WALL STREET'S LISTENING : GREENSPAN GETS MARKET'S NOTICE AFTER A FEW TRIES.
If Alan Greenspan were two generations younger, he'd say it this way: ``Cool it, Wall Street.''
The Federal Reserve chairman spoke up, in his own way, Wednesday, saying for the third time in three months that the stock market seems overheated.
He returned to his now-famous December phrase, ``irrational exuberance,'' in the clearest plea yet for investors to step back from expectations of ever-rising equity markets.
``It's not markets that are irrational,'' Greenspan said in congressional testimony Wednesday. ``It's people who become irrationally exuberant on occasion and take actions that induce what economists like to call bubbles, which eventually burst.''
Although Wall Street shrugged off Greenspan's caution in December and a similar refrain in January, it may be catching on now.
Less risky mutual funds saw more money from investors in February than aggressive stock funds did. And some mutual fund managers say they're becoming more cautious with investments and are urging investors to cool it a bit, too.
``I think even the professional investors are getting caught up in it,'' said Jeff Tyler, manager of the asset allocation funds at American Century Investments, formerly Twentieth Century Mutual Funds.
Bulls are not becoming bears, however.
Tyler said his asset allocation funds have moved some money out of stocks and into cash. Stocks continue to look good, but they just need a breather, he said.
Greenspan's cautionary message Wednesday may be the last warning Wall Street gets.
He first raised the question about the market's exuberance in early December during a dinner speech. The stock market, however, only paused after this remark:
``How do we know when irrational exuberance has unduly inflated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?''
Plunging real estate prices and a collapsing stock market have terrorized Japanese investors in ways Americans can't imagine. But the Dow Jones industrial average shrugged off Greenspan's pointed question and marched to new highs for the new year.
In late January, Greenspan assured Congress that he had thought long and hard before raising his exuberance question. The market gasped again but quickly pushed to new highs by Valentine's Day.
On Wednesday, Greenspan cautioned again, perhaps risking his own credibility. A third shrug by the stock market or a fourth plea from Greenspan without Fed action threatens to turn the revered monetary figure into something of a Chicken Little.
PHOTO Floor traders at the New York Stock Exchange conduct business Friday.
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|Publication:||Daily News (Los Angeles, CA)|
|Date:||Mar 1, 1997|
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