ORLANDO, Fla. -- The U.S. economy can have slower but steady growth throughout the next year if Alan Greenspan and the Federal Reserve Board don't intervene and derail it.
So says Todd Petzel, chief investment officer of The Commonfund Group, Wilton, Conn.
"The economy has never been better in our history. I hope we don't look back and say it was a golden age," he said.
Mr. Petzel made his comments in a speech to the Commonfund Forum, held in March in Orlando.
"The Fed is concerned about a new source of money -- the growth in Internet stock prices," he said. "It is a source of money they can't control and they're afraid it will grow too rapidly and cause inflation."
He's concerned that the Fed will raise interest rates so much that it will hurt the overall economy, causing a loss of jobs and a decrease in wages. He said that the monetary authorities in Japan took similar action in 1989 and 1990, which led to a decade of weak economic growth.
"If the Fed gets obsessed with the Nasdaq rally, the economy could be hurt."
In his presentation, Mr. Petzel showed a 1974 photo of Alan Greenspan with then-President Gerald Ford, when Mr. Greenspan was chairman of the Council of Economic Advisors. During that time, inflation was high and economic growth was slow.
"Alan Greenspan's impressions were formed by the era of high inflation, high unemployment and a bear market in the stock market," said Mr. Petzel.
He then showed a photo of Mr. Greenspan taken last year, pointing out he had considerably less hair than in 1974.
"It just goes to show you can be in the driver's seat of the biggest economic expansion in history and lose a lot of hair doing it," he said.
He also referred to a speech earlier in the conference by Michael Bloomberg, chief executive officer and founder, Bloomberg LP, during which Mr. Bloomberg described the market for Internet stocks as an "art market where painters go in and out of favor." Said Mr. Petzel: "Claude Monet is dead," and prices paid for his paintings will not affect the supply of art works.
Whereas, he explained, the prices of Internet stocks "has become a critical part of the capital formation process," and if capital suddenly flows out of them, it could cause a serious dislocation in the economy.
The great advances made in technology over the past few years also should help to keep the economy on track, according to Mr. Petzel. Technological advances have helped alleviate problems from what he said is the scarcest economic commodity -- labor.
The rising price of oil is not a major problem that can do severe damage to the economy, Mr. Petzel said. The price has gone from $12 a barrel in 1994 to $30 this year. "The low price was as much an aberration as the high price is," said Mr. Petzel. "I don't think it's any big crisis."
As a way to cool off the Internet stocks, Mr. Petzel suggested an increase in the margin requirements to buy stock, rather than a hike in interest rates. Margin requirements now are at 50%, he said, they could be raised to 60%, 70% or even 80%.
"Given a choice of two evils, I would prefer to see a rise in margin rates," he said.
He's concerned about stock market volatility. Long-term investors should have rebalancing programs in place. Investors "need to have long-term targets with both high and low bands," he said. If the market moves close to them, it's time to rebalance.
"The Fed can still take the punch bowl away from the economy," he concluded. "But it can go on, at a slower pace."
