Red-lining

Revvin' up your engine

Listen to her howl and roar

Metal under tension

Begging you to touch and go

--Kenny Loggins

When markets detach from reality, buyers relentlessly march prices higher unfazed by the altitude. For those who choose not to play the fool's game, emotions can start to red-line. "There's no way prices should be here! How long can this madness go on?" they exclaim. 

And then prices squirt even higher.

My last red-line experience was mid 2007. The SPX was touching all-time highs. Housing prices had already flipped over, and early signs of chaos were already evident in the credit markets (New Century Financial, anyone?).

Crazy becomes crazier to the point where you start to wonder if madness permanently trumps sanity.

That red-line feeling is returning. The SPX is once again within spitting distance of all time highs against a backdrop of a feeble economy propped up by money-printing.

How long can the madness go on? 'When' is not knowable. 'What' is much easier to foresee.

The challenge is to endure the red-line phase and make it to the other side.

position in SPX