CNNMoney’s ‘fear and greed’ indicator currently shows ‘extreme greed’ in five of the seven areas it uses to calculate what is driving international markets.
The statistics show a rapid rise in investor greed over past months, peaking at a record high of 95 per cent yesterday.
Worryingly, the current trend is one of ‘extreme greed’ even in the ‘junk bond’ market, a type of investment which was at the heart of the 2007-2008 financial crisis.
The subsequent market crashes saw economies across the globe spiralling in to meltdown.
Major US banks went bust, British bank Northern Rock needed a massive government bailout and the ensuing credit crunch impacted the UK economy for years.
‘Junk bonds’ involve investors buying the debt – or bond – of a company or nation which is facing financial trouble and may not ever be in a position to pay its debt back.
They can potentially yield a very healthy profit, but are an extremely risky investment.
CNNMoney says cash is being ploughed in to low quality junk bonds instead of safer ‘investment grade’ bonds, which it says “suggests that investors are pursuing higher risk strategies”.
But experts also say shares have been performing extremely well so more money is being invested into stocks.
Although both stocks and bonds can be high risk, the bond market usually offers investors a greater degree of safety compared to the buying and selling of shares – which can be extremely risky.
CNNMoney says: “This is close to the strongest performance for stocks relative to bonds in the past two years.”
The S&P 500 – the American equivalent of the FTSE 100 – measures how well the country’s top companies are performing, and it is currently at a four month high.
CNNMoney says: “Rapid increases like this often indicate extreme greed.”
The number of stocks hitting record high prices on the New York Stock Exchange “is at the upper end of its range”.
