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Alan Greenspan: Stocks and Bonds Are in A Bubble!
Alan Greenspan, the former Chairman of the Federal Reserve, said to Bloomberg that “We have a stock market bubble [..[ and a bond market bubble.” Greenspan coined the term “irrational exuberance” to describe asset values during the 1990s’ dot com bubble, and the term may very well be appropriate today as well. Despite the recent 10% sell-off of stocks, stock markets remain close to record highs while yields on government notes and bonds approach record lows. Meanwhile, the Federal reserve wants to gradually tighten the monetary policy, so interest rates are expected to increase, as we wrote about in a recent article. Greenspan addresses this issue by saying: “As real interest rates rise, it’s inevitable that the effect on equity prices is negative” Greenspan comments that the bond market bubble will eventually be the critical issue, but that, for the short term, “it’s not too bad.” He continues, “But we’re working, obviously, toward a major increase in long-term interest rates, and that has a very important impact […] on the whole structure of the economy.”