increasingly conspicuous,” and he cited assurances offered by optimists
equivalent to Irving Fisher’s utterance that stocks had reached a perma-
nently high plateau.^30
Warnings of the end of the bull market did not emanate just from
Wall Street. Academicians were increasingly investigating this unprece-
dented rise in stock values. Robert Shiller of Yale University and John
Campbell of Harvard wrote a scholarly paper showing that the market
was significantly overvalued and presented this research to the board of
governors of the Federal Reserve System in early December 1996.^31
With the Dow surging past 6,400, Alan Greenspan, chairman of the
Federal Reserve, issued a warning in a speech before the annual dinner
for the American Enterprise Institute (AEI) in Washington on December
5, 1996. He asked, “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?”
His words had an electrifying effect, and the phrase “irrational ex-
uberance” became the most celebrated utterance of Greenspan’s tenure
as Fed chairman. Asian and European markets fell dramatically as his
words were flashed across computer monitors. The next morning Wall
Street opened dramatically lower. But investors quickly regained their
balance, and stocks closed in New York with only moderate losses.
From there it was onward and upward, with the Dow breaking
7,000 in February 1997 and 8,000 in July. Even Newsweek’s cautious cover
story “Married to the Market,” depicting a Wall Street wedding between
America and a bull, did nothing to quell investor optimism.^32
The market became an ever-increasing preoccupation of middle-
and upper-income Americans. Business books and magazines prolifer-
ated, and the all-business cable news stations, particularly CNBC, drew
huge audiences. Television sets in bars, airports, and other public places
were invariably tuned to an all-business network. Electronic tickers and
all-business TV stations were broadcast in lunchrooms, bars, and even
lounges of the major business schools throughout the country. CruiseCHAPTER 6 The Investment View of Stocks 87
(^30) Henry Kaufman, “Today’s Financial Euphoria Can’t Last,” Wall Street Journal, November 25, 1996,
p. A18.
(^31) Robert Shiller and John Campbell, “Valuation Ratios and the Long-Run Stock Market Outlook,”
Journal of Portfolio Management, vol. 24 (Winter 1997).
(^32) Newsweek, April 27, 1998. Cover stories about the stock market in major newsweeklies have often
been poorly timed. BusinessWeek’s cover article “The Death of Equities” on August 13, 1979, oc-
curred 14 years after the market had peaked and 3 years before the beginning of the greatest bull
market in stocks.