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We’re starting to see some of the more obvious issues come out of the heavy government interference we’ve seen in markets over at least the past decade.

What I mean is that we’ve seen trillions in Fed support and Congressional stimulus, whether you talk about bailouts to industries, keeping markets functioning through constantly buying ETFs, pancaked interest rates, and so on. For that matter this has been going on to one extent or another for several decades, with an ongoing stream of QE, not to mention other issues like payment for order flow, HFT (High Frequency Trading), and so forth.

All of this has slowly killed price discovery, and now it seems like price discovery had a terminal event last week. Is GameStop (GME) worth $16 or $500? The stock market said Yes.

Events of late just seem like the natural endgame of a world where the government has at least inadvertently separated fundamentals from prices to keep the game going. The problem is, you create these incredible distortions. The only world in which Tesla is worth about $800B is basically a casino. Government actions continually tell investors that risk management doesn’t matter. They will protect you from all pain.

This latest GME discussion on WallStreetBets (a forum on the Reddit social media platform) is just an extension of the game. In this case, they identified what is basically a cigarette butt company (GME) where a lot of short sellers were pricing in the logical conclusion that eventually the company was going to go bankrupt. I actually actively looked into investing a few months ago for small cap and passed (barely). I figure they can probably live another 2-3 years, then it’s anybody’s guess.

What’s GME worth? Eventually zero (though after these events, it’s possible they survive in one form or another). Before that day arrives? It’s a huge range in this environment. A lot of Wall Street, with an eye on the endgame, think GME is worth something like $15 right now, but I’ve heard perfectly rational people talk about a $100 price tag based on some positive catalysts available in the next year or two.

It’s another moonshot, and in this gambling atmosphere, moonshots have done great. With moonshots, it’s not about the endgame, it’s about the next catalyst. The endgame is some other guy’s problem. At this point, doesn’t that kind of describe our market and our economy? As long as we can rig things to get through the next quarter, not many people seem to care about the endgame.

How do you invest in this environment? By being prepared before the event through constant risk management. I’m not against taking some reasonable moonshots. We’ve done that, admittedly mostly in small cap, and it’s mostly helped to boost returns. An entire portfolio of moonshots would have done fabulously well over the last several months, but eventually someone has to pay for the party. I have to wonder out loud, is that time approaching?

What’s the alternative to risk management? Can investors keep hopping from one hot stock idea to the next? For that matter, can investors keep pretending that as long as the economy seems ok this quarter, who cares about next year? Eventually that all ends in tears for most players.

I’m not against taking reasonable risks, but my focus, particularly right now, is on investing in real companies. Something like GME or Tesla could easily and rationally fall 95% or so. Instead, we’re focusing on companies that offer long-term value. They’re not immune from falling, but particularly at this point in this speculative frenzy, I’m much more comfortable looking for companies that will outperform over the next year rather than double next week. They may not look as good next week, but I like their odds over time.

At some point, the speculation game will blow up. We’re already seeing very illiquid markets, where even some safe and reasonable stocks go up or down 7% in a day for no reason. Volatility is up, losses are large in some spaces, and the emergence of de-risking seems likely. Where to from here for the market? I doubt we really crash right now, but I’d be willing to bet we’re poking around peak speculation. It’s hard to see much more reward in the hot stocks.