"Greed has become a factor and comparisons with elements of the late 1980s come to mind," Citigroup said.

"There are similarities with the 1986-87 market in relation to exuberance and deal making; but what if we are only early in that process? In the absence of a shock, it could go on."

The 29-page report titled Aussie Stocks and the Productivity Scare explains that one of the firm's primary tenets of its belief that the ongoing super cycle has got the "wobbles" was the latest US productivity data coming in at 1.3% growth - well below the minimum 2% target it believes is required to underpin economic growth.

Subsequently, Citigroup said the Australian equity market is starting to look "expensive", particularly the industrials sector.

"Moral hazard problems associated with private equity and the ready availability of liquidity, both here and globally, are driving up equity prices beyond reasonable returns, primarily in the Industrials."

"There are signs of excessive complacency about economic performance, and the cheering on of private equity deals, etc that worry us."

Citigroup urged caution during this "lighten-up period" and not to be fully invested unless necessary.

"We think it is a time for caution - play the ranges for now and pray that companies act (both here and globally) to restore fundamentals, and that major financial shocks are avoided."

"Volatility is too low, and corporate spreads are too thin. Steady growth and low inflation are leading to excess confidence.

"Expensive stocks, particularly those already boosted by dubious deal making, or actual and mooted private equity bids, should be avoided."

In terms of commodity prices, Citigroup said the latest data, with regards to the levels of global liquidity, had indicated a top in the commodity cycle in 2007, "but not a collapse"