Was it the slide on the Shanghai market? Was it worries about an anemic U.S. economy? Or, was it Alan Greenspan's big mouth?
Stocks are slowly inching back up after a precipitous drop earlier in the week, but investors are still skittish and unclear about what exactly caused the declines on the U.S. markets. Markets took a dive after China's benchmark Shanghai stock index suffered a 9 percent drop in Tuesday trading, spurring a global sell-off. U.S. markets were still lagging at the close today, with the Dow's blue chip index down about 400 points, or 3.2 percent, from its closing level Monday.
The mild recovery isn't calming investors' nerves, even with reassuring remarks made by Federal Reserve Board Chairman Ben Bernanke in testimony to Congress Wednesday.
So what must Bernanke think of Greenspan, his predecessor, who may have roiled markets in the first place with an offhand comment about the possibility of a recession? Greenspan was quoted as saying a recession was possible, hedging the remark, however, by adding that it's difficult to predict the timing. He tried his somewhat gloomy prognosticating today, telling a Tokyo seminar that he does not think an economic slowdown in this country is "probable," toning down his earlier warning over a recession later this year.
Some economists think perhaps it would be best if Greenspan, in a word, relaxed.
Brian Bethune, chief U.S. economist for Global Insight, an economic forecaster, said if Greenspan's going to go give talks he should stay off the topic of forecasting the U.S. economy. "Whenever he gets that urge he should probably grab his golf clubs and take it out on a small white ball instead of saying something that could create a problem for the markets," Bethune said.
"Bernanke already has enough problems to worry about without Greenspan coming in and making it even more complicated," he added.
T. J. Marta, economic strategist for RBC Capital Markets, said the incident underscores the fact that Greenspan has to learn to live with the realization that every word he said still moves the market. "When he's not speaking publicly there's a great opportunity for people to cherry pick his words," Marta said. "For the average investor this is dangerous. It can provide unwarranted market volatility, so he needs to be more careful about how he communicates," Marta said.
But not everyone thinks Greenspan should stay out of it. John Lonski, chief economist at Moody's Investors Service, said it would be damaging to investor confidence if Greenspan were to keep quiet for the purpose of minimizing market volatility. "We need as many opinions as possible in order to best ascertain the state of fundamentals of all the people who might have an opinion on volatility," Lonski said.
He added that Greenspan's views deservedly carry a good deal of weight and that's exactly why he should speak up. "The average investor has to be aware of the difference in their views. The fact that Bernanke is more optimistic [than Greenspan] points to the investor there is no one out there that can state where the market's going to be."
The bottom line is it's a sticky situation. Greenspan's a public figure, like it or not, and he's a very powerful man. "He's one of the top five most visibly powerful people in the world so the claim that he's a free man and can say whatever he wants doesn't hold water," said Marta. "He's always going to be the maestro."