[jegutman]

Strongly, strongly, strongly disagree with this description. This is a completely unfalsifiable definition of a bubble.

On December 5, 1996 Alan Greenspan first uttered the phrase "irrational exuberance". Some people amazingly credit him with "calling the bubble" for this statement. The Nasdaq 100 closed at 835.80 that day, the lowest price the Nasdaq 100 has closed once the bubble "crashed" was at 804.64 on October 7, 2002.

This is the problem with "bubble watchers". Yes, it's possible for prices to get too high and for companies to trade at too high of valuations (or so it seems) and late 1990s had plenty of that. However, many people are constantly calling bubbles, people were calling the S&P 500 a bubble in this current rally back at 1200 and 1300. Could it go back down? Certainly, but that doesn't make the people calling it a bubble at 1200 correct if it drops from 2100 to 1800.

One of my favorite jokes about the subject: Bubble watchers have correctly predicted 9 of the last 2 bubbles.

Btw, for those interested in a sane economist talking about bubbles I highly highly recommend Scott Sumner. Here's a good old post of his on the subject:

http://www.themoneyillusion.com/?p=8063