In fact, Citi finds the most evidence of bubbles not in the stock market but rather in bonds. (
Buckland''s team compares the current situation to the famed 17th century "Tulip Mania," when people demanded rare tulips, driving up prices to unsustainable levels and creating perhaps the world's first financial crisis. Nowadays, central banks buying up bonds have created similar shortages.
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"When we look at the current situation, a demand/supply imbalance is evident again," they wrote. "Since the financial crisis, security issuance has fallen and central bank buying risen. The overall effect is that the two cancel out and net security issuance is zero. Given rising demand for financial assets, it is unsurprising that prices are rising and potential bubbles inflating. Once we ex out central bank purchases, there just isn't any new paper to go round."
Most immediately, Citi sees a bubble in European bonds. Equities, in the U.S. and elsewhere, are approaching but not yet at the bubble stage, the Citi team said.
"European fixed income markets seem most euphoric," Citi said. "Valuations here are around two standard deviations expensive relative to history."
As for U.S. stocks specifically, they are trading at fairly expensive levels historically speaking—about 2.9 times book value— "no longer cheap but not yet in bubble territory." Excluding underperforming financial stocks gets the U.S closer to bubble territory, though not quite there yet, Citi said.
There are some potential trouble spots in terms of sectors, though.
Citi rates consumer stocks in bubble turf, with retailing, durables, consumer services and food and beverage companies trading well above historical norms. As a sector, consumer staples are trading at 18.3 times earnings and 3.1 times tangible book value, according to S&P Capital IQ.
The analysis also finds European pharmaceuticals and Japanese food and beverage stocks to be overheated.
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As for where the bubbles aren't, Citi rates U.S financials as well as European banks, autos energy, materials, technology and capital goods trading "cheap compared to history."
Developed market commodity sectors also are well below bubble territory.