It seems Alan Greenspan is to wannabe economists as Harry Potter is to elementary school students: Each introduce their reading audience to new, exciting and yet mysteriously nebulous terms. Not that I don't know what a "conundrum" is, but like "irrational exuberance," Greenspanage linguists can add "conundrum" to the list of newly coined economic technical terminology.
    Sometimes I like to stay up to the wee hours of the morning watching joint congressional economic committee testimony on C-Span. Most recently, I enjoyed no less than three hours of Mr. Greenspan's testimony regarding the state of our economy.
    Congress and Greenspan seem to be concerned, and obviously confused, as to the "conundrum" regarding the interest rate spread-that is, the difference between short-term interest rates and long-term interest rates. The problem is that even as short-term interest rates continue to rise, long-term rates seem to-believe it or not-even drop at times. Not normal, says the Fed-true; but is it really a conundrum?
    Not if you ask Adam Smith. Remember him, the Father of Modern Economics? Professor Smith would say the answer is obvious: Long-term rates are driven by the market, and short-term rates are not. The Fed sets the short-term rates, and it's their perception of the market, not the market itself, that sets the Fed's policy.
    Think about it in your own terms. You know-because Greenspan has repeatedly said so-that short-term rates will continue to rise. Do you want to "lock in" to an interest rate for ten years when you know that if you wait just a little longer, you can "lock in" to a higher rate? How many people are buying five-year CDs right now? Most are buying one- to two- year CD's, which makes perfect sense.
    Sometimes I think Greenspan and his band of Ivy League economists live in a world one or two levels removed from the majority of America. Don't take my criticisms of the Fed too seriously-even Babe Ruth struck out now and again. For the most part, they have governed brilliantly, and Mr. Greenspan made some very insightful remarks during his Congressional testimony that I was relieved to hear.
    Most importantly, the Fed seems to indicate that it finally realizes the financial universe is forever changed. Simply put, it no longer makes sense to think of America as a closed economic system, since financial globalization and multinational corporations have forever changed the global economic landscape. A good analogy might be the United States in the early 1800s, where Georgia had very little economic interest in what went on in Detroit.
    In the early 1900s, the U.S. had very little economic interest in China, for example. As you well know, that has certainly changed. What has not changed, however, is the kind of intranational, zero-sum valuations and closed-system-mindedness that have persisted since World War II. What has already begun, and must be recognized and indeed, even embraced, is the extrapolation of an economic system from nationalism to globalism as once it extrapolated from intrastate to interstate. This is already happening.
    Mr. Greenspan could not be more correct in his insistence that Congress and the President get the federal fiscal budget under control, as well as deal with the impending liabilities required to service our Social Security system and other social systems that are sure to require more funding-especially given the projected demographics of our society in the decades to come.
    We are witnessing an incredible event in the annals of human history, as the entire world-save one or two outlaw states-participate in a world global market ... the predecessor of a one-world market, and even a single global currency.
    In and of itself, this event would be theoretically financially advantageous to all participants. Ultimately only time will tell. Nevertheless, what is certain is that the adjustments will be rough, and the transition slow and confusing to many. The Internet, in addition to making the world a smaller place, has made it much easier for the average person to make adjustments in his accounts. This anomaly is not restricted to America, but is a phenomenon occurring en masse all over the world.   
    With the Internet, everybody can be a trader, and you can do it right from the comfort of your own home, in the middle of the night in your pajamas, no less. In 1980, less that 900 million DJIA shares were traded; by 2002, that number had skyrocketed to well over 85 billion-an increase of over 9,000%. And how are these millions of new global investors making their investment decisions? Sadly, they are nothing more than media consumers.
    For example, every February, Money magazine publishes its famous "Best Funds to Buy Now." In 1992, they came out with "20 Great Mutual Fund to Buy Now." The following year, the 1993 issue listed the "12 Funds to Buy Now," but only one was a repeat of the 1992 list. The 1994 issue had "The Nine Best Funds to Buy Now," but again, no repeats. The 1995 issue listed the "Eight Most Dependable Funds." Would you like to guess how many were repeats? You got it: zero. The 1996 issue: nine funds, no repeats; 1997 issueƦ11 funds, no repeats; 1998 issueƦfive funds, once again, no repeats.
    What does this tell us? Well, after seven years, and recommending 74 funds where only one was a repeat, all they are doing is reporting what funds were the best performers last year-which for next year is useless.
    By understanding how and why these new, chaotic forces drive the global markets, we can take advantage of these trends by acting conversely. Most important, however, is the resistance to "go along with the herd." Lessons of the last decade should be proof enough.
    Today's professional advisor needs to be, among other things, the "noise diffuser," and constantly remind clients that "by the time you hear about it, it's usually too late." Clients will appreciate your caution and rational thinking during an era when sensational headlines outsell boring rational advice 1,000 to 1.
    As it turns out, Greenspan's "conundrum" makes perfect sense. Free-market forces are driven by supply and demand, and the Fed funds rate is anything but "free." As soon as the market thinks the Fed is done manipulating the rate (let's just call it what it is), you'll see the demand for longer terms strengthen, and "poof"-just like that, there goes the conundrum.  

Kevin Meaders, J.D., CFP, ChFC, CLU, is founder of Magellan Planning Group Inc in Atlanta.