Sometimes I catch myself staring at the screen, watching yet another all-time high, and wonder if I’ve completely lost touch with reality. For years now, I’ve been warning about overvalued markets, bubbling assets, and the inevitable reckoning that comes from decades of easy money. Yet here we are, with stocks grinding higher as if gravity no longer applies. It’s enough to make even a committed skeptic pause and ask: what if the bulls are right this time?
Why the Traditional Bear Case Feels Increasingly Shaky
Let me start with where I’ve been coming from. My base view has long been that we’re building toward a significant unwind. Governments and central banks have piled on debt at an astonishing pace, and the only realistic way out involves some form of inflation that erodes purchasing power for everyday people. It’s not pretty, but it’s politically convenient.
Add to that the obvious excesses: cryptocurrencies trading at nosebleed levels, companies with no profits valued in the billions, and speculative frenzy that rivals anything we’ve seen before. In a sane world, this kind of setup demands a painful correction—one that lasts long enough to reset expectations and clear out the weak hands.
I’ve figured we’d need at least a year, maybe eighteen months, of real pressure to squeeze out the euphoria. Monetary policy works with lags, after all. Even aggressive stimulus takes time to filter through the system. Or so I thought.
The Disconnect Between Markets and Reality
Here’s where things get interesting. What if my entire framework is outdated? What if the stock market has evolved into something that no longer cares about traditional economic signals?
Think about it. We keep waiting for weak manufacturing numbers or softening consumer spending to finally matter. But they don’t. The market shrugs, dips for a day or two, then marches higher on the slightest hint of more accommodation. It’s as if the connection between Main Street and Wall Street has been completely severed.
In my experience watching these cycles, this kind of detachment usually ends badly. But perhaps this time really is different—not because of technology or productivity, but because the system now requires perpetual upside to function.
The market can remain irrational longer than you can remain solvent.
– Often attributed to a famous economist, and never more relevant than today
Liquidity as the Ultimate Backstop
The real game-changer is how quickly central banks can now flood the system. We’re not talking about measured rate cuts over months anymore. When things get dicey, the response is immediate and overwhelming.
Credit markets freezing? Fixed overnight. Equity rout gathering steam? Suddenly there’s unlimited buying power available. It’s not even subtle anymore. The playbook is clear: protect asset prices at all costs.
This creates a fascinating dynamic. Why would markets wait for economic data to improve when they know relief is just a policy announcement away? The moment sentiment turns, the cavalry arrives. And in a world of algorithmic trading and passive flows, that relief rallies can be ferocious.
- Risk assets get bid aggressively on any sign of dovishness
- Short sellers get squeezed, providing additional fuel
- Passive investors keep buying regardless of valuation
- The wealth effect supports spending, creating a self-reinforcing loop
The Religion of Compounding
Something else has shifted culturally. We’ve fully embraced the idea that markets must go up forever because so much of society now depends on it. Retirement accounts, university endowments, pension funds—they’re all structured around the assumption of steady appreciation.
When prominent business leaders talk about setting up investment accounts for children or celebrate the power of long-term compounding, it’s not just optimism. It’s acknowledging the new reality: sustained market gains aren’t just desirable, they’re necessary for the system to keep working.
This creates what feels like a permanent bid underneath risk assets. As long as policy makers understand this—and they clearly do—the downside seems increasingly contained.
Why Corrections Might Stay Shallow and Short
Even if we get pullbacks—and we almost certainly will—the nature of them may have changed permanently. The COVID crash showed how quickly markets can bottom when unlimited firepower is deployed. What took years to recover in past cycles now takes months.
Perhaps the most interesting aspect is how fast sentiment can flip. One day we’re talking about hard landings, the next we’re pricing in multiple rate cuts and new highs. The speed of these reversals keeps bears perpetually off-balance.
I’ve found that trying to fight this tape is exhausting. The path of least resistance keeps proving to be higher, even when fundamentals suggest otherwise. Maybe that’s the point: fundamentals have become secondary to liquidity conditions.
Where Traditional Valuation Metrics Fail
One of my biggest mistakes might be expecting valuations to mean revert to historical norms. Sure, price-to-earnings ratios look stretched compared to the past. But in an environment of permanently lower rates and constant support, maybe those old benchmarks are irrelevant.
The market isn’t pricing earnings growth in a vacuum anymore. It’s pricing the continuation of favorable financial conditions. As long as that regime persists, expensive can stay expensive—or get more expensive.
This is hard to accept if you’ve studied market history. But history also shows that regime changes can persist for decades. The low volatility, rising market environment we’ve lived in since the financial crisis might not be an aberration—it’s the new normal.
- Central banks prioritize financial stability over everything else
- Technology enables instant policy transmission
- Passive investing creates mechanical buying pressure
- Global savings glut continues to seek yield
- Political pressure to support asset prices remains intense
The Opportunities This Creates
Even if I’m warming to this bull case, I’m not abandoning caution entirely. There are always pockets of value, even in overvalued markets. The key is identifying where enthusiasm hasn’t fully taken hold yet.
Certain commodity-related sectors, for instance, continue to trade at reasonable levels despite strong underlying demand trends. Energy transition themes, precious metals exposure—these areas can perform well even as broader indices stretch higher.
The beauty of this environment is that leadership rotates. When everything seems expensive, the market finds new stories to embrace. Staying flexible and open-minded becomes crucial.
Risks to the Perpetual Bull Thesis
Of course, nothing lasts forever. There are legitimate scenarios where this regime could crack. Persistent high inflation might force central banks to maintain restrictive policy longer than markets expect. Geopolitical shocks could disrupt the calm.
More concerning is the growing concentration in major indices. A handful of massive companies drive most of the gains. If something fundamentally changes with those leaders, the broader market could feel significant pain quickly.
Social and political pressure represents another wildcard. When asset appreciation primarily benefits the already wealthy while living costs soar for everyone else, tension builds. At some point, policy might shift toward redistribution over asset support.
The system works until it doesn’t—and the break can come suddenly.
Positioning for an Uncertain Future
So where does this leave investors? I’ve learned the hard way that fighting powerful trends rarely ends well. At the same time, getting fully sucked into euphoria tends to end even worse.
My approach has evolved toward maintaining core exposure to quality assets while keeping dry powder for opportunities. Accepting that markets can stay detached from fundamentals longer than seems reasonable has been a tough but necessary lesson.
Diversification across different regimes makes sense here. Some allocation to traditional safe havens, some to growth areas, some to undervalued deep value—the exact mix depends on individual circumstances, but avoiding all-or-nothing bets feels prudent.
Perhaps most importantly, staying intellectually honest matters. When the evidence shifts, views should shift too. The bull case I’ve outlined here challenges my prior assumptions, and that’s healthy. Markets have a way of humbling everyone eventually.
Watching this unfold continues to be both frustrating and fascinating. The rational part of me still expects gravity to reassert itself eventually. But the pragmatic part recognizes that eventually can be a very long time in markets.
For now, the path higher remains clear. Whether that continues for months or years remains to be seen. But dismissing the possibility entirely feels increasingly like the riskier bet.
In the end, maybe the real question isn’t whether markets are rational. It’s whether they’re rational to be irrational in an irrational system. And right now, the answer appears to be yes.
