Market Experts Talk, Fed Chairman Greenspan Listens

By WILLIAM MURRAY and JEFFREY L. HIDAY
AP-Dow Jones News Service

WASHINGTON -- Federal Reserve Chairman Alan Greenspan rocked the boat by questioning last week the state of U.S. equity markets, but he certainly didn't offer any prognostications or warnings in a closed-door Dec. 3 meeting with private economists and financial experts.

Greenspan, along with his fellow Federal Reserve Board members, convened a meeting last Tuesday with some of the top names in Wall Street analysis, including academic experts on financial markets and a former Fed staffer-turned-bank economist.

The meeting, designed to gauge external perspectives on market and economic developments, came only two days before Greenspan sent shock waves through global equity markets when he raised the question of whether Wall Street was suffering from 'irrational exuberance.'

What can be gleened about the meeting from a range of sources is that Greenspan and his six colleagues on the Fed board didn't offer any market views to the panel of experts, although they posed some questions as part of what participants characterize as a fact-finding exercise by the central bankers.

'We were giving presentations,' says Robert J. Schiller, a Yale University economist and one of the nine panelists before the Fed. 'They were listening.'

The panel of experts included Harvard University economist John Y. Campbell, a co-author of equity market studies with Schiller, who says he and Campbell offered a decidedly bearish analysis of the market in their presentation to the Fed board.

Other participants, who offered a broad range of market views, were: Gary Burtless, a senior economics fellow at the Brookings Institution; Abby Cohen, the chief equity strategist for Goldman, Sachs & Co.; Byron Wien, chief domestic strategist for Morgan Stanley; Roger Brinner, chief economist at DRI/McGraw-Hill; Richard Berner, chief economist of Mellon Bank; Richard Rippe, chief economist for Prudential Securities Inc.; and David Shulman, chief investment strategist for Salomon Brothers Inc.

Fed spokesman Joseph Coyne, who confirms the Dec. 3 meeting occurred, stresses that all participants are sworn to secrecy. 'I can confirm it happened,' Coyne said. 'I can't tell you what was said.'

The meeting, however, drew more than usual attention after a newswire reported that Greenspan did speak at the meeting - and supposedly voiced concern about overvalued equity markets.

According to the newswire account, later picked up in Barron's and possibly other media outlets, Salomon Brothers' Shulman said the Greenspan meeting had prompted him to recommend that clients cut their stock holdings to 45% from 50%.

But a beleaguered Shulman now says his comments 'got garbled' and were 'taken out of context' both at Salomon Brothers and in the newswire account.

Greenspan, Shulman acknowledges, said very little at the meeting, and certainly nothing that constituted a warning about the stock market.

'I was as surprised as everyone else' upon learning of Greenspan's comments from last Thursday night, Shulman said. 'Friday morning I wake up to watch the Weather Channel and I see all this from Greenspan. There was a lot of coffee all over my coffee table.'

Shulman said his recommendation that clients cut their stock holdings actually had been made in a report written the week before the Tuesday meeting. It's just that publication of the report was delayed by the Salomon Brothers editorial process until shortly after the meeting with Greenspan and the other Fed board members, Shulman added.

Still, the idea that Greenspan and the rest of the Fed board might have been telling secrets to some factions of Wall Street was galling to at least one person who wasn't invited.

'My concern is if (Greenspan) is indeed having a meeting with all the Fed officials present, along with invited Wall Street representatives, it implies that there took place a meeting (of the Federal Open Market Committee) ahead of time,' said Zane Brown, director of fixed income at Lord Abbett in New York. 'It was in effect an unscheduled (FOMC) meeting.'

-Ross A. Snel in New York contributed to this report.

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