While Put-Call ratios, VIX curves, and Fear-Greed Indicators are better known, the so-called "Complacency" Index – comparing real profitability of companies to their risk – has never been more complacent. In fact, markets are more 'exuberant' than at the peak in 2000 and 2007…
As Bloomberg's Christopher Langner notes, the whole world is moving together and signs of a massive bubble that spans asset classes are becoming clearer.
Historically, very high correlations are associated either with a panic or a bubble.
Extreme asset inflation tends to reach fever pitch partly because of what scholars call positive feedback, or where exuberance and herd mentality feed further investment.Some of the biggest bubbles of the past century were marked by this spillover to all asset classes.
But once one market pops, the rest deflate as well.
There are clear marks of a bubble in the current market.
Perhaps the best indicator is the so-called complacency index, which relates enterprise value (dictated by market prices for a company's debt and stock), Ebit (a measure of actual profitability) and the Chicago Board Options Exchange's Volatility Index, or VIX.
The ratio between these three hasn't been this high since just before the 2008 credit crisis — and the higher it goes, the more you should worry.
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