Greenspan Predicts a Recession in 2007

Alan Greenspan is retired from his position as the Fed Chairman. Yet, he isn't retired from economic prognostication. Though it was never his real strong point his opinion still holds a lot of weight on the street. This morning he predicted a recession in the US by the end of 2007. Read a quick blurb about it here. Needless to say many people are listening.

Remember, that Greenie's famous "Irrational Exuberance" speach occurred in 1996. Greenie was right in saying valuations looked irrational, after all the P/E ratio of the market then was 24, which surpassed the prior bull market peak of 1966! Unfortunately (or fortunately depending on your POV), the market didn't suffer a major correction for 4 years. I'm not trying to bash Greenie here, just making the point that markets are notoriously hard to predict.

So, don't dump your investment strategy today and move everything to bonds and cash. Manage risks through tactical asset allocation and diversification, not through market timing. I personally try to stay out of the game of predicting the economy or the market. Its not that I don't have an informed opinion, I do. But all of my research suggests that even the most well informed opinions are more often wrong than right.