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Greenspan Forecasts Recession (Market Expected to Rally)

Posted By Barry Ritholtz On February 26, 2007 @ 6:49 am In Economy,Federal Reserve,Psychology | Comments Disabled

Uh-oh: I read something today that all but pushed me into the Bullish camp, nearly cancelled my recession forecast, and almost made me revise my market prediction to Dow 16,000: Former Federal Reserve Chair Alan Greenspan
warned that the U.S. economy might slip into recession by
the end of the year.

While we can disagree as to how good a Fed Chair Easy Al was — he had a number of notable successes, i.e., LTCM and post Asian Contagion — IMO he was too much like a bartender whose answer to nearly any problem was to pour another one.

However, there is little disagreement that economic forecasting was not his forté. We have noted in the past numerous examples of his lack of forecasting acumen [1].

That said, here is his economic commentary from this  morn:

"Mr. Greenspan said the U.S. economy has been expanding
since 2001 and that there are signs the current economic cycle is
coming to an end. "When you get this far away from a recession,
invariably forces build up for the next recession, and indeed we are
beginning to see that sign, for example in the U.S., profit margins …
have begun to stabilize, which is an early sign we are in the later
stages of a cycle," he said. "While, yes, it is possible we can get a
recession in the latter months of 2007, most forecasters are not making
that judgment and indeed are projecting forward into 2008 … with some

Mr. Greenspan said that while it would be "very
precarious" to try to forecast that far into the future, he couldn’t
rule out the possibility of a recession late this year. He said he has
seen no economic spillover effects from the slowdown in the U.S.
housing market, and added that the global economy seems "benign and

"We are now well into the contraction period and so
far we have not had any major, significant spillover effects on the
American economy from the contraction in housing," Mr. Greenspan said.

U.S. housing starts are down "quite sharply," he said,
which is "implicitly creating a reduction in the very high inventories
of new unsold homes."

Its enough to make you want to buy SPX futures . . .


UPDATE: March 4, 2007, 9:42am

In today’s NYT, Dan Gross has a column about the forecasting record of the Maestro and other dismal scientists:

"Indeed. No disrespect to Mr. Greenspan, but neither he nor the similarly numerate members of his professional fraternity have a particularly good record of forecasting recessions. As Yoram K. Bauman, an economist who teaches at the University of Washington and performs stand-up comedy, summed up an often-used line: “Macroeconomists have successfully predicted nine of the last five recessions.”

-The Forecast for the Forecasters Is Dismal [2]   
Dan Gross
NYT, March 4, 2007, 9:42am



Greenspan Warns of Possible Recession [3]
February 26, 2007 5:37 a.m.

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2007/02/greenspan-forecasts-recession-market-expected-to-rally/

URLs in this post:

[1] lack of forecasting acumen: http://bigpicture.typepad.com/comments/2004/10/new_column_up_a_1.html

[2] The Forecast for the Forecasters Is Dismal: http://www.nytimes.com/2007/03/04/business/yourmoney/04view.html?ex=1330664400&en=952ed7c8658a2f1d&ei=5090&partner=rssuserland&emc=rss

[3] Greenspan Warns of Possible Recession: http://online.wsj.com/article/SB117248024161519153.html

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