Some might view a potential 2010 pull back in stock prices as an opportunity to buy quality U.S. companies cheaply.
Not Alan Greenspan. To him, cheaper stocks would be a disaster:
It’s important to remember that equity values, stock prices, are not just paper profits. They actually have a profoundly important impact on economic activity. And if stock prices start continuing down, I would get very concerned.
By his logic, stock prices should thus be supported in order to stimulate economic activity, which given his track record, isn’t a stretch to guess about the man’s thinking. Yet the quote above shows he was well-intentioned, at least, even if arguably wrong-headed with his easy-money policies.
Problem is, what if stock markets are simply an imperfect appraisal for what companies should be worth at any given moment? If markets are frequently wrong, then market declines aren’t something to be scared of. What would be more important, rather, is that the underlying economy, which markets merely appraise, can still grow over the long-term, sustainably. Mr. Greenspan makes it clears he never thought this way.