Less than a week ago, we brought you the analysis of JPM Japan Equity Strategist Hajime Kitano, who described the unfolding crisis in the Eurozone as a reverse bubble.
Essentially, the market had become irrationally un-exuberant about the sovereign debt situation. Kitano wrote:
Bubbles are formed when the market is enthusiastic about an unreasonable valuation yardstick. In the second half of the 1980s, the Japanese stock market focused in a strange way on the so-called Q ratio. At present, the ratio of debt to GDP is acting as the choreographer of a reverse bubble.
As Yale University Professor Robert Shiller points out, ‘The idea that a country goes bankrupt when its debt exceeds 100% of GDP is utter nonsense. After all, debt and GDP yield a ratio in units of pure time. There is nothing special about using a year as that unit’ (Toyo Keizai Weekly, September 3 edition). However, ‘the general public often overreacts to this kind of nonsensical view,’ according to Professor Shiller.
He also offered up this chart, showing that well before the latest big European save, Italian stocks (a decent proxy for fear and greed in Europe) were breaking out of their big slump.
Anyway, that chart’s old news now.
So just to have some fun with that, we wanted to bring you the latest look at Italy’s FTSE MIB, only this time we’re flipping it upside down, so that, you know, it more closely resembles a plunging market.
This really looks like a bursting fear bubble.