While the Fed remains convinced (and they would know) that there is no bubble in asset markets – in the face of record issuance of covenant-lite loans, record high stock prices in the face of declining fundamentals, and record low spreads in credit markets as leverage rises – as we noted yesterday, investors “are stretching to find reasons not to cut” their allocations. The bursting of the bubble was dismissed by many late last year as “bubble” talk reached highs – providing psychological non-confirmation that a market drop is unlikely when bubble talk is so high. It seems, in the last few weeks that has shifted as bubble chatter has dropped rather notably.
Does that free up investor psychology to sell? Being “greedy when others are fearful” has an equal and opposite trading meme – cover when no one is worried.