Nearly 13 years after making ‘irrational exuberance’ one of the most familiar phrases of all time, stock market investors are anything but exuberant. On 12/5/96, when Greenspan suggested that stock market investors may be out of touch with reality, the S&P 500 was at 744.38. As of the end of the second quarter, the S&P 500 has gained 53.4% on a total return basis. At face value, this seems like a respectable return on one’s investment. However, compared to alternatives the gain loses its luster quickly.
Consider the three month US T-Bill, which is one of the safest, most conservative, and lowest yielding investments out there. Back when Alan Greenspan was talking about ‘irrational exuberance,’ putting your money in three-month T-Bills was akin to stuffing it in the mattress. Currently, three month T-Bills are yielding 0.1575%, which means you will receive 15.75 cents of interest for every $100 you invest. Even with their low relative yields, however, T-Bills have had a total return of 56.4% since Greenspan’s memorable quote, outperforming stocks by 300 basis points. Equity market investors can only hope now that the years ahead look similar to what happened the last time stocks were underperforming T-Bills back in late 2002.
Who Needs Stocks When You Have a Mattress? – Bespoke Investment Group
