The Answer to the Irrational Exuberance Question 15 Years Ago Today

On 12/5/96, Chairman Greenspan spoke the famous words "irrational exuberance" that gave traders a reason to pause during the go-go 90's. The speech did not hold back markets, however, since the indexes continued upwards into the Year 2000 dot-com bubble. The 'irrational exuberance' phrase has a long shelf life, now 15 years old, and is still referenced on an ongoing basis by economists and traders.  The quote from Greenspan in part said ".......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?"

So Greenspan pondered aloud 'how do we know when irrational exuberance escalates asset values into bubble territory a la Japan?'  The answer is about 3 1/2 years since the dot-com bubble popped in the spring of 2000.  Any technician will reference the 18 year cycle. The bear market from the 1960's into 1982 followed by the long bull market from August 1982 thru 2000, and now the current secular bear in place, think Japan, from 2000 to, perhaps  2018?

Time will tell if the 18 year cycle plays out and if the all-clear for equities finally occurs in the 2017-2019 area. But, to answer Greenspan's question on this day 15 years ago, about how long it takes irrational exuberance to escalate asset values to levels that will hold for years afterwards; the answer is about 3 1/2 years.  Markets remain in a funk since the dot-com bubble popped in 2000, despite the real estate bubble that occurred with a market top in 2007--caused by Greenspan's easy money policy in the new century.

Thus, markets were probably irrational exuberant in 2003-2004 as well leading to the 2007 top. The concept to ponder is if the markets were irrational exuberant as the QE1 rally in 2009 occurred? If so, applying the 3 1/2 year answer places another market top at about.........right now into 2012.