Former US Fed Chairman Alan Greenspan says stock investors should run for cover as current bull market is over

  • Investors ought to “run for cover” amid the current stock market volatility, former US Fed Chairman Alan Greenspan said in an interview with CNN
  • The S&P 500, which touched a 14-month low this week, fell nearly 12 per cent during the last three months
PUBLISHED : Wednesday, 19 December, 2018, 10:05am
UPDATED : Wednesday, 19 December, 2018, 3:02pm

Former Federal Reserve Chairman Alan Greenspan said in a television interview Tuesday that he believes investors ought to “run for cover” amid the recent volatility.

When asked about whether the stock market is still in the midst of a bull run, Greenspan told CNN anchor Julia Chatterley, “Not really, no, it’s beginning to fumble. You can see it by the reaction in recent days.”

He added: “It would be very surprising to see it sort of stabilise here and take off again. But it’s happened in the past. However, at the end of that run, run for cover.”

A brutal start to December has US markets on track for their worst final month of the year since 1931. The last three months have been particularly painful for investors, with the S&P 500, which touched a 14-month low on Monday, down nearly 12 per cent over that time. The primary driver behind the sell-off was the notable rise in long-term interest rates, he said.

Greenspan, who served as Fed chairman from August 1987 until January 2006, made his comments one day before the central bank was widely expected to announce an interest rate hike for the fourth time this year, and ninth since the financial crisis, added that pressure from interest rates on stocks would persist.

He said he has observed a “pronounced” rise in real long-term interest rates, the “key factor which is bringing the stock market down.”

He added: “In fact, it accounts for all of the weakness recently, and I think it’s going to continue to account for it, because we’re in a period now where I think long-term rates are going to rise.”

More broadly, Greenspan sees the US economy moving toward a so-called “stagflation” environment in which there is both price inflation and a weakening economic backdrop.

To be sure, critics have viewed the former Fed chairman as having missed factors that contributed to the financial crisis. He wrote in a 2010 paper that he’d been “lulled into a sense of complacency.”