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CNN Live Today
Greenspan Speaks to Senate
Aired July 16, 2002 - 10:01 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LEON HARRIS, CNN ANCHOR: Lets get back to the markets and what we may expect in the wake of Alan Greenspans speech this morning before the Senate committee.
Lets go to our guru of Wall Street, Lou Dobbs, who was here just moments ago on the network and joining us for some insight into what we might expect to hear today. Lou, what is it youre going to be listening for?
LOU DOBBS, ANCHOR MONEYLINE: Well, one of the things obviously we are looking for is a sense from the Fed chairman as to his view on the quality of earnings that we are hearing from corporate America, being reported now and also and on the strength of this recovery.
The president eluding to a recovery that he sees as fully under way. Alan Greenspan previously the Fed chairman has said, as you know, that this economy, while it has challenges, is recovering somewhat more modestly than after previously significant slowdowns or even recessions if you prefer.
So thats what everyone is going to be listening for, but there is very little likelihood that were going to hear the Fed chairman say anything that will significantly move the markets today. One of the things, of course, that he could say would be that he is going to lower interest rates. That might create some considerable excitement, but it is very unlikely that he would choose this form in which to make that suggestion.
HARRIS: As Ive heard him speak in the past, I notice he really doesnt like to say things purposely that move the markets dramatically from where they are, right?
DOBBS: Absolutely. As a matter of fact, while he is trying, as he does every six months, fully inform the Congress of his views and positions and policies, he has to do so without tipping his hand one way or the other, as to his judgments on interest rates.
And one other thing that we are probably going to hear the Fed chairman talk about today will also be the strength of the dollar. Treasury Secretary Paul ONeill yesterday reiterating the strong dollar policy of this administration like those administrations before it, but, now with the dollar at parity, actually below parity with the euro and at about 115 Yen to the dollar, the dollars policy will probably be a subject of some discussion by the Fed chairman and certainly in the question and answer with the members of the Senate Banking Committee.
HARRIS: As I understand it, and you know this stuff a lot better than I do, the significance here with that fluctuation now with the dollar and euro, that pretty much is going to slow down any foreign investment in here which may be what many people are saying is going to be what is needed to turn this market around, correct?
DOBBS: Well, it is certainly one of the things, as you suggest, that would be very helpful to these markets and with the dollar challenged now, it makes dollar denominated assets less attractive for foreign investors, but they had been pulling money out of these markets here for the past year, year and a half or so.
The rate of investment has declined by about a third from overseas. So were probably in for some protracted period of less investment, less aggressive investment by foreigners in our capitol markets.
HARRIS: You see there, the Fed chairman about to be seated, and begin his remarks and I just want to call your attention to the viewers here, to the bug we have there on the screen, on the side, on the right, that shows you exactly what is happening with the markets.
And, as we started to show about four minutes ago, we noted that the Dow was down about 100 points, just about 109 at that time, and just in the last four minutes, the Dow has gone down now 148 points. That could be a quite significant barometer for what we expect to see happen in the markets today as we (inaudible).
HARRIS: And, while we are waiting for the Senators to make their opening remarks, here and the committee meeting before Chairman Greenspan begins his remarks, lets bring back in our Lou Dobbs. And Lou, Id like you to give me your insight of what you think is happening right now in the markets as we are sitting here. Weve watched the markets move downwards now.
DOBBS: Right.
HARRIS: Almost 90 points in the matter of the last eight minutes or so.
DOBBS: We are, as you know, in a period now of some extreme volatility. Yesterdays 400-point, almost 400-point of the Dow Jones Industrials setting the stage for what we are watching now. The markets are reacting not, of course, to anything that is happening in the Senate Banking Committee hearing, or the prospect of what they expect to hear from Alan Greenspan, the Fed chairman, but rather to an extraordinary number of negatives in this market right now.
Amongst those negatives, considerable doubt and mistrust of corporate financial reporting, considerable doubt and mistrust about the integrity of these markets, and the accounting and auditing functions that corporate America has been employing.
Fundamentally to this, though, is the issue of earnings. We have gone through five consecutive quarters of declining corporate earnings in this country and the market is simply trying to find a value here as it always does, and that value and that level will be determined by plain self-interest and the best judgments of those people investing in the markets.
And what you are looking on your screen in terms of those indexes is the judgment that stock prices remain overvalued. And indeed they are, historically. And, you know, I want it comment on Senator Phil Gramm lobbying the Fed chairman there. He referred to the Fed chairmans comments on energy derivatives.
I think it has to be pointed out that the energy derivatives, of course, would be very important to Senator Phil Gramm who is retiring, not seeking reelection, because his wife, Wendy Gramm sat on the board of Enron and Senator Gramm and his wife, Wendy, lost a lot of money as a result of her investments in Enron and of course, the overhang of that scandal and debacle and bankruptcy, the largest in corporate history, may have some influence on their future net worth as well.
So the Senator perhaps unintentionally talking about energy derivatives which is critical to the well-being of the Gramm family, as well as thousands of other people.
HARRIS: Thats a very interesting point. What do you make of the assessment of Alan Greenspan being the greatest central banker of the era, if not all time?
DOBBS: Well, Senator Graham has never been one given to constraint in either his praise or his criticism, but in this instance frankly, I cant disagree with him. Alan Greenspan, since taking over at the Fed in August of 1987, has done a remarkable job by any standard in managing monetary policy, in leading monetary policy, and he has done so in some of the most difficult and challenging of times.
The irony is that his predecessor, Paul Volcker, certainly would rank near him, if not number two, or Im sure, some people would contest what Im saying in terms of Alan Greenspan perhaps and Paul Volcker ahead of him, but frankly I think Alan Greenspan deserves immense credit for his stewardship of monetary policy in his tenure at the Fed as chairman.
HARRIS: You know what lets hold that thought for just a moment. Were going to move on and bring in another voice to this discussion this morning, as we wait for the Fed chairman to begin his remarks. Lets bring in our Bill Schneider, our political analyst. I believe Bill is in Washington this morning. There he is. Bill, good morning. Lets get your thoughts about what you might see happening here in the political arena here this morning.
BILL SCHNEIDER, CNN POLITICAL ANALYST: Well, first of all you know with all that praise being heaped on Alan Greenspan, I thought for a moment they might actually get him to smile, but so far I have not seen that happen.
Whats important about Alan Greenspan, of course, is he has more credibility in this administration on economic policy than anyone in Washington. If anyone has any impact on world markets, on the stock market, it would be Alan Greenspan. I would argue even more than President Bush. They listen to him.
Washington doesnt have control over markets. The idea that the president can go to Wall Street, give a speech and that will turn around the market that was unrealistic to begin with. Im not sure what people in the White House were thinking, but they knew that was going to be the test.
Alan Greenspan probably wont do that today. Washingtons impact on the stock market for the reasons Lou gave, the stock market obeys its own imperative. That has to do with profit and loss. It has to do with realities of the economy. It has to do with the business scandals and the news about that coming out and, what Washington does by and large has limited impact.
The one thing that usually makes a difference is interest rates, and thats why New York pays a lot of attention to Alan Greenspan and the Federal Reserve, but I dont think anyone is expecting him to make any kind of dramatic announcement today about a change in interest rate policy.
HARRIS: Lets bring Lou back in as well to weigh in on that, and Id like to get both of your thoughts on how much, if ever, politics ever plays into anything Alan Greenspan says when he testifies at moments like this.
DOBBS: Well, politics plays certainly one primary role in my opinion and that is that the Fed chairman does his level best to avoid serving up any statement or policy view that can be used as fodder for either party, Democrats or Republicans. It is one of the great difficulties of his job. Its one of the areas in which hes been, again, absolutely brilliant in avoiding partisan clashes and maintaining the favor and mighty respect of both parties.
SCHNEIDER: Well, theres one thing that he once said that had tremendous impact on the markets, on politics, the most famous thing he ever said. You know what it was, Leon. It was some years ago when he talked about irrational exuberance in the markets.
HARRIS: Yes.
SCHNEIDER: And that had a huge impact, so the thought occurred to me this morning, I wonder if hes going to use the phrase irrational despondency? That would be news.
DOBBS: The only thing is there, Bill, Leon, I dont think that Fed Chairman Greenspan thinks theres anything irrational about these markets at this time, and he made those comments, as you will recall, back in December of 1996, and after he tried to jawbone the markets by saying, talking about irrational exuberance, as you may recall, all that happened after that was the markets skyrocketed. In point of fact, the NASDAQ in 1999, three years after those comments, gained 85 percent on the year. Investors, Wall Street, and corporate America not paying much attention to the Fed chairmans admonitions.
SCHNEIDER: Yes. HARRIS: You know speaking of those numbers, Lou, have you ever seen anything like what happened yesterday? The market gained almost what 400, almost 500 points or so in a matter of less than an hour and a half?
DOBBS: Yes, we have seen it. There have been periods of volatility like this. The most volatile period, of course, being 1987, in which we had a stock market bubble as well. And, again, as I said at the outset, Leon, this kind of volatility represents a significant concern about valuations as well as prospects for stock prices, and were likely in for a longer and sustained period of volatility whether we are nearing a bottom, at a bottom, or not. This volatility is going to be with us for a while.
HARRIS: Do you have any idea, any opinion yet about where the bottom is?
DOBBS: No. No. One of the things that Ive learned over time is people who try to pick bottoms or tops must either have an absolute prescience thats not granted to mortals, certainly not to me, and people who try to pick bottoms are just, in terms of their investing, well theyre just abject tools.
People should be investing in what they consider to be quality companies with good prospects. Thats the challenge here. I think trying to pick a bottom, trying to guess where this market is going to go at this point is probably not productive, and certainly if one succeeds in making an accurate forecast, my hats off to them, but I certainly dont want to be amongst those trying.
HARRIS: Well, if you wont try, we certainly wont here. Lou Dobbs in New York. You stand by there.
DOBBS: You got it.
HARRIS: Bill Schneider in Washington, you do the same as well.
SCHNEIDER: OK.
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