"When the music stops, in terms of liquidity, things will get complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing." This quote, given to the FT in July 2007 by Citigroup's then-chief executive Chuck Prince, should be nailed to the wall of every private investor. No other piece of Wall Street wisdom comes close to Prince's perfect encapsulation of how the financial industry works during a bubble.
One thing that people get wrong about bubbles all the time is that no one sees them coming. As Prince's quote shows, this isn't true. You need only read a newspaper today to realise that plenty of financial professionals feel wary of markets right now every other investment section contains someone quoting the Shiller price/earnings ratio and marvelling at the latest "top of the market" indicator (such as the launch of a financial instrument dedicated solely to trading the biggest tech stocks using borrowed money). In fact, according to the latest fund manager sentiment survey from Bank of America Merrill Lynch, more fund managers than ever before believe the stockmarket is overvalued and that they are taking more risk than usual by remaining invested. And yet, they're still dancing. Cash levels are falling fast at 4.4%, they're below the ten-year average of 4.5% and well down from highs of near-6% last year.
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