Gosh, Greenspan warned about the irrational exuberance of the tech bubble 4 YEARS before it burst. This year he is talking about a housing bubble, dare i say, froth...
Compared With What?
August 1, 2005
By most measures, it is hard to argue that stocks are anything close to cheap.
A valuation model devised by Yale University's Robert Shiller compares the price of the Standard & Poor's 500-stock index with average annual earnings, under generally accepted accounting principles. The Shiller price/earnings ratio of 29 is well below the peak of 48 hit in December 1999. But before late 1996 -- around when Fed Chairman Alan Greenspan made his "irrational exuberance" speech -- it never was as high as it is now. At the start of the long bull market that began in 1982, it was 11.
A measure from Jim Bianco of Arbor Research, which compares the capitalization of the stock market to gross domestic product, tells a similar story. At 120%, market cap as a percentage of GDP is below the 183% it hit in early 2000. Still, this measure was never north of 100% before early 1997 and was at 33.5% at the start of the bull market.
