Update: The year in this story and the graphics have been corrected after the WSJ issued a correction.
The phrase ‘irrational exuberance’ is intricately tied to former Fed Chairman Alan Greenspan. Today is the 17-year anniversary of the 1996 statement at the American Enterprise Institute. The WSJ reviews when he first made the comment:
“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? And how do we factor that assessment into monetary policy?”
The lore of irrational exuberance later grew but it was phrased as a question, not a call.
S&P500 when Greenspan first said ‘irrational exuberance’
In any case, it was a terrible time to sell stocks — the S&P 500 had more than doubled 30 months later.
Bernanke, meanwhile, is the biggest stock market cheerleader in Fed history.
