2025-11-07
At bubble altitude, prices stop pricing fundamentals and start competing for the same oxygen: liquidity. When that oxygen isn't rising, the regime flips from "everything floats" to a lifeboat with too few seats.
Law: the market can inflate anything, but not everything—at least not at the same time.
What to watch (simple, not plumbing)
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M2 trend = the money tide. Think of M2 as broad money in circulation.
- Rising M2 → broad lifts stay possible.
- Flat/falling M2 → simultaneous highs get fragile; expect relay rallies, not an "everything" melt-up.
- Check YoY and a 3–6-month annualized look for turns.
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Sanity check: keep one eye on financial conditions (looser vs tighter) to filter noise, and remember liquidity can be global—the "anything" may migrate across assets and regions.
How it shows up
- Relay rallies: one pocket rips while another rests; leadership rotates faster.
- Narrow breadth: index highs on a few shoulders while the median stock lags.
- Brittle momentum: sharper reversals; winners take turns, not the field.
How to operate
- Trade the handoff, not the parade: position for rotations, not universal levitation.
- Treat strength as flow-dependent: if M2 isn't climbing (and conditions aren't easing), durability drops.
- Respect liquidity gravity: stories fly only while the tide rises.
Bottom line: In late-phase bubbles, liquidity is the binding constraint. It will levitate something—just not everything.