By his own valuation work, Andrew Hunt thinks the US equity market is priced for something like 10% real GDP growth,  comparing the net present value of fifteen years of corporate profits at the highest profit share in history against market capitalization produces the largest divergence he has ever measured. Yet he is not advising anyone to get defensive. Doing so now, he says, "would be a bit like standing on the railway track in front of a locomotive coming at you full speed. You might know the track is broken behind you, but the locomotive isn't going to notice you."

The locomotive is liquidity. Hunt describes the most intense credit and flow-of-funds cycle he has seen in forty years of "chasing bubbles". When new Fed Chair Warsh leaned on the banks to slow lending earlier this year, they complied for a few weeks — and foreign banks, particularly Japanese, promptly piled in, in what Hunt sees as a direct echo of 2006, when German and Japanese banks took over the running just before the music stopped. Add the US Treasury running down its cash balance, near-record capital inflows, and margin lending at levels relative to GDP not seen since 2000 or 2006, and the boom "doesn't want to stop". Behind much of it sit Asia's extraordinary current account surpluses — 10–20% of GDP in some countries, swollen by chip orders — which are being recycled into global capital markets as governments intervene to hold their currencies down. His shorthand: markets are faith times liquidity, and while faith may have peaked, liquidity has not.

The catch is that almost every strand of this story is inflationary. Oil heading back towards US$90–100, hydrocarbon shortages lifting plastics prices 20–40%, Chinese companies raising export prices as their credit dries up (a phenomenon that preceded bond routs in 1994 and 2007), and Washington's determination to re-industrialise — driven, Hunt believes, by a genuine expectation that Taiwan could pass under Beijing's political control within eighteen months. Building defence and chip capacity absorbs capacity: Keynes called it guns and butter; Hunt calls it chips and fries. You cannot order all the chips for the data centres and the missiles too.

That puts the ball in Warsh's court. Hunt's central fear is a "reverse Powell": just as Powell used a blunt monetary instrument to chase a social goal and unleashed inflation, Warsh may attempt a surgical strike on market froth and instead tip over a fragile real economy — weak housing, soft non-tech capex, small companies already cash-strapped. The next FOMC's signals on reserve management and quantitative tightening are, in his view, the key thing to monitor, along with how banks and foreign capital respond.

For advisers, the practical message is to stay at the party but remain compos mentis: avoid the frothy corners where liquidity, not fundamentals, has been doing the work — Korean chip stocks being the cautionary tale — and treat bonds warily for now, while recognising they could become attractive very quickly if the winds change.