USA, WERE MEN ARE MEN AND Mark Holowesko, president and chief investment officer of Templeton Global Equity group, thinks the technology part of the stockmarket is now a classic bubble and the US Federal Reserve Board chairman, Alan Greenspan is not acting responsibly. He believes the US stockmarket bubble is now greater than the late 1980s Japanese bubble. The relevant numbers are that the US market is now selling at more than 180 times GDP; in 1989 the Japanese market got to 155 times GDP before falling to a norm of around 77 times. When he joined Templeton in 1985, the founder of the group, Sir John Templeton, gave the young Holowesko two books to read: Templeton's own book and Popular Delusions and the Madness of Crowds. "I never thought I'd see a bubble, but now I've seen three: the real estate bubble in Japan, the stockmarket bubble in Japan and now Bubble dot com," he says. To those who preach the technological revolution, he says there's no doubt of it, "but that doesn't mean we should pay any price for those stocks". "I don't feel Greenspan is doing a good job. I believe in 10 years he won't be looked on as one of the best Fed chairmen. He'll be looked on as someone who allowed this excess to build up." So, has Greenspan been seduced by the arguments of the New Paradigmers? "I think he's a chicken, personally," says Holowesko. "He basically follows the bond market. I don't think he's been aggressive enough and he's got himself into a trap." Holowesko believes Greenspan could have increased the margin requirements for investors. "Why haven't they been changed?" Raising the margin would have a huge effect; it would be just like making a margin call, he says. In the US, he is concerned that the flood of Americans' money into the stockmarket half of all household net worth is now in shares has been financed by borrowings. In each year since 1994, household borrowings have exceeded spending and clearly have gone into the market. And, increasingly, money is flowing into a few, highly-priced shares. On any valuation measure you care to pick, Holowesko reckons it's an over-valued stockmarket, with the S&P P/E ratio around double its 20-year average of just under 18 times. Not only that, it's a heavily leveraged market, with margin debt as a percentage of GDP jumping from around 0.5 per cent in the early 1990s to more than 2 per cent now double the level in the last downturn in 1987. He calls it a "financial orgy" and yet the health of the US economy now depends heavily on the market. This is why Greenspan is so nervous, he believes.
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