Commentary: Alan Greenspan, The Bull

Feb. 16 -- Federal Reserve Chairman Alan Greenspan's wonderfully bullish testimony before the Senate Banking Committee earlier this week initially had the desired effect — stocks rallied.

A market that many analysts say is "oversold" — by which they appear to mean that it has gone down a lot since the Federal Open Market Committee rate cut on Jan. 31 — rose a bit.

Stock prices later drifted into the red after Greenspan didn't imply in his testimony that the Fed will cut interest rates any sooner than expected.

Fed Chief's Testimony

What did Greenspan say? He was more upbeat than ever about the U.S. economy, and by implication the stock market, than any Fed chairman I can recall. He almost sounded like a "New Era" Wall Street analyst pounding the table for a tech stock that has hit a bad patch and needs defending.

The basic message: Despite the slowdown, the U.S. economy is enjoying "one of these remarkable periods of technological advance" that will continue to boost labor productivity and noninflationary growth for a good long time, say, 10 years.

Here is one paragraph from the relevant New Era section of his testimony:

Although recent short-term business profits have softened considerably, most corporate managers appear not to have altered to any appreciable extent their long-standing optimism about the future returns from using new technology. A recent survey of purchasing managers suggests that the wave of new on-line business-to-business activities is far from cresting. Corporate managers more generally, rightly or wrongly, appear to remain remarkably sanguine about the potential for innovations to continue to enhance productivity and profits. At least this is what is gleaned from the projections of equity analysts, who, one must presume, obtain most of their insights from corporate managers. According to one prominent survey, the three- to five-year average earnings projections of more than a thousand analysts, though exhibiting some signs of diminishing in recent months, have generally held firm at a very high level. Such expectations, should they persist, bode well for continued strength in capital accumulation and sustained elevated growth of structural productivity over the longer term.