Investor Euphoria At Record Levels

The Citi Sentiment Index is reflecting a level of investor optimism that dwarfs that of the previous peak of “irrational exuberance” at the turn of the century. Most remarkable is that this level of optimism is being generated when the global economic and geopolitical scene is at its most fragile since WW2 and the world is battling the deadliest pandemic in a century.

The bullish case rests on the intervention of central banks to massively expand the money supply and reduce interest rates to historic lows. These measures have helped support markets, but that they have been needed on an ongoing basis since 2008 speaks to the thin economic ice on which we walk.

Low-interest rates don’t justify pricing assets to infinity.

Such extremes of sentiment, whether euphoria or panic, never last and always produce a sharp reaction.

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