Regular readers are very familiar with this John Templeton quote:

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.

Having done what I do since the mid-80s, I have come to regard that assertion by one of modern-history’s great investors as almost prophetic. Operative word being “almost”: So as not to suggest that you should take comfort in others’ present discomfort—in case, that is, you’ve noticed a general sense of skepticism and angst around today’s stock market—I can’t remind you enough that the stock market is as unpredictable as the wind.

Now, that said, in the midst of my typical early Saturday morning routine—after reading one analyst’s view of what the currently high margin debt readings may or may not say about the market going forward—I began reminiscing on my experiences during past market tops. For this essay, a market top would be the place immediately preceding a major, and extended, stock market decline. Two periods in particular, the spring of 2000 and the fall of 2007, came to mind.

I recalled the late-90s, when stocks, in the aggregate, were trading at previously unspeakable valuations—and every Tom, Dick and Mary, by the osmosis of their E-Trade accounts, became stock-pickers extraordinaire. They quickly learned, then fervently followed, a most complex stock-picking strategy: if a company’s title began with “E”, or ended in “.com”, you buy it with everything you got! I had a few clients back then who just couldn’t figure out why I couldn’t figure that out. For a time, their accounts with me were so grossly underperforming their E-Trade accounts (that they traded from their desks at work), that I had become their greatest frustration. And if their frustration with me happened to peak before the peak of that amazing ridiculous bull run, well, I try not to think about what likely became of those folks’s retirement plans—all having been transferred to their E-Trade accounts—during the ensuing three-year blood bath.

Yes, “euphoria” would be how you’d characterize stock market sentiment in the late 90s.

Interestingly, the euphoria of the mid-2000s—the euphoria preceding the Great Recession/bear market of 2008—wasn’t about stocks, it was about real estate. Stock valuations, in the aggregate, were nowhere near the levels seen during the run-up to the breakdown of the Nasdaq Composite Index. Folks weren’t throwing everything down on the chatroom four-digit symbol du jour like they were in the late 90s. Nope, they were, instead, throwing their credit ratings and stated income numbers at banks willing to lend them barrels full of money against the appraised value of their family shelters. Some sought to parlay their ever-growing equity into great fortunes by investing in additional properties, while others sought to simply enjoy the fruits (jet-setting, jet skiing, sport car-ing, new pool-swimming, remodeling, etc.) of the Fed’s labors (artificially low interest rates), and the banker’s greed/stupidity.

Without, again, getting deep into the weeds of that great credit bubble (other than to say that, while 2007 stock prices weren’t frighteningly high when compared to earnings, earnings couldn’t be sustained amid the bursting of the credit bubble), suffice it to say that we know what happened next.

So then, if euphoria, as the Templeton quote, and my observations, suggest, is a determinant of market tops (we can’t, however, know that it is), the question for the day is, are we feeling euphoric? And, if so, with regard to what?

Personally, while I do have a few clients who seem, to me, overly optimistic, by and large I’m not sensing euphoria for stocks among the folks I counsel. In fact, quite the opposite in many cases. And I’d have to say the same goes for real estate. There was a time recently when I thought folks were way too optimistic over gold, but that sentiment has, for the most part, come and gone without taking the global economy with it. Some, me included, do believe the bond market has tread into some very dangerous territory, but I wouldn’t characterize today’s bond investor as euphoric. I’d say, particularly when we’re talking retail investors (folks like you and me), they’re complacent. Which I consider nearly as ominous. As I’ve expressed here, ad nauseam, I see the ultimate process of the bond market finding its equilibrium (whenever that begins to occur) as becoming a potentially serious headwind for the economy, and asset prices.

Now, with regard to bonds, there’s a different, and legitimate, argument to be made. It goes like this: Rather than complacency, the bond market is reflecting intense skepticism about the economy going forward—folks are willing to buy 10-year treasury bonds at 2.7% because they don’t yet see light at the end of the economic tunnel. Folks buy bonds for safety… This argument of course emboldens the wall of worry believer—as in the Wall Street adage: bull markets climb a wall of worry.

In summary, I’m not suggesting that the next bear market isn’t close at hand simply because you’re not mortgaging your family’s shelter to buy Tesla stock, or a Tesla (although I suspect some people, just not everyone you know, are). In fact, I’m not at all suggesting that the next bear market isn’t indeed close at hand. For all we know, it may very well be. It’s just that—if it’s to begin anytime soon—it will not, like the previous two, have been preceded by what I’d consider euphoria…