Wall Street to 'the Maestro': Put a Sock in It

March 1, 2007 — -- 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.