An Overheating Feedback Loop

Submitted by QTR's Fringe Finance

Congratulations, you made it through the panic…and now the market has decided none of it ever mattered and things are 5% better than they’ve ever been in history. Prices have not only recovered from the Iran war scare, they’ve pushed comfortably beyond where they were before it even started.

The NASDAQ is logging a batshit insane 13-day winning streak, marking its longest consecutive green run since July 2009.

That’s impressive, if your definition of impressive includes a complete disregard for unresolved risk and/or any type of valuation or fundamentals. Because despite what price action is implying, nothing has really been definitively fixed, guaranteed, or even clarified. Only time will solidify that, in my opinion.

Yet here we are, higher anyway.

What’s driving this move isn’t exactly a groundswell of improving fundamentals. It’s positioning. It’s call buying forcing dealers to chase the market higher. It’s short squeezes lighting a fire under anyone who dared to hedge. It’s CTAs and systematic strategies piling in as momentum signals flip. This is a feedback loop, not a sober reassessment of long-term value. These loops can run longer than expected, but they are not stable by nature. They are self-reinforcing until they are suddenly not.

Don’t get it twisted. Valuations are stretched to the point where even the usually forgiving models are starting to sound like skeptics. The Shiller P/E is back near 40, a level that has historically been less a launchpad and more a warning sign.