Right up to the second half of July, not only were commodity markets strong, but world equities were still raging ahead in utter denial of the spreading cracks in the credit boom, with both the S&P and the emerging markets’ indices making new highs in that time. All this despite the fact that there were elevated sentiment readings: record-high margin longs on the NYSE; record-low mutual fund liquid asset percentage holdings; a major turn in the breadth of the market (that for the NASDAQ has, indeed, since hit new multi-year lows); and volatility indices were climbing with â€” rather than against â€” the rise in stocks.
It is now clear that the sense of invincibility displayed by so many players was singularly ill judged. Far from forming a “permanently high plateau,” the early summer seems to have marked nothing less than the nose-bleedingly vertiginous pinnacle of what has arguably been the most spectacular mass hysteria in the whole sorry history of financial market manias. FULL ARTICLE