There’s an ever-expanding chasm in markets between fundamentals and flows, and market forces such as commission-free trading and the widespread adoption of passive ETFs have distorted price discovery, Real Vision’s Tyler Neville told Ed Harrison during today’s Daily Briefing.

Neville explained what’s happening on the micro side of the market. It starts with the influx of retail traders, who are doing fee-free trades via internal wholesalers, which removes liquidity from the marketplace that is still getting printed to the tape.

Then, traders at large institutions see that volume going through and realize they’re not capturing the liquidity. If they have inflows they’re falling behind, so when they get money in, they buy immediately try to catch up on the volume and chase the liquidity.

In reality, Neville said, it’s a really illiquid tape, but you wouldn’t think so because the spreads are so tight.

Another market force that’s changing the landscape is passive investing. Neville said that people selling out of active funds that charge high management fees and reallocating into passive is a bullish thing for the market. We’re seeing massive inflows into shares that are doing passive strategies and active managers have to keep up with the flows so it creates these bubble, herd-like effects, he said.

Neville argued that while it may seem counterintuitive in the current economic environment to be looking at a bull market, the market is acting more rational than people think. He pointed out that there is $7 trillion of Fed fiscal spending going into just 3,500 stocks in the market, minus about a trillion per year in buybacks that remove the float, so we have a shrinking supply of stock, and a shrinking supply of float.

That, he said, is reminiscent of the 2000 tech stock boom when only 5% of shares outstanding were trading. So, the bull market mania could last longer than the bears expect.

“You can’t really be bearish when you know that [whoever wins the election] is going to pull out all the tools of financial chicanery to keep this thing going,” Neville said. “This might be a raging bull market in the face of an economy that’s never been worse.”