Financial Reference

The last two days I have opened the Wall Street Journal (my main source of news, besides the Daily Show…) Greenspan has been in the first section. He was on the front page yesterday warning of consumer’s reliance on housing loans to support their spending habits. Today he was on the second page warning that investors are not appreciating risks to the economy.

I know that when Greenspan speaks, the press and investors listen. But the warnings he provided over the last few days are not new. We all know that people have been taking money out of their homes — just listen to the radio ads or look at new mortgage businesses being formed. And, when people have money, they usually find a way to consume more, rather than save. We also know that there is “froth” (to say the least) in the housing market so consumers will not be able to tap increases in home equity in the future.

Also, we know that investors are doing anything to look for more yield. The risk spread between junk and treasuries is absurdly low. The yield spread between short and long-term bonds is also extremely low — i.e. the yield curve is flat. The flat yield curve has previously been referred to by Greenspan as a “conundrum.” And we can all see the low price being paid for taking on extra risk by looking at bond mutual fund yields.

There is no new information in these articles. Well, maybe a little — the risks be more obvious than we previously thought. But, if they are so obvious, when will the market take notice? Do we remember how the “irratonal exuberance” warning ended?