The Ghost of Christmas Past

by Bill Bonner

Old Greenspan was not dead. Not dead as a doornail, nor dead as a doorknocker. Not even as dead as a laptop computer after the power goes out – not even John Maynard Keynes is that dead.

Nothing is as dead as a computer without power. For even a nail continues to provide good service after the spark of life has gone out of it.

But Greenspan? The Fed chief was still alive. Not only that, he still had the power to flood the economy with cash…and lift stock prices. Or so everyone thought.

At least, Ebenezer still thought so. He had seen Greenspan on television not long ago. The old Rand-worshipping jazzman had said as much. Ebenezer could remember his exact words: “The Committee continues to believe that an accommodative stance of monetary policy, coupled with robust underlying growth in productivity, is providing important ongoing support to economic activity.” It sounded like mumbo-jumbo. But Ebenezer knew what it meant.

Of course, there were some – such as his old associate Bob – who said that Greenspan couldn’t do it…that merely reducing interest rates wouldn’t work. But what did they know?

“Bah,” said Ebenezer to himself, “humbug.”

“What reason is there to worry?” he asked, to no one in particular. “If I could work my will, I would have every idiot who goes about with ‘deflation’ or ‘recession’ on his breath forced to watch Wall Street Week and read the editorial pages of the International Herald Tribune.”

His musing to himself was interrupted by the entrance of two gentlemen who introduced themselves quickly and proceeded to divulge the purpose of their visit.

“We thought that, perhaps, given the spirit of the Christmas season,” said the leader of the two, “perhaps you could spare a farthing for the poor, the destitute and the needy.”

“There are many people who need our help,” added the second, “…the poor unfortunates who invested their money in dot-com stocks…or the big techs.”

“Need our help?” questioned Ebenezer. “Are there no mutual funds?”

“Well, of course…” the first began to reply.

“And do they not accept small amounts?” demanded Ebenezer.

“Yes…but…” replied the second before being interrupted.

“And has not the bull market been a fact of life for nearly two decades? And hasn’t every dip turned into a buying opportunity?”

“Well, yes…”

“And has it not been shouted from every newspaper headline…every news report…every Internet chat room…and every conversation between even the most casual passers-by at even the most ill-informed and down-market drinking establishment in the most remote and out-of-touch region of the country?”

“Doesn’t everyone who is capable of long division now realize,” continued Ebenezer, raising his voice, “that the recession is over…and that nothing beats investing in stocks over the long run?”

“Yes, we are aware…”

“Oh! Good. I was afraid that something might have happened…”

Then, misinterpreting the ensuing silence for approval, the second gentleman ventured, “Well, in this great time of trial, how much would you like us to put you down for?”

“My only wish is to be left alone so that I may continue to enjoy the fruits of the greatest episode of wealth creation in history,” replied Ebenezer. “Good day, gentlemen.”

And Ebenezer turned and walked away, muttering, “A poor excuse for picking a man’s pocket…”

That evening, Ebenezer slept poorly, under the fullest moon in more than a century. He had been startled earlier. Returning home from the office he had seen Alan Greenspan’s face in his doorknocker! An odd sensation, for Greenspan’s face was hardly one that he expected or hoped for. But there it was…for a fleeting moment, at least.

And now, after finally achieving the sleep he longed for, his rest was suddenly interrupted by the sound of ringing bells.

Yes, bells. The kind of bells they fail to ring at the top of a bull market. But why now…clanging like chains in the middle of the night?

The door to his bedroom blew open…and the clanging sounds seemed to mount the stairs.

“Humbug,” he thought, “I won’t believe it. The bears have been hearing ringing in their ears for years. The poor fools. ‘Recession…bear markets…crashes…deflation…’ and now they’re at it again…more convinced than ever. Ha!”

His color changed though, when, without a pause, something came on through the heavy door and passed into the room before his eyes.

The face: it was the same face he had seen on the doorknocker earlier in the evening. And on the television a few weeks ago. It was the face of Alan Greenspan, the Fed chief. His body was transparent, ghostly, but there was the source of the clanging. For the spectral figure was wrapped up in chains, to which were attached various metals – gold, copper, silver…both coins and nuggets, all clattering and banging against one another.

Ebenezer had heard it said that Greenspan lacked guts. But there they were. In this ghostly form Ebenezer could see all of him, inside and out. It was as strange as it was unappealing.

“Who are you?” asked Ebenezer, his voice cold and caustic.

“Ask me who I could be,” replied the phantom.

“Okay…who might you be?”

“That is a different question,” said the specter, “but I will answer it anyway. I have no time for word games. I am the spirit of Alan Greenspan…”

“I thought so…” whispered Ebenezer.

“…and it is required of every man that he walk among men…”

“But you are not even dead yet,” protested the old man. “I would know if you were dead…I would have read about it in the paper…

“And what are these chains you wear?”

“They are the chains you forge for yourself. But instead of gold and silver, yours are laden with computer terminals, stock certificates, portfolio statements, the New Era…mortgage refinancings. You will be fettered not just for your life, but for eternity. And they grow heavier with each passing month. Unless, that is, you heed the ringing of these chains…”

“I am here tonight to warn you,” the ghost went on, “that you may have a chance of escaping your fate. Rise and walk with me.”

“I am mortal…”

“Come,” said the ghost, taking Ebenezer’s hand.. The two of them rose as if weightless and slipped through the mist of time… “Here, look…” said the apparition, “Christmas Past: 1980.”

Ebenezer could see for himself.

There before him was the face of another Fed chief. It was Paul Volcker himself. And there, what was that? A crowd of people were burning him in effigy.

But why? Then Ebenezer began to recall what that Christmas was really like:

Inflation, measured by the CPI, rose at 13% that year.

Volcker’s job was to reduce that figure. He did so. But it was not fun for anyone – except short-sellers.

The Dow fell 24% after Volcker held his famous Saturday press conference and announced a change of direction. Volcker threw out the WIN buttons and targeted reserve requirements. Interest rates soared. Twenty-year Treasury bonds yielded 15%. The prime rate hit 21.5% percent. Homebuilders and farmers – and perhaps some Wall Street brokerage houses – threatened his life.

The Dow fell to 776. Adjusted for inflation, a generation of capital growth was wiped out.

But not everyone was hurt. Investors who bet heavily on gold stocks, oil and collectibles did well – at least, until Volcker’s purposes began to be realized.

Ebenezer recalled the predictions of 20 years ago:

** Oil would go to $100 a barrel ** Inflation would be at least 6% – forever ** Gold would rise through the end of the century ** Bonds were “certificates of guaranteed confiscation” ** Stocks were dead (a death that was confirmed by `Business Week’ on Aug. 13, 1980 – the very bottom) ** The whole key to investing was to avoid risk

“Let us look a little further,” said the ghost. And with that, Ebenezer saw a new scene. In this one, he saw himself. But it was not himself as he was…but as he had been.

There was the young Ebenezer. Full of enthusiasm and eagerness to make his fortune. He had plenty of hair, too. And, look, you could see the muscles bulging beneath his polyester shirt.

“These are but shadows of the things that have been,” said the Ghost.

And there he was, the young Ebenezer. Standing alone and neglected at a Christmas party several years after Paul Volcker had taken charge of the Fed.

He looked quite sad…but Ebenezer knew why at once.

“I won’t make that mistake again,” said the young investor to himself.

“What mistake had he made?” asked the ghost of his guest.

“Why does he reproach himself? For the right thing or the wrong one?”

Ebenezer made no reply.

Bill Bonner