“So while I look at the housing market as something that gives me grave concern, we are finally beginning to see the seeds of a bottoming,” Alan Greenspan declared Tuesday to a friendly crowd at the National Association of Realtors conference in Washington.

And yet, the Dow slipped another 184 points yesterday, as if utterly ignoring Greenspan’s confident declaration. The tumbling Dow also seemed to be thumbing its nose at Greenspan’s pronouncement that “it’s very easy to see” that the recovery in the capital markets “is going to continue for an indefinite period.”

A couple bad days in the stock market do not make a reliable trend, of course. But unbeknownst to Greenspan, neither do a couple good months. Stock prices have been inflating. There’s no denying that. But meanwhile, the economy has continued to deflate. There is no denying that either. So what is an investor to do? Trust the stock market or trust the economy?

The answer to this question is never clear, except in retrospect. But one thing is always clear: never trust Alan Greenspan’s predictions. “Whatever virtues Greenspan may have displayed during his 19-year tenure as America’s most famous bureaucrat,” we observed in a former edition of the Rude Awakening, “clairvoyance was not one of them. Indeed, his feeble powers of prediction are legendary. Every time he looks into the future, it refuses to look back…

“We admire this cowboy for climbing back onto the same mustang that keeps bucking him off,” we continued, “but that doesn’t mean we expect him to remain in the saddle for very long.”

Indeed, Greenspan seems to spend a good deal more time dusting off his chaps than holding the reins. And yet, the former Fed Chairman continues to draw $100,000 speaking engagements as if he actually had something useful to say. Hiring Greenspan to offer guidance on financial market trends is little like hiring Charlie Manson to lead an anger-management class. There are probably better qualified candidates.

Let us not forget that Mr. Greenspan is the same individual who declared in November of 2006, “Most of the negatives in housing are probably behind us. The fourth quarter should be reasonably good, certainly better than the third quarter.”

Not content to make only a boneheaded prediction about the housing market, Greenspan embellished his November 2006 remarks by volunteering a boneheaded prediction about the U.S. economy. “A lot of people are going to lose their homes,” he said. “It’s a family tragedy. It’s not an economic – or macroeconomic — tragedy.”

Obviously, Greenspan was dead wrong. If he had offered 100 different forecasts in November of 2006, none of them could have been more wrong than the forecast he actually offered. Therefore, the former Fed Chairman’s recent confident assurances about the housing market impart neither confidence nor assurance.

In addition, Greenspan’s latest public appearance seemed to break new ground, as his oracular pronouncements featured more “psycho-babble” then “Fed-speak.” Here’s a representative sample:

“Let me just say that in the most recent period, even after the incredible shock to the world economy that occurred as a consequence of the $35 trillion collapse of equity prices, we saw a bottoming and indeed that bottoming essentially reflected the fact that there is a limit to how far human fear can go.

“All of our history, or I should say our psychological history, shows the fact that we adjust to extraordinary circumstances. And we’re starting to adjust here because history tells us that all measures of fear…tend to have an upside and a downside range; they are range bound. We cannot get too euphoric; we cannot get too fearful. The markets turn on you. And the market started to turn in November of last year and flattened out…and when fear began to ebb, we began to see stock prices move up and this essentially added $10 trillion of market value from March 9th…”

So you see, dear investor, this stock market stuff is not really about dollars and cents after all – and its certainly not about the legacy of colossal errors made by a former Fed Chairman – it’s about the limitations of human fear. Because fear is “range bound,” says Greenspan, so too are the consequences of wayward capitalism. The Dow simply cannot drop to 5,000, if Greenspan’s theory holds, because that would be way too scary.

Ummm…okay.

Your editors have encountered more intelligent theories from 5-year olds. But that does not mean we are rushing to judgment. 5-year olds are right sometimes. But this we know: The future is utterly unknowable, no matter how many predictions Alan Greenspan makes…and no matter how many wacky theories he advances. The future is utterly unknowable…almost.

One thing we know:

Central bankers will print lots of money, especially during times of extreme crisis.

Source: The Stock Market vs. the Economy; Who to Believe

Since the market peaked in October 2007, I have pointed out (repeatedly) when TBP traffic soared in response to the credit crisis. Each time, we noted this was a good contrary indicator, and used it as a good short term buy signal for a trade.

And after each short term rally, the public angst was proven correct, and lower lows were had.

This month, I could not help but notice the opposite: that traffic dropped substantially – from over 2.5 million page views in March to just over 2 million in April.

Not coincidentally, we had a rip roaring rally over the same period of time (during which we were suitably bullish). As the economy’s free fall slowed (improving 2nd derivative), the traffic slipped.

Whether it was the stimulus or the Fed funded parachutes opening, people searched less for news on the crisis. I presume this is a function of psychology – investors are less nervous, spend less time flailing about for answers, and revert back somewhat towards their old media consumption habits. AKA Complacent.

What really interests us here at Notes is that the majority of investors turn to the underground only when things are bad. During the mania phase of the investment cycle, people seem willing to switch bank to CNNMoney and Cramer. True underground investors should take note and exploit this tendency to their advantage. These complacent investors make easy targets.

4 – Team Obama Will Stuff Taxpayers in GM Deal

Team Obama is showing further disregard for the taxpayer by siding with unions in its negotiations with GM. (Well, at least it’s not just banks who are getting a sweet deal at the expense of the middle class that Obama claims to represent.) According Weisenthal at Clusterstock, the GM bondholder counteroffer is a better deal for the taxpayer than the one proposed by the Obama administration. Confused? You shouldn’t be. It’s right out of Team Obama’s playbook.

On its face, the GM (GM) bondholder counteroffer looks like a better deal for taxpayers than the original one proposed by the administration. Odd, right?

Under the old one, the Treasury would own a 51% stake in the company, and cancel much of its debt. Under the new plan, the bondholders would own the majority of the company, the Union would own a little less, and the government would own nothing, but keep the entirety of its debt. So what’s the problem?

Well, as explained here at Seeking Alpha, the union pension fund loses out on a $10 billion payment. Plus, the union wouldn’t have the government as its owner, which means no kid gloves in the future.