Irrational Exhuberance ?

A loquacious commentor yesterday remembered and posted what he was doing in 1996-1997 as stock prices have now fallen to levels roughly where they were then. I remembered that the speech by Elmer aka Alan Greenspan coining and popularizing the term, "irrational exuberance" was given around that time. Here's the quote from the speech given 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?"

To modify the title, "Is that all There Is?", of a melancholy song recorded by Peggy Lee in 1969, is that all it was?

Is everything in the real economy of the world that has happened since 1995 simply been irrational exuberance? I choose that year since 1995 as that year was the lift off of the 1990s bull market.

Obviously some was simply irrational exuberance of one kind or another. Here's my list.

1. The tech bubble - billions were transferred from foolish investors and institutions to sellers of inflated shares in unprofitable or overvalued technology companies.

2. The housing bubble - more billions - trillions ? - wasted on homes that now no one wants in the sun & surf belt and for McMansions in exurbia.

3. The financial bubble - trillions wasted on unproductive financial engineering and speculation in hedge funds and Wall Street and big bank trading operations.

Who benefited: CEOs and selling stockholders of tech firms; grantees of stock options; grossly overpaid CEOs and CFOs and many other upper level executives of nearly every major corporation; housing speculators and big builders who sold stock in time; traders and hedge fund managers and private equity managers who created nothing, reaped billions in pay and sold before the collapse; and money managers in general.

So there was a lot of irrational exuberance.

BUT

A lot of real change and improvement occurred. Here's my list.

1. The Soviet Union collapsed peacefully and hundreds of millions of newly free people slowly became part of the free world.

2. China and India emerged from stifling communism and socialism, respectively, bringing the energy of billions of people into the global economy.

3. The Internet was a "Big Bang" leading to exponentially growing, virtually free access to information, goods and services for anyone, almost anywhere in the world.

Maybe my list will grow, but it's 5:30 AM and I need to finish this post.

Obviously the world is much wealthier and more productive than it was in 1995. The panic of the rich and hedge funds will soon run its course, and the induced panic in the public will also end then.

Markets

Very bad day yesterday. I plan to do a partial re-allocation this morning, as I need to buy some stocks. The fixed income classes in the Krypto Fund are too big. Tomorrow I will write about what I do today.

Word of the Day

"Execration" - noun [$10] from the card file.
Execration means 1. the act of cursing; 2. a curse; 3. someting that is cursed or loathed.
Sentence: Bunkerman withhheld his execration when asked if he would consider investing in a hedge fund, and replied sarcastically instead.

Le Mot du Jour

"Tourbillon" - noun, masculine.
Tourbillon means 1. (de vente - of wind) whirlwind; (dans 'l'eau - in water) eddy, whirlpool; (physics) vortex; 4. (figuratively) whirl.
La Phrase*: Si vous semeriez le vent, vous récolterez le tourbillion.
Sentence: If you sow the wind, you will reap the whirlwind. [paraphasing a famous quote from the Bible.]

[* fixed prior blunder ]