"The human race has never found a way to confront bubbles," said former Federal Reserve Chairman Alan Greenspan commenting on the wild ride we are having in the markets right now.
"The behavior in what we are observing in the markets in last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987, I suspect what we saw in the land-boom collapse of 1837 and certainly the bank panic of 1907," Greenspan said.
Greenspan was the Fed chairman from 1987 to 2005 and is now a private consultant. He was referring to the stock market crash of 1987, and the ensuing fallout, and the implosion of Long-Term Capital Management, a hedge fund operated by a group of Novel laureates who apparently didn't know as much about the capital markets and about financial derivatives as they thought.
According to Greenspan, business expansions are driven by euphoria and contractions by fear. "In human nature," Greenspan said, "euphoria takes over when the economy has been on the rise for a couple of years, fostering bubbles, and these bubbles cannot be defused until the fever breaks." Said Greenspan: "The human race has never found a way to confront bubbles."
It's all very well for Greenspan. What about us, the simple investors out to make an honest buck, pay the taxes on the gains and go off to retire in relative comfort? We sit here watching our little funds eroding as Greenspan's bubbles either burst when they hit the ground or float off into outer space never to be seen again.
It's actually double trouble. With the fluctuations come some very good buys, bargains in fact. So the big and totally unanswerable question is there all the time: To buy or not to buy?
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