Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Alan Greenspans Legacy Still Shapes Todays Bull Market
Transcript
- Lucas: Alan Greenspan died today at age one hundred. And I think it's worth pausing on that, because Greenspan isn't just a historical figure — his way of thinking about markets is still embedded in the bull market we're living through right now. Luna: Yeah, I saw the headlines. The former Fed chairman, served from 1987 to 2006, through the dot-com boom, the 9/11 aftermath. But what exactly from his era is still running the playbook today? Lucas: The big one is the idea that a central bank should step in when asset prices crash — the so-called 'Greenspan put'. After the 1987 stock market crash, he cut rates and signaled the Fed would support the financial system. That implicit backstop became a pillar of investor psychology for decades. Luna: And you're saying that's still in place? Because we've had a pretty strong bull run since early 2025, and the Fed under Kevin Warsh hasn't exactly been cutting like crazy. The fed funds rate is at 3.63 percent as of this week. Lucas: Right, the explicit rate is stable. But look at the market reaction to any hint of trouble. When growth concerns flared up last fall, the Fed quickly pivoted back toward dovish language. The expectation of a backstop is still deeply priced in. The S&P 500 is at 7,479 today, down about 1 percent over five days, but still near record highs. Luna: So the 'Greenspan put' has evolved into a 'Warsh put' maybe. But Greenspan also had a very specific view on productivity and asset bubbles. He famously said you can't spot a bubble until after it bursts, right? Lucas: Exactly. He believed that if productivity was rising, then high asset valuations could be rational — that the economy was growing into them. In 1996, he gave his 'irrational exuberance' speech, warning about stock prices, but he didn't act on it. The Fed didn't raise rates to prick the dot-com bubble. Luna: And that's the same logic we hear today. Real GDP is growing at a 1.6 percent annualized rate, inflation is moderate, and the market's price to earnings ratio on the S&P 500 is above 25. People say it's justified by AI productivity gains. Lucas: Absolutely. The argument that AI will deliver a productivity boom echoes Greenspan's 1990s narrative. Back then, it was the internet and IT. Now it's large language models and automation. The Fed under Greenspan never used monetary policy to lean against asset prices. And neither has the current Fed. Luna: But Greenspan did get criticized for that after 2008. The low-rate environment after 2001 helped fuel the housing bubble. So is the current bull market repeating that mistake? Lucas: Well, the Dow is at 51,771, up 0.2 percent over five days. But the Nasdaq is down 1.7 percent, and some high-flying tech stocks like Shopify, CrowdStrike, and Palantir have taken sharp hits this week — Palantir is down over 10 percent in five days. Luna: That's actually interesting — the bull market is still intact, but there are clear pockets of stress. That sounds like the kind of 'regime change' Kevin Warsh is supposedly trying to manage, according to that profile on CNBC this weekend. Lucas: Yeah, the headline was 'regime change but in a velvet glove'. Warsh is lowering the tone of hawkishness, reducing the volatility the Fed itself used to create. He's keeping rates steady, letting the economy grow, but signaling he'll step in if needed. That's the Greenspan playbook refined. Luna: And speaking of the show, if our conversations about the Fed, market history, and investing strategies have helped you think about your own portfolio or career decisions differently, there's a small way to keep this going. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that literally funds making episodes like this one. No ads, no sponsors, just listener support. Lucas: Yeah, it's a quiet thing, but it means we can keep drilling into topics like Greenspan's legacy without worrying about commercial breaks. So if that's something you value, you know where to find it. Now, back to the market — one of Greenspan's major legacies is how he reshaped the bond market. Luna: How so? Lucas: Greenspan was obsessed with the bond market's signals. He called the bond sell-off in 1994 a 'conundrum' because long-term yields didn't rise even as the Fed hiked. He believed the bond market had its own wisdom about inflation and growth. Today, the ten-year Treasury yield is hovering around 3.6 percent — that's relatively low given the stock market's valuation. Luna: So the bond market is saying inflation is under control and growth is moderate. That's consistent with the Fed's current view. But Greenspan also believed that low bond yields could fuel asset bubbles. Lucas: Right, and that tension is alive today. The ten-year yield hasn't spiked despite the bull market. That could mean investors trust the Fed's inflation control. Or it could mean they're complacent. Greenspan would probably say: watch the bond market, not the stock market, for the real story. Luna: We also have to talk about his role in deregulation. Greenspan was a big proponent of financial deregulation in the 1990s, including the repeal of Glass-Steagall in 1999. That's often cited as a root cause of the 2008 crisis. Lucas: Yes, and that's a darker part of his legacy. The current regulatory environment is tighter than it was in the 2000s, but the shadow banking system has grown enormously. Private credit, direct lending, SPACs — they're all parts of the financial system that operate outside traditional banking regulation. Luna: And SPACs are making a quiet comeback in 2026, according to your earlier episodes. So some of that deregulatory spirit persists, even if the formal rules have changed. Lucas: Exactly. Greenspan's worldview was that markets self-regulate better than governments. That philosophy has been battered by crises, but it hasn't disappeared. It lives on in how venture capital and private equity operate, and in how the Fed hesitates to step on speculative activity. Luna: So on the day of his death, we're not just remembering him — we're still living inside his economic framework. Lucas: I think that's the most honest way to look at it. The bull market of 2026 is in many ways a Greenspan bull market: low rates, faith in productivity, a Fed that manages risk rather than prevents bubbles, and a bond market that keeps yields low despite high equity valuations. Luna: One thing Greenspan always did was speak in long, convoluted sentences that took analysts days to parse. Are we seeing that with Warsh? Lucas: Warsh is more direct, but he's also learned the art of saying a lot while committing to little. The 'velvet glove' approach. The Fed's language is carefully ambiguous, just like Greenspan's was. It's a way of managing expectations without tying your hands. Luna: All right, so let's bring it back to today's market. The S&P 500 is near 7,500. The Dow is above 51,000. Investors are confident. But there are signs of strain — tech stocks selling off, high-growth names down double digits in some cases. Lucas: Right. And Greenspan would likely say: that's a market sorting out winners from losers. He didn't worry about a few stocks falling. He worried about a systemic collapse. The question today is whether the concentration of gains in a few mega-cap tech stocks creates a systemic risk. Luna: What's your read on that? Lucas: The top ten stocks in the S&P 500 now account for roughly 35 percent of its market cap. That's higher than it was in 2000. If those stocks correct, the entire index feels it. But the Fed's backstop and low bond yields suggest there's no imminent panic. Luna: So Greenspan's legacy is bullish in the short term, but maybe worrying in the long term? Lucas: That's a fair summary. He taught a generation of investors that the Fed will catch you if you fall. That's kept markets higher than they might otherwise be. But it also encourages risk-taking that can build up over years. The question for 2026 is: have we built up too much? Luna: We don't have an answer today. But it's worth sitting with Greenspan's passing and asking whether the system he helped create is robust or fragile. Lucas: I think that's the right note to end on. Tomorrow, markets will open again, and the machinery Greenspan oiled will keep turning. But maybe with a little more awareness of who built it.