The Euphoriameter Hits a Post-crisis High

The ” Euphoriameter ”  has hit a new post-crisis high in June, indicating increasing levels of euphoria among investors.  The indicator tracks 3 gauges of sentiment:  1. Investor Surveys: the bullish sentiment readings from the AAII survey and the II survey;  2. Risk Pricing: the smoothed level of the VIX (i.e. the trend in complacency or fear); and 3. Valuation: the forward PE ratio, which reflects investor confidence in price vs future earnings.  All 3 indicators are basically in agreement – which is rare.

 

A Few Highlights From Evidence-Based Investing Conference (West)

Michael Mauboussin: Here’s what active managers can do

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More


Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

That is, investors are more bullish than usual, more complacent about risk than usual, and more confident in future corporate earnings than usual.  The question it raises is whether this is 'irrational exuberance' or rational exuberance.  The truth is exuberance usually starts from some rational reason such as low interest rates, strong economic growth, improving earnings, expectations of stimulus, better global economy, etc.  And some of these conditions certainly exist.  But another way of looking at it is that expectations are increasingly high, and thus vulnerable to disappointment.

The "Euphoriameter " has climbed to a post-crisis high after giving a buy signal at the market bottom in early 2016. We are yet to see the same type of extreme euphoric levels of the dot-com bubble, but it wouldn't take much to get there from here.

Euphoriameter

For institutional grade insights on the global economics and asset allocation, and some more good charts you may want to subscribe to the Weekly Macro Themes.  Click through for a free trial.

Save

Previous articleHow likely is North Korea vs. U.S. war? Experts weigh in
Next articleUser/Subscriber Economics: Value Dynamics
Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.