Prior to Thursday, the stock market had experienced the longest streak of sub 1% daily moves since 1995. This period of unusual calm was brought to a sudden end with the downing of the Malaysian jet over Ukraine and the launch of the Gaza assault by Israel. Both events were reported within the same trading session, and that bad news was finally enough to cause a +1% sell off in the S&P 500. 500 future – Thursday’s trading</a> </div>

But by Friday morning, when neither of those events escalated dramatically, the market shrugged off the bad news like a Hall of Fame power running back and charged higher. 500 future – both days</a> </div>

If you had told me that we were going to get an up day after Thursday’s big sell off, I would not have argued with you. If you had told me that the market would be able to stage a +1% rally after the first big down day in months, I would have have said you were nuts.

But then again, you probably didn’t get your face ripped off like I did on Friday.

There was no couching Friday’s action as anything other than unbelievable. I am not expecting the start of a vicious bear market because of these two geo-political events, but at the same time, I am not expecting the markets to basically ignore the risks either. Given the massively overbought nature of the markets, you would think that they would be looking for an excuse to sell correct.

George Soros has a line where he says, “when I see a bubble – I buy it.” That is why George is probably the greatest trader that has ever lived. He knows that a bubble becomes self-reinforcing. The positive price action attracts more buying, which only further reinforces the price action causing even more buying, etc… The demand for the asset actually increases as the price increases.

There is no doubt in my mind that we have hit this point in the stock market – Friday’s action confirms it for me. The price action has become the determining investment criteria. Investors are more scared about missing it, than they are about it going down.

No longer does fundamental price matter. I know a lot of investors will conjure up arguments that stocks are “cheap,” but most of those arguments are made by strategists trying to spin the fundamentals in the most positive light.

When sane analytical investors like GMO look at the market, they come to the conclusion that US stocks are priced for negative real returns:

Or how about Professor Shiller’s great work? What does it say about future returns? future return estimate for US stocks</a> </div>

What I find the most funny about Shiller’s forecast is that even though it is calling for 0% real returns for equities, I think I remember Professor Shiller saying that he is still long stocks.

It takes a lot of courage to not participate in the mania – even when your life’s work is telling you that it is a dumb investment.

I don’t have a lot to add this morning, except to remind you to remember that risks are increasing. We very well might sprint higher, but if you are playing this aggressively from the long side, please be careful. There are a lot of signs that things are not well. The fact that idiots like me are getting destroyed in face ripping rallies should not make you even more confident. And the fact that I am so very alone in my stupidity should give you even more pause. Pretty soon even I won’t be able to take it any more, and at that point, you know the top will be in.