A moment of silence please as we reflect on the 12th anniversary of Alan Greenspan’s famous comment about irrational exuberance made on December 5, 1996:
Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
Major market closes on December 5, 1996:
S&P 500 – 744.36
Dow Jones – 6,437.10
Nasdaq – 1,300.12
On December 5, 2008:
S&P 500 – 876.07
Dow Jones – 8,635.42
Nasdaq – 1,509.31
Oh, what a wild and bumpy ride it has been.
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Written by lame
Topics: business