We hope that you had a lovely break over Christmas and the New Year.
We’d like to welcome you back to our regular In the Loupe market updates, which will again be published on a weekly basis this year.
Speaking of this year, and whilst the calendar has ticked over into 2021, much of what we’ve seen take place in the first few weeks of January represents a continuation of the issues that plagued us in 2020.
These include continued problems with COVID-19, mutations of which are beginning to develop, and spread across the developed world. This means lockdowns are likely to continue, with economic activity continuing to suffer as a result.
Political tensions are also still evident, despite the change in the White House, which is particularly relevant for Australia given our reliance on commodity exports to China (more on this below).
Most importantly, we are seeing a continued euphoria in markets that is now completely divorced from economic reality: Whether it be Bitcoin, shares in companies such as Tesla or GameStop, or the proliferation of capital being raised via Special Purpose Acquisition Vehicles (SPAC), there are numerous examples of investor exuberance in the markets today.
Perhaps the best way of visualizing this is looking at the chart below, which shows movements in the CitiGroup Panic and Euphoria Index from 1987 through to the start of 2021.
The Panic/Euphoria Model
There are multiple inputs into this model, but in essence, it is a very easy way to visualize the ‘mood’ of the market at any point in time, and whether or not investors are feeling optimistic (euphoric) or pessimistic (panic) on the whole.