“Too Much Tech” – The Growing Peril Of Passive Investing

“Too much of a good thing…” – That’s the message that many passive investors are unknowingly dealing with as they approach the year-end.
In 2012, FANG Stocks (Facebook, Amazon, Netflix, and Google) accounted for less than 3% of the market cap of the S&P 500.
At the end of 2017, those four stocks now account for over 8% of the S&P’s market cap…
And, as WSJ reports, this is not limited to a small handful of stocks, it is worldwide – investors who loaded up on U. S. and Asian stock-index funds might be surprised to learn just what they own now: technology stocks – a lot of them.
Led by Apple Inc., Facebook Inc. and their peers, the weighing of technology stocks in the S&P 500 index has climbed to 23.8% as of Dec. 26, from 20.8% at the end of last year, according to S&P Dow Jones Indices.

This post was published at Zero Hedge on Thu, 12/28/2017 –.

Jim Kunstler: “You Can See Where This Has Been Going…”

Lately, fund flow data has all the credibility of a NYT presidential poll two days before the Trump defeats Hillary. On one hand, you have Lipper reporting that investors pulled $16.2bn from U. S.-based equity funds in the past week, the largest withdrawals since December 2016. The same Lipper also reported that taxable-bond mutual funds and ETFs recorded $1.2bn in outflows, with U. S.-based high-yield junk bond funds posting outflows of $922 million. On the other hand, you have EPFR which looking at the same data, and the same time interval, concluded that there was $8.7bn inflows into equities, of which total flows into the US amounted to $7.8bn, the largest in 26 weeks.
How does any of this make sense? We are not sure, although it may be that while Lipper ignores ETF flows, EPFR includes these. Indeed, when breaking down the latest flow data, which still does not foot with the Lipper numbers, Bank of America notes that the $8.7bn in equity inflows is the result of a $31.4bn in ETF inflows – the second largest on record – offset by $22.7bn in mutual fund outflows, the 4th largest on record.
When looking at this staggering divergence, BofA’s Michael Hartnett put it best:
Passive hubris, active humiliation: 2nd largest week of inflows ($31.4bn) ever into equity ETFs vs 4th largest week ever of outflows from equity mutual funds (Chart 1)

This post was published at Zero Hedge on Dec 15, 2017.

Bank Of America: “This Is The First Sign That A Bubble Has Arrived”

Lately, fund flow data has all the credibility of a NYT presidential poll two days before the Trump defeats Hillary. On one hand, you have Lipper reporting that investors pulled $16.2bn from U. S.-based equity funds in the past week, the largest withdrawals since December 2016. The same Lipper also reported that taxable-bond mutual funds and ETFs recorded $1.2bn in outflows, with U. S.-based high-yield junk bond funds posting outflows of $922 million. On the other hand, you have EPFR which looking at the same data, and the same time interval, concluded that there was $8.7bn inflows into equities, of which total flows into the US amounted to $7.8bn, the largest in 26 weeks.
How does any of this make sense? We are not sure, although it may be that while Lipper ignores ETF flows, EPFR includes these. Indeed, when breaking down the latest flow data, which still does not foot with the Lipper numbers, Bank of America notes that the $8.7bn in equity inflows is the result of a $31.4bn in ETF inflows – the second largest on record – offset by $22.7bn in mutual fund outflows, the 4th largest on record.
When looking at this staggering divergence, BofA’s Michael Hartnett put it best:
Passive hubris, active humiliation: 2nd largest week of inflows ($31.4bn) ever into equity ETFs vs 4th largest week ever of outflows from equity mutual funds (Chart 1)

This post was published at Zero Hedge on Dec 15, 2017.

The Global Equity Market’s 20 Trillion Dollar Mistake Exposed

Last week there were all sorts of articles hitting the newswires about the fact the world’s stock market total capitalization was pushing $100 trillion.
This article and chart from Business Insider sums up the reaction:
We first saw the chart in a note from CLSA analyst Damian Kestel: ‘I almost fell off my chair when I saw this and went to check that Bloomberg hadn’t reclassified some data… but no. I included this chart of total equity market cap in [a previous note to clients] in early June this year. At that point total world market cap was US$74 trillion, it’s now US$93 trillion,’ he wrote. (The chart excludes ETFs and the like, so there is no double-counting of single stocks in different indexes.)

This post was published at Zero Hedge on Dec 6, 2017.

Goodbye, Net Neutrality. Hello, Liberty.

The New York Times has published a screed with this title: The Internet Is Dying. Repealing Net Neutrality Hastens That Death.
Let me remind you of the basic rule of titling breathless articles: begin with the phrase “the death of” or “the end of.” When you read such a phrase, you can be sure that whatever it is, it is not dying. Whatever it has been in the past, it is likely to be in the future. It is not facing the end.
Here is the logic of the screed.
The internet is dying. Sure, technically, the internet still works. Pull up Facebook on your phone and you will still see your second cousin’s baby pictures. But that isn’t really the internet. It’s not the open, anyone-can-build-it network of the 1990s and early 2000s, the product of technologies created over decades through government funding and academic research, the network that helped undo Microsoft’s stranglehold on the tech business and gave us upstarts like Amazon, Google, Facebook and Netflix.
Nope, that freewheeling internet has been dying a slow death – and a vote next month by the Federal Communications Commission to undo net neutrality would be the final pillow in its face.
Net neutrality is intended to prevent companies that provide internet service from offering preferential treatment to certain content over their lines. The rules prevent, for instance, AT&T from charging a fee to companies that want to stream high-definition videos to people.
The phrase “preferential treatment” is easy to define: high bid wins. It is the organizational principle of the auction.
The mainstream media are Keynesian to the core. The fundamental principle of the free market is this: high monetary bid wins. It is the principle of the auction. Liberals hate most auctions. Yes, they like auctions of incredibly overpriced and incomparably ugly art. They don’t get upset when somebody pays $150 million to buy a piece of tripe painted by Picasso. That’s their kind of stupidity. They like it. But they don’t want the common people to have access to open markets. Open markets are only for the elite, in the view of America’s Left.

This post was published at Gary North on November 30, 2017.

Wonder Who Was Buying Yesterday’s Market Breakout? Here’s The Answer

Wonder who was buying the euphoria blow-off top stock market breakout yesterday? One clear answer, according to Nicholas Colas of DataTrek Research, is answer is ‘Mom and Pop’. Nick looked at the publicly available trade data on Fidelity’s retail website and found net buy orders across both single stocks (mostly tech) and ETFs. And, no surprise, some bitcoin names as well.
Here’s what else Nick discovered.
Retail investors have lost some of their reputation for being the ‘Dumb money’ over the last few years. After all, anyone ‘Dumb’ enough to own the largest US listed ETF (SPY) or the biggest tech names (AAPL, GOOG, etc) has done very well for over half a decade.
Still, whenever we see a big up day for US stocks, we can’t help but wonder what the retail investor is buying when stocks hit (yet another) all time high. Are they getting cautious and lightening up? And what names do they still like?
Fidelity Investments lets you see their customers’ Top 10 names traded, in real time if you have an account and one day-delayed if you don’t.
Here’s some color on today’s market action, courtesy of that information source:
Fidelity’s retail accounts were net buyers in 9 out of the top 10 names traded by their customers. The only exception: Kroger. Tech names held the top 4 positions in terms of total order volumes. Ranked by total activity, they were: Nvidia, Micron Technology, Apple and Amazon.

This post was published at Zero Hedge on Dec 1, 2017.

What Wall Of Worry? US Equity Investors Are The Most Levered-Long Since Brexit

What wall of worry?
The S&P 500 Index is heading for its longest streak of monthly gains since 2007, and, as Bloomberg reports, investors are betting there’s more to come.
A sudden jump in trading of bullish options on SPY (the ETF tracking the S&P 500), means there has not been more ‘investors’ holding S&P 500 Calls relative to Puts since Summer 2016…

This post was published at Zero Hedge on Nov 30, 2017.

Net Neutrality: Government Can’t Know the “Correct” Price for Internet Service

The motives of net neutrality advocates differ. But the common thread among them is a general belief that internet service providers (ISPs) face no serious competition, and therefore overcharge both their supply-side (i.e., Netflix) and demand-side (internet users) customers and generally treat customers poorly.
In other words, ISPs have ‘natural monopolies’ that allow them to rake in profits without improving service to customers or dealing with different customer-types in an equitable manner.
This perspective gave rise to ‘net neutrality,’ which the Trump administration soundly condemned last week. This measure would have essentially transformed the internet into a public utility by regulating ISPs like other utilities (electricity, water, etc.). For convoluted reasons, regulators believe this will ensure internet service is distributed equitably among all who are willing to pay the going rate – no more up-charging big bandwidth-eaters (like Netflix), even at mutually-agreeable prices.
Underlying this perspective is the belief that we can decipher, in some way, the level of service that ought to be offered on the ISP market. To implement net neutrality, regulators would allegedly examine the ISP market and decide, on some grounds, that what exists ought to be different, and that such a change can only come about through government regulation.

This post was published at Ludwig von Mises Institute on Nov 27, 2017.

Did The ‘Short VIX’ Bubble Just Burst?

If there is one foolproof way to make money in today’s markets, it’s selling any and every blip higher in volatility – in fact it’s so easy a Target manager can do it and make millions. However, something very different happened last week…
3 of the 4 trading days last week saw SVXY fund outflows with Wednesday the largest single-day outflow in history…
The Short VIX ETF SVXY, up more than 150% this year amid a slump in equity swings, lost almost $330 million in four days – the biggest weekly outflow in history…

This post was published at Zero Hedge on Nov 27, 2017.

26/11/17: FAANGS+ Brewing up another markets storm

One of the key signals of a systemic mispricing of financial assets is concentration risk. I wrote about this in a number of posts on the blog, so no need repeating the obvious. Here is the latest fragment of evidence suggesting that we – the global financial markets and their investors – are at or near the top of froth when it comes to ‘irrational exuberance’: So what should investors do? Some lessons from the GFC that can help are summarized here: And some additional warning signs of the bubble are summarized here: Quote: “…our new Delirious Dozen consists of the FAANGs (Facebook, Apple, Amazon, Netflix and Google) plus seven additional high flyers (Tesla, NVIDIA, Salesforce, Alibaba, UnitedHealth, Home Depot and Broadcom).”

This post was published at True Economics on Sunday, November 26, 2017.

Muir: “People Are Going To Be Wiped Out” By Short-VIX ETFs

Back in August, we highlighted a story in the New York Times about a former manager at Target who decided to try day trading with $500,000 he had saved up. Over the following years, he turned that into $13 million by following one simple strategy: Shorting volatility every time it spiked.
As MacroVoices host Erik Townsend points out, that strategy has worked for many retail investors over the past eight years. And in a brief ‘postgame’ interview with the Macro Tourist Kevin Muir following a longer interview with Francesco Filia, a fund manager at Fasanara Capital, the former explains how many investors don’t understand the risks associated with shorting volatility, as well as the possible repercussions if exchanges and brokerages don’t take the appropriate steps to limit this.
Townsend begins the discussion by asking Muir about a chart he created of the VXX – the long-VIX ETF – which, because of the low-volatility environement, has repeatedly split leading to unbelievable wealth destruction.

This post was published at Zero Hedge on Nov 25, 2017.

The Source Of The Next Crisis

Authored by Kevin Muir via The Macro Tourist blog,
In 1992, the CBOE hired Robert Whaley to develop a tradeable volatility product on equity index option prices. A year later, in 1993, the VIX was born when the CBOE started publishing real-time quotes on the implied volatility of the calculated S&P 500 index options. In those early days, I very much doubt Robert ever imagined his volatility index would someday be the cornerstone of some of the world’s most actively traded ETFs. In fact, for the next decade, no VIX instruments traded at all, and it wasn’t until 2004 that the VIX future was listed. And then, it took another five years before the first ETF based on those futures hit the exchanges. But what a ride it’s been.
Nowadays, everyone knows the VIX index. It’s no longer some arcane index reserved for derivative traders, but instead a highly liquid, easily traded way to bet on future implied volatility. And I doubt most participants realize that last part. They are not betting on current volatility. They are not betting on future volatility. They are betting on future implied volatility. Remember that point. It’s important. We’ll come back to it later.

This post was published at Zero Hedge on Nov 23, 2017.

FCC / Net Neutrality – Go Read It Again

The screamfest has re-commenced.
I’d write a whole post on this, but I have already.
So here’s the piece I submitted to the FCC during the comment period back in 2014, which I have unlocked from its “expired” status.
Go read it.
People like Hastings and Bezos have extracted billions of dollars from consumers who do not want their services by getting the government to shove a gun up their noses, picking their pocket. While you may say “but I want and buy Netflix” the fact is that there are many such firms, there are and will be more every day, and the odds of you buying all of them are zero.

This post was published at Market-Ticker on 2017-11-22.

Biggest Bubble Ever? 2017 Recapped In 15 Bullet Points

Yesterday we presented readers with one of the most pessimistic, if not outright apocalyptic, 2018 year previews, courtesy of BofA’s chief investment, Michael Hartnett who warned that in addition to the bursting of the bond bubble in the first half of the year, the stock market could see a 1987-like flash crash, potentially followed by a sharp spike in (violent) social conflict. However, in addition to his forecast, Hartnett also had one of the more informative, and descriptive, reviews of the year that was, or as he put it: 2017 was the perfect encapsulation of an 8-year QE-led bull market.
Here are his 15 bullet points that show why in 2017 we may have seen the biggest bubble ever (and why we can’t wait to see what 2018 reveals).
Da Vinci’s ‘Salvator Mundi’ sold for staggering record $450mn Bitcoin soared 677% from $952 to $7890 BoJ and ECB were bull catalysts, buying $2.0tn of financial assets Number of global interest rate cuts since Lehman hit: 702 Global debt rose to a record $226tn, record 324% of global GDP US corporates issued record $1.75tn of bonds Yield of European HY bonds fell below yield of US Treasuries Argentina (8 debt defaults in past 200 years) issued 100-year bond Global stock market cap jumped1 $15.5tn to $85.6tn, record 113% of GDP S&P500 volatility sank to 50-year low; US Treasury volatility to 30-year low Market cap of FAANG+BAT grew $1.5tn, more than entire German market cap 7855 ETFs accounted for 70% of global daily equity volume The first AI/robot-managed ETF was launched (it’s underperforming) Big performance winners: ACWI, EM equities, China, Tech, European HY, euro Big performance losers: US$, Russia, Telecoms, UST 2-year, Turkish lira

This post was published at Zero Hedge on Nov 22, 2017.

The Approaching Silicon Valley Meltdown

To say that we are living through precarious times seems to be an understatement. Whether one lives in the so moniker’d ‘developed world, emerging, or frontier’ there seems to be one constant currently: No one seems to be able to accurately ponder what tomorrow may bring, whether its political, economical, social, or combination there of.
The only thing constant right now is one of two things: Either, further instability is on the horizon. Or, complete and utter chaos is already knocking on the door. (See Kim Jong-un or Robert Mugabe for clues.)
Stability, the once deemed word for progress throughout civilized society now seems, to have devolved to mean, at what point of the instability around them they’re currently coping with. i.e., If you’re currently muddling through economically while dodging being a statistic, as the term goes, that currently means you, or your situation, is currently ‘stable.’
This now applies to not only people, but business, as well as politics worldwide. If you think I’m exaggerating? Hint: Hollywood. Need I say more?
However, there has been one outlier, for the most part, which seemed to skirt around all the current chaos, relatively unscathed. That would be Silicon Valley and all its ancillary provinces aka ‘Disruptive Tech.’
So far the coveted group known collectively as ‘FAANG’ (e.g., Facebook™, Apple™, Amazon™, Netflix™, Google™) seems to have held the ‘barbarians at the gates’ known as investors relatively at bay, or ‘stable’ in their positions, if you will. What has been, anything but, is their cohort of IPO brethren that were supposed to have joined them.

This post was published at Zero Hedge on Nov 20, 2017.

Wall Street Discovers the Brick-and-Mortar Meltdown

Finally time to make some easy money by betting on the collapse of brick-and-mortar retail, years after it began? Here’s a grisly thought: As of today, there’s an ETF for that.
In its launch announcement today, ProShares explained:
Over 30 major retailers have declared bankruptcy over the past three years, nearly two-thirds of those in 2017, including Toys ‘R’ Us, RadioShack, and Payless. The pressure is expected to continue with some analysts predicting that online sales growth will outpace bricks and mortar retailers 3 to 1 by 2020.
Retail is being profoundly disrupted by shoppers moving online, oversaturated markets and changing consumer behaviors.
The brick-and-mortar retail pain splits two ways: Retailers that have failed to build a vibrant online sales channel and are dependent on their physical stores; and the landlords that lease stores to them.
This EFT focuses on the first, the retailers. The ticker is evocatively named EMTY. As an inverse ETF, it’s supposed to rise in price when the Solactive-ProShares Bricks and Mortar Retail Store Index, which is composed of 56 ‘traditional’ brick-and-mortar retail stocks, declines.

This post was published at Wolf Street by Wolf Richter ‘ Nov 16, 2017.