Pardon my belated entry into the discussion (I've had a bear of a week).

There are a few issues which come up regularly with bubbles -- I'd like to address one today, and another tomorrow.

We all love to blame Easy Al for the dot com bubble, and as much as I have lain much of the responsibility at his feet, in reality, he was merely the grand enabler. To me, the most fascinating thing about bubbles and manias is that they are merely an inevitable consequence of the Human condition. Our own flawed emotional makeup all but guarantees bubbles -- and as Dan's book shows, quite regularly.

There is a relatively simple reason for this: The vast majority of human history has been spent learning to survive, not analyze P/E ratios. It should come as no surprise that our genetically-encoded, adrenal-filled, flight-or-fight response works relatively well when confronted by a cro-magnon with a club (perhaps not so much for the cro-mag -- but well for us). However, it generates some rather bizarre outcomes in markets. We did not evolve to deal well with little green pieces of paper that get exchanged for 3 or 4 letter symbols flashing on a computer screen.

Whether Greenspan let some air out of the bubble or not was almost inconsequential. The twin motivators of Fear and Greed almost inevitably lead to conditions where excesses, rampant speculation and utter stupidity are all but guaranteed to dominate the trading action at some point in the cycle (typically the end of the cycle). 

My recollection of trading in the 1999-2000 period is vivid. Every sale was a bad one. Anything but levered and long was costly. (Kinda like now). It was apparent for quite some time that the markets had decoupled from reality.

Perhaps a better way to describe it is that sentiment had become a significant driver of equity pricing, replacing such mundane measures as revenues or earnings. It was a new paradigm, the old rules had to be thrown out.

Alas, this is how it always is. Look no further than what is happening in Shanghai today for more proof.

Despite having the benefit of our own recent example (Nasdaq down 78% from 2000 to 2003), or of the post-bubble era Japan suffered through (13 year recession from 1990-2003), the Chinese are rushing headlong into their own stock bubble. The indices are now up 55% year to date, and have tripled in a relatively short period of time. The P/E of the Chinese stock markets are now over 50. New trading accounts are opening by the 1/4 million or more each day. Its even higher on some days -- the number of brokerage accounts set up to buy mainland shares and mutual funds amounted to 327,019 yesterday, according to the China Depository & Clearing Corp. Investors opened a record 385,121 new accounts on May 8. Housewives and messenger boys have become active daytraders. Sounds all too familiar tome. 

George Bernard Shaw correctly observed "What we learn from history is that man never learns anything from history."

Perhaps Dan should have Harper Collins translate the book into Mandarin -- before its too late!