MARKETS,Anybody even yet?

[dinghy]

Weekend fear porn. This is from Jesse Felder, apparently sourced from Steven DeSanctis of Jefferies:



With data back to 1935, the US market has never achieved anywhere near the current level of concentration in top market cap companies.

What caught my eye was the reader comments in the Wall Street Journal article. I saw a whole lot of "How's that working out for you?" and "Those stocks are cheap for a reason."

If we assume by default that markets are efficient, then all stocks should be equally attractive at current prices. But people only love the winners.

After lagging in previous years, the IWM small-cap ETF is unch ytd while large-caps are +7%. I'm on the hunt to buy IWM or a similar product, but I need a pullback. I don't want to buy into the rally.

Interestingly, this is only a US phenomenon. Internationally, there hasn't been much performance difference between large and small caps. That's based on a comparison of VEU and VSS.

[olds442jetaway]

I bought this back in March a little bit too early could’ve stole it in the 180s. Still holding it, but I am leery of not getting another big upside unless interest rates drop a bit. These things are very sensitive to interest rates more so than the big guns. Unless I pull a rabbit out of the hat, I and headed for a not great Market year. I’m back to only being up 1.6 percent for the year. Could have done much better day trading the same stuff and dumping on a 10-20 percent gain.when the interest and divs hit in another 10 days, I may be up another point at best.

[olds442jetaway]

Funny what you said about what people buy. My brother only buys which big guns in the news are flying high. Even when they get kicked back, they defy logic and hit new highs again. That’s cause people, traders, and Funds dwell on the headlines and jump or dump on the media hype.

[dinghy]

I bought this back in March a little bit too early could’ve stole it in the 180s.

I missed the opportunity also, but I've been generally happy with the stuff I bought instead. My last fling with IWM was in 2023. I bought into the October downturn, then sold too soon.

That’s cause people, traders, and Funds dwell on the headlines and jump or dump on the media hype.

People are driven by their herd instinct. But increasingly, it's not exactly people making the decisions. Markets are being pushed around by passive flows. I need to listen again to Michael Green's interview on the Palisades Gold Radio podcast. As I recall, the first half was the juicy part. But the "actionability" of his advice is debatable. He's concerned that stocks could experience an ugly dislocation. He also allows that the escalator could continue up for quite a while longer. His Simplify ETF products have not performed particularly well afaik.

[olds442jetaway]

I guess pretty soon if not already, AI will be doing most all of the trading. Then it will get together and like the Sci- Fi movies in recent history say what do we need humans for?

[dinghy]

I need to listen again to Michael Green

I did, and he gave me a few impressions.

Retirement money is being herded into the US stock market. Due to lobbying efforts, employees are now routinely defaulted into their 401K or similar plans. They're automatically enrolled, and the money automatically goes to stocks -- often via a Vanguard target date fund, which is 90% stocks for younger employees.

Retirement money is estimated at 35% of the US stock market. The majority of retirement money is held by Boomers (born 1946 to 1964).

As long as the money keeps flowing, US stocks are supported. Risks include withdrawals by Boomers as they begin spending the money in retirement. Or, retirement savers could reevaluate their allocation to stocks. Boomer retirement assets are estimated at nearly 50% stocks, which afaik is high by historical standards. Should the US stock market undergo a period of poor performance, working-age savers may reduce their stock % (which was chosen for them).

Retirement money in stocks is mostly invested passively with market-cap weighting, which means top-performing stocks receive boosted flows. Green refers to this as positive momentum loading.

This overall setup looks like a recipe for distorted reality. Top stocks are priced far above intrinsic value, while laggards lag further. It continues until it doesn't, but an ugly disconnect is possible when TSHTF.

It's possible to argue that bonds are cheap now because the money flows to stocks, and recent poor performance has repelled investors from the sector.

Passive dominance is mostly a US phenomenon. A report from PWL Capital of Canada indicates 53% passive in the US, vs 30% passive outside of North America.

[dinghy]

Charts from a Morgan Stanley report:





For the 55 years of data, US stocks have ranged from 30 to 70% of the world.

Japan achieved an incredible bubble, reaching nearly 45% of the world in the late 1980s. It's now back to its baseline 5%.

I wish we had more data, but my logic continues to suggest the US is peaky relative to the others.

This is all measured in dollars, so currency is a factor.

[olds442jetaway]

I suspected as such. I’m at the early end of the boomer years and have less than 20 percent in the market. Paying the penalty, but have no intention of changing. There is another thing that perpetuates this pyramid….. Horizontal Wealth Transfer. Articles on it in the news this week. Anyway, good luck this week. Gotta get back into hit and run trading more.

[dinghy]

Horizontal Wealth Transfer.

Interesting. Women identify as significantly more conservative financially, so that would seem to work against the stock market as decisions flow from men to their widows.

Good luck!

[olds442jetaway]

Agree, but from what I read, they get steered right into fee based Wealth managers, who of course are going to stay heavily in the market. We have a couple of retired friends that are in that boat. At least they have so called reputable ones. If there is such a thing.