Greenspan's Prescient Call
I'm a huge Alan Greenspan fan. I think he really embodies what economics is all about: that reality rarely conforms to theory and predicting anything is a tricky business. That's why I was so surprised earlier in the week when I saw the headlines saying that Greeny had predicted a recession for this year.
On Tuesday, Greenspan appeared to be a latter-day Nostradamus as the market hit the skids in a big way and Dow components like Alcoa (NYSE: AA) and Exxon (NYSE: XOM) got whacked.
I think what all this really showed, though, was that people can no better decipher Greenspan's double-talk today than they could when he was the chairman of the Federal Reserve. I haven't been able to find a full text of the speech he gave, but piecing together the quotes I've seen in other publications, I have been able to get a pretty good idea of the gist of it.
It may be a bit of an oversimplification, but basically Greenspan was saying that recessions happen after periods of growth, and since we've been in a long period of growth, there's going to be a correctionary period ahead for us. He said it could happen this year, but it wasn't probable. It's not even clear what he was referring to when he said "recession" -- economists have used the word to describe periods of economic slowdown, as well as stretches when GDP actually declines.
In the end, Alan Greenspan continues to be the Confucius of economics -- he is a great source of universal economic truths, but his statements can rarely be taken at face value. So next time you read something from Greeny, sit on it and let it sink in for a while before assuming that he meant what it appears he said. After all, my favorite Greenspan quote is:
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said."
Fool contributor Matt Koppenheffer is currently looking for a good Greenspan poster to hang over his bed. He owns no stocks mentioned in this article. The Fool's disclosure policy says "everything has its beauty, but not everyone sees it."