Tuesday, March 3, 2009

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 ]

63 comments:

Bud said...

'foolish investors'


the art or skill of makin money in the markets ( or any sort of speculation for that matter) is all based on the greater fool theory


i always hope there are many foolish investors......cuz i not that smart

Bud said...

good article in ibd on the trader tax..............makes me feel better

mfl59 said...

how will "jim" stir up fear now? what will he complain about now? pffftttt


no apology necessary Bud...

Spin-em said...

I dont know..this wing tax is picking up steam....could bring the country down....NO WINGS..NO WORK..NO WINGS NO WORK!!!

Bud said...

listen you f'ng douchebags.......ummmm.....well.........why am i even bothering with you idiots....



tete de noeud indeed

Bunkerman said...

uh spin, I got that "joke" posted late yesterday, BUT

when the shovel is in my hand and it's 10F outside, it didn't seen quite so funny.

;)

Just finished most; front porch & steps later.

Gotta hire someone next year.

Bunkerman said...

Btw, don't forget "lèche-cul"

[=ass-kisser)

Hmm I wonder if "douche-bag" is translatable ?

Bunkerman said...

The dictionary suggests a rather general expletive for its translation. Oh well.

mfl59 said...

I understand its preseason, but swinging at pitches like that Bud will get you sent to Double A in a hurry....

Bud said...

speakin of baseball......and douchebags


A-fraud '2-hr meeting with mlb'........yeah to get each other story's straight.......

does A-fraud really think this matter is closed ???? i can't wait for his trip to Fenway

Frosty said...

Bunky...new bull charging from the gate this morning...think dow 15k...time to back up the half track.

Spin-em said...

mfl ...could you take a swing at arod so bud doesnt feel abandoned..lol

Spin-em said...

mern..I represent a wrestlin coach in Jersey and he says.. offer 150k

Spin-em said...

uh spin, I got that "joke" posted late yesterday,

loooooool bunk

Frosty said...

CMP...nice Bud...man the prowler must look good with two coats of wax and a hand buff.

Bunkerman said...

Already doing it, frosty ... hitting the buy stocks button in Krypto Fund.

Bunkerman said...

I sold some inflation bonds to buy US stocks, and some gold & silver ETFs to buy emerging market stocks & REIT index fund.

Just a parial move to balance - still need to buy a lot more stocks, but will average in with new money now.

mfl59 said...

Krypto Fund? what about the Obama Fund? if not now then when??? Kass has called a bottom...

mern said...

A kitten is recovering after allegedly being stuffed in a bong while its owner smoked marijuana at the same time.

http://www.ketv.com/cnn-news/18838874/detail.html

jesus christ. lmaoooooooooooo

taking the day off to clean.

this shud be fun.

dumped the 30 yr old last nite. i havent dumped anyone since i was 18. i feel like an asshole! i know i know, i am asshole............

pfffffffft

y u ask? she was just way too much type A for my crazy ass. and she was jamming me into being a dad after 60 days. also i was liking her kids more than her, and that isnt right. so i dumped her, yesterday, which was her brothers bday (he killed himself 3 yrs ago). UGH, I REALLY AM AN ASSHOLE.

mfl59 said...

Toddo all in at SPX 400-450...

mern said...

lol, toddo. him and succo charge what 45 bucks a month, and have been spot on for like 8 of the last 10 yrs.

6 grand to chat and bible thump.

take your pick.

anyone else think its funny greenberg is suing AIG? i watched him and he acted like he had no idea what was going on, and the company was in pristine condition in 2005, when he left. i dont follow AIG, but that totals bullshit, right? he knew exactly what they were doing and never sold any.

Bunkerman said...

Obama Fund is fully invested.

Bunkerman said...

I did a lousy job "trading" Obama so it has no money to buy here.

I'm not risking more in those stocks.

Frosty said...

Spin dirty lil nigga fund up huge...SDS SKF pair trade...wyoming, home on the range indeed...set it and forget it.

mfl59 said...

mern may i suggest eharmony.com good sir....

Spin-em said...

you better grab on to somebody merny ....you're good looks will only take you so far...

mern said...

imo, i asked cindy to leave and like the next nite while she was still living with me, i went out trolling.

i never took time to even contemplate y we blew up, although i know now, we just really didnt love each other.

i dont want to date anyone for a bit. gonna get this house up to snuff, and hopefully sell it before the june severance shuts. i frankly dont see jpm keeping me around past then, maybe even sooner.

i frankly dont have a problem meeting women. just last nite i was at local watering hole and the one cute girl that came, sat down next to me. she was meeting a friend of mine. we talked for about 30 minutes, and i had a to go salad waiting next to me the whole time. she ignored her friend, talked to me, and after 2 beers said "im sick of waiting for this guy to come along and am going to bed"

she left and i was doc, if i just cocked blocked him becuase i wasnt trying to. he said no, but he didnt look thrilled. she was cute. she used to summer in ocean city, me in avalon. we hit it off.

i just wanted everyone to leave so i cud chat with the owners wife and the bartenders about what i just did to bianca.

i showed them all the texts i got from her yesterday and they agreed i needed to pull the plug on that deal. shes friggin psycho.

and im not stable. not a gud mix, to raise kids.

Bunkerman said...

jeex, moi, c'est un idiot.

I just fixed a blunder in "la mot du jour".

Je viens de corriger une bourde dans 'le mot du jour'.

Frosty said...

Mern wtf...first smaller hambugers on the lunch line....now no free coffee napkins and use your finger to wipe your aazzzzz...pay that tarp back a nickle a toss, like Bud on the pole down at the blue oyster.

mfl59 said...

Ben does have a sixth degree black belt in ju-jit-su....tread carefully Bunning....

Spin-em said...

loooooooooool

if you think you cockblocked......didnt you??

on the lines of ...its not a lie..if you believe

mfl59 said...

mern you have a nice sized backyard sir? bermuda grass i assume?

mern said...

gud one frosty. u must know someone who works there.

come on mfl.(i thought i was having a chit chat till she said that. that was rather forward, no?)

u will love this. she knows the steinbrenners. she was friends with them, somehow, about 10 yrs ago. went out on their boat and partied. she said george was actually cool. hank was an ass. and the other one was a mess and a total asshole.

ugh bianca just came and got here stuff. man she got a lot in here in the past month. i just went through my land line voicemail. 7 new messages since the 22nd. 4 were from her and 3 were in a state of panic.

mern said...

for florida not bad. back yard fenced in, 1/4 acre on a preserve. hey i guess thats y its says perserve below my street. man only took me 4 yrs to get that.

bermuda, ya sorta of. this winter just killed it. its starting to come back, but then we got nippy again the past two nights.

Spin-em said...

145k???

mfl59 said...

I can offer $125K in gold bars....and I'll throw in $20K in silver....

mfl59 said...

man Giethner keeps using the word "fair"....one of the worst words in the English language....

who determines what's "fair" Timmy?

as my Grandpa used to say..."life ain't fair ace"

Spin-em said...

as my Grandpa used to say..."life ain't fair ace"






roflllllllllllllllllllllllllllllllll

Spin-em said...

"ace"......that ones gunna stick..lmaoooooooo

mern said...

if i dont go for 225k, ill sit on it, potsy.

mfl59 said...

Bud I just read that your boy Sean Hannity signed a 5 year $100 million contract with FOX...can that be right? ARod jr. indeed

Frosty said...

Bunky...took some GE today...long term inwestor in america indeed...huge put action out months 7.50, so we have tinder over that level...I know Mrs B, wwaassshhheerrrmachine and bunkies track record, tight stop, please don't hate me.

mern said...

Peter Gibbons: What would you do if you had a million dollars?
Lawrence: I'll tell you what I'd do, man: two chicks at the same time, man.
Peter Gibbons: That's it? If you had a million dollars, you'd do two chicks at the same time?
Lawrence: Damn straight. I always wanted to do that, man. And I think if I were a millionaire I could hook that up, too; 'cause chicks dig dudes with money.
Peter Gibbons: Well, not all chicks.
Lawrence: Well, the type of chicks that'd double up on a dude like me do.
Peter Gibbons: Good point.
Lawrence: Well, what about you now? what would you do?
Peter Gibbons: Besides two chicks at the same time?
Lawrence: Well, yeah.
Peter Gibbons: Nothing.
Lawrence: Nothing, huh?
Peter Gibbons: I would relax... I would sit on my ass all day... I would do nothing.
Lawrence: Well, you don't need a million dollars to do nothing, man. Take a look at my cousin: he's broke, don't do shit.

mfl59 said...

illegal???? Samir this is America!!!!

mern said...

Bob Porter: We're gonna be getting rid of these people here... First, Mr. Samir Naga... Naga... Naga... Not gonna work here anymore, anyway.

roflllllll

mern said...

if u liked office space. u shud love this parody.
http://www.clipaday.com/videos/family-guy-meets-office-space

mern said...

A day after slumping to their lowest levels since before Alan Greenspan's infamous "irrational exuberance" comment in December 1996, stocks were struggling to rebound Tuesday.
Heading into the session some traders were betting on a short-term bounce (at least) based on the S&P's ability to close (barely) above 700 yesterday, as well as bullish comments from noted bear Doug Kass of Seabreeze Partners.

does dougie and aaron task read this blog?

Bunkerman said...

obviously yes.

Bunkerman said...

NP on GE, you are a more patient buyer than moi.

I bought at 8, will buy more IFF it gets to 6.

Bunkerman said...

btw, that's one "shove-ready" project done.

Thanks you Sir, May I have Another !

ugh. glabal warming, such crappola.

C'est de conneries!

mfl59 said...

Bunkerman are you a fan of Fast Timmy Geithner?

Spin-em said...

loooool

Bunkerman said...

Timmy is weak compared to Hank teh Tank.

Seems rather slow, too, but that might be lack of staff.

So far, am no fan.

Bunkerman said...

He neeeds to get that TALF going.

mfl59 said...

Hey Timmy, do you find it hard to hide the fact that youre gay?


(not that theres anything wrong with that)

Spin-em said...

looooool

Bunkerman said...

Timmy, c'est pédé ?

Bunkerman said...

Comment savez-vous?

;)

Frosty said...

TIMMMAYYYY...bud wouldn't kick him out of bed for eating crackers...pistol grip ears indeed.

Spin-em said...

"comrads....stocks are cheap ifyou have a long term time frame...if not we'll fn tax ya mofo's"

mfl59 said...

Comrade Bogle drooling over valuations...."I think if you buy today you'll be very happy in 71 years"....tough to argue with that sir...

mfl59 said...

I guess Obama reads this blog as well....

mfl59 said...

http://www.themat.com/section.php?section_id=3&page=showarticle&ArticleID=19755


an amazing story...