Former Federal Reserve Chairman Alan Greenspan says that stocks are headed higher and will take the economy with them.
“Stock markets across the globe have to be close to a turning point,” he writes in the Financial Times.
“Even if a stock market recovery is quite modest, as I suspect it will be, the turnaround may well have large (and positive) economic consequences.”
And why will stocks rise? Because they’re cheap, Greenspan says, even after their recent 18 percent rise.
“But, as history also counsels, they may get a lot cheaper before they return to more normal levels,” he writes.
“Stock prices today are being suppressed by a degree of fear not experienced since the early 20th century. But history tells us that there is a limit to how long fear can paralyze market participants.”
The economy’s downturn can’t continue forever, Greenspan points out.
“At some point, global stock prices will bottom out and rise,” he says. “A rise in global private sector equity will tend to raise the net worth of virtually all business entities.”
As a result, the economy will thrive too, he says, as stock-market strength helps open up clogged lending markets.
And “restoration of normal global lending could be as effective a stimulus as any fiscal program,” Greenspan writes.
Many experts agree with Greenspan’s bullishness on stocks. “I think this rally may have more legs,” investment guru Marc Faber tells Bloomberg.
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