As the stock market continues to flirt with record highs, some analysts say it's vastly overvalued, but former Federal Reserve Chairman Alan Greenspan doesn't see it that way.
"We can't argue that we're extremely overvalued in the marketplace, even though you're talking about individual bubbles," Greenspan told CNBC
, alluding to questions about the technology and biotechnology sectors.
The S&P 500 index had a trailing price-earnings ratio of 18.95 last Friday, up from 17.87 a year earlier.
We can now "absorb a bubble without economic consequences, as the end of the dot-com boom showed us," Greenspan explained. But, "if we get leveraged types of toxic assets, we have a very serious problem, as 2008 and 1929 showed us."
When it comes to the economy, the growth rate stands 1 to 2 percentage points below potential, thanks to sluggish productivity, he argued.
GDP expanded 2.4 percent last year, and productivity shrank an annualized 2.2 percent in the fourth quarter.
"We have zero productivity growth in the last couple of years," Greenspan said. "Productivity growth almost exactly percentage point to percentage point shows up in the GDP figures, slightly adjusted for the non-business sector. . . . If you don't get productivity right, your economy is in trouble."
What's helping us right now is the low oil prices. "If we were, in fact, not getting that [low prices], we would be really be in pretty poor shape indeed," he noted.
Meanwhile, MarketWatch Chief Economist Irwin Kellner
says the wicked winter weather could put a dent into GDP, just as it did in the first quarter of 2014, when the economy contracted 2.1 percent.
"It would not be surprising if the harsh winter were to reduce the first quarter’s economic growth by as much as 1 percentage point," he wrote.
"So instead of logging in growth of, say, 2.75 percent, the first quarter’s GDP could well come in at 1.75 percent or even less."
That would make it difficult for the Federal Reserve to raise interest rates soon, Kellner said. Most economists forecast the Fed will begin lifting rates around mid-year. The central bank has kept its federal funds rate target at a record low of zero to 0.25 percent for six years.
"Even if economic activity rebounds in the second quarter in response to better weather, growth will still be sub-par, inflation will remain nonexistent, the dollar will still be strong and the stock market will still need the support of easy money," Kellner wrote.
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