just ended later, with a bigger hangover, but at least no one's blaming the regulators for doing to good a job. Now when rates are jacked up, or aggressive lending practices are quashed, there will be very little complaining.

Greenspan took a gamble that by keeping the good times going a little longer, another catalyst might come along and bail us out, other than consumer spending. It didn't happen.

2008 Aug 02 12:47 PM

[JOSEPH FOSTER:]

ALL THE FINGER POINTING AT GREENSPAN AND OTHERS WILL NOT HELP.
I HAVE BEEN A REAL ESTATE INVESTOR FOR MANY YEARS AND NEVER LOST A DIME SINCE I ALWAYS GET OUT BEFORE THE BUBBLE BUST,
YOU SEE SIGNS THAT TELLS YOU TIME TO GET OUT, JUST AS I DID BEFORE THE NSDQ COLLAPSED.
WHEN I HEARD THE ANAYLIST PRIOR TO THE CRASH PREDICTING
THAT THE DOW IS GOING TO 20,000 THAT MADE ME SELL ALL OF MY EQUITIES 6 MONTHS BEFORE THE CRASH.
STOCKS ARE A LICENSE GIVEN TO COMPANIES TO PRINT PAPER MONEY. THEY ISSUE MORE AND MORE AND REWARD THEIR INVESTORS BY GIVING TWO FOR ONE ALL PAPER NO SUBSTANCE.
BIGGEST FRAUD OF THE CAPITALIST SYSTEM TO CORRECT THE FRAUD. COMPANIES SHOULD BE REQUIRED BY LAW WHEN THEY ARE MAKING HUGH PROFIT TO REWARD THEIR INVESTORS WITH CASH AND NOT MORE PAPER STOCKS

AS TO REAL ESTATE I BLAME THE BANKS AND THE APPRAISAL SYSTEM.
HOW COULD A BANK MAKE A LOAN TO THE SECOND BUYER WHEN
THE FIRST BUYER BOUGHT THE HOME FOR $300,000 ONE YEAR LATER IS SELLING THE HOME TO THE NEXT FOOL FOR $400,000
THAT SECOND BUYER IS NOW HOPING THAT HE WILL SELL THE HOME FOR $500.000 THIS PROCESS CONTINUED AND THE BANKS,
LOAN BROKERS, REAL ESTATE AGENTS WERE LAUGHING ALL THE WAY TO THE BANK.
BUILDERS USE TO SELL HOMES ON A COST PLUS BASIS, THEY DISCONTINUED THIS PRATICE AND STARTED PRICING HOMES BASED ON THE MARKET INFLATED PRICES.
I BOUGHT MANY INVESTMENT PROPERTIES FROM BUILDERS WHEN THEY WERE PRICED ON COST PLUS BASIS IN THE US AND UK,
WHEN I IMMEDIATELY NOTICED THE SHIFT FROM COST PLUS TO MARKET PRICE AND DISCONTINUED BUYING.
AFTER THE CORRECTION BY 2010 ANOTHER 6 OR 7 YEARS THE SAME PROCESS WHICH LEAD US TO THIS DISASTER WILL REPEAT IT SELF.
JOSEPH FOSTE UK AND USA.

2008 Aug 02 01:45 PM

[zhandax:]

Are these comments or paid announcements?

2008 Aug 03 05:29 AM

[FWallace:]

Joseph Foster...

I agree with your post, you are spot on, in-my-humble-opinion.....

If only I'd acted on my suspicion (which are the same as yours) I'd be laughing all the way to the Bank as well... instead I've been crying and whining for the past 8 months......

As you've mentioned: The real estate/stock market/bubble cycle will again repeat itself within the next few years, I will be ready!!!

2008 Aug 03 10:07 AM

[jmmx:]

@ Joseph Foster

Please don't SHOUT! It makes it hard to read so people skip over it.

2008 Aug 04 09:23 AM

[jmmx:]

The mortgage crisis - brought on by the Republican administration allowing banks to go wild - is one major part of it.

The other is the DEFICIT!! Cme on now - where are all you conservatives??? The deficit is taking money out of the economy, cutting the value of the dollar and thus driving up the price of oil.

Not to mention the fact that we are becoming more and more indebted to China which is a country with which we have serious philosophical issues.

2008 Aug 04 09:28 AM