If you're bearishly inclined, every day since like 2013 has been one more blind step into the dream-world of irrational exuberance. If you don't like being wrong for years on end, however, the line between an ordinary bull market and one fueled by I.E. is trickier to discern. Do you go on valuations? Fund manager allocations? Greenwich real estate prices? Murray Hill coke busts?
Bank of America Merrill Lynch Global Research has its own methodology, combining Greek myth and ovoid nursery-rhyme characters to create a holistic picture of the market's current madness. And as far as BAML is concerned, we're basically there:
“Icarus is flying ever closer to the sun,” said Michael Hartnett, chief investment strategist, “and investors’ risk-taking has hit an all-time high. A record high percentage of investors say equities are overvalued yet cash levels are simultaneously falling, an indicator of irrational exuberance.”
According to BAML's monthly fund manager survey, investor risk appetite has graduated from “shots, anyone?” to “forgive my nosebleed.”
Meanwhile, the growing share of managers convinced that equities are overvalued has been mirrored by falling cash positions, yielding a spread between the two larger than at any point since '99.
“This is a sign of irrational exuberance,” BAML says of the above chart.
Meanwhile, hedge funds' equity exposure has reached a high not seen since a brief time in 2006.
In BAML's opinion, this should all add up to a giant warning that shit will be hitting the fan sooner rather than later, perhaps as early as the holidays. Until then, please enjoy your irrational exuberance responsibly.