Greenspan: “Demand As Weak As During The Depression”

February 26, 2015 0 Comments

This is interesting news, as we approach tomorrow third GDP revision for the Q4. Personal consumption expenditures increased greater than expected, as it was originally predicted that the boost from the gasoline tax cut would boost PCE in Q1 2015. Despite gains in consumer spending, the economy fails to make significant gains in GDP.

Fed Chairman Alan Greenspan also believes that US economic growth isn’t as strong as Yellen lets on. I don’t believe he is alone in this sentiment. I previously discussed how Janet Yellen has no plans on raising rates anytime soon, mostly due to the ‘data-dependent’ factors  she is relying upon. Also, you may notice that the yields on the 10 year treasury are falling; however, the marketplace in anticipating that the Federal Reserve will raise interest rates, which are bad for bond prices. This is an indication of how weak the American economy is.

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Alan Greenspan even mentioned something I’ve been writing about for a couple of weeks: weak productivity growth. Whereas I believe the squeeze in productivity will ultimately result in a downward trend in unemployment, Greenspan seems to believe that the productivity is the result of a crowding out in investment capital.

Alan Greenspan: “One which has worked and is working is the significant increase in the amount of purchases of securities on the balance sheet, not to induce lending on the part of the private sector, but to push rates down.”

This has resulted in rising P/E and capitalization ratios. So, as mentioned before, either Corporate America is going to have to justify their trading multiples at the expense of employment gains or Corporations are going to have to find a way to increase their earnings.

More of Greenspan’s interview on ‘Closing Bell:’

“The stock market is great; however, the economy is not.” Words that have fallen upon deaf ears…

 

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