Examples of historically high levels of investor confidence can be found in the generally used measures of sentiment as well as in the proprietary indicators I have developed over my career.

Additional evidence of the speculative mania that is so concerning is supplied by companies like Tesla (TSLA). Tesla would not be profitable were it not for government subsidies for the purchase of electric vehicles, yet its value is greater than the nine largest auto companies combined. A cult of personality has developed around Tesla founder Elon Musk that has certainly played a role in the stock’s astronomic valuation. As a student of history, I cast a skeptical eye on such cults of personality. Indeed, the events of January 6th in Washington provide a recent example that such uncritical belief in a personality ultimately ends in tears.

In addition to Tesla, we can add record levels of margin debt and call option buying by retail investors, as well as failed short squeeze attempts on GameStop (GME) and other issues. Professional investors, who should know better, are not immune from the current speculative mania. Cash levels for both mutual and pension funds are at historically low levels, and hedge funds are maintaining high levels of leverage.

The amount of leverage exposed to capital markets is at an all-time high, which is exacerbated by the truly gigantic debt burden borne by all levels of the world economy. 

Capital markets are beginning to show the strain under which they labour by behaving in unusual ways. Decades and centuries-old market correlations are breaking down. An example is provided in the chart below.