Stock market is a "fully-fledged epic bubble" and will burst

Stock market is a "fully-fledged epic bubble" and will burst

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Discussion

Derek Chevalier

3,433 posts

150 months

Saturday 14th May
quotequote all
Phooey said:
Derek Chevalier said:
Slighly on topic - found this interesting re how index funds may be creating more volatility - buying the winners, therefore pushing up prices (iteratively).

https://www.youtube.com/watch?v=xyzoCJY7BPU&fe...
Are we saying global passives are bad now? (I’ve not watched the vid)
I wouldn't go that far, just an interesting discussion.

Derek Chevalier

3,433 posts

150 months

Saturday 14th May
quotequote all
loafer123 said:
Phooey said:
Are we saying global passives are bad now? (I’ve not watched the vid)
Anecdotally I have two investment managers - one for my pension, one for investments.

The investment one has done much better in the last year, albeit still losing money, and they are the active rather than passive manager.
I'm guessing that's down to differences in asset allocation/factor exposure.

For example, MSCI World Large Growth is down 15% more YTD than MSCI World Small Value.

bitchstewie

40,354 posts

187 months

Saturday 14th May
quotequote all
Something to consider.

"The ARK Innovation exchange traded fund, through which retail investors could piggyback on Wood’s picks, peaked at $132.50 on June 30. Wednesday’s closing price was $36.93."

ooid

3,120 posts

77 months

Saturday 14th May
quotequote all
bhstewie said:
"The ARK Innovation exchange traded fund, through which retail investors could piggyback on Wood’s picks, peaked at $132.50 on June 30. Wednesday’s closing price was $36.93."
I saw this quote about ARKK a few days ago.. biggrin

- Value investing is like buying a dollar for 90 cents

- Growth investing is like buying a dollar 5 years from now for 50 cents

- ARKK investing is like setting your dollar bill on fire and then trying to sell it for $100

chip*

928 posts

205 months

Saturday 14th May
quotequote all
bhstewie said:
Something to consider.

"The ARK Innovation exchange traded fund, through which retail investors could piggyback on Wood’s picks, peaked at $132.50 on June 30. Wednesday’s closing price was $36.93."
In an effort to change course (or punt!), she's taking on extra risk by not replacing the sold holdings so the etf has only 35 holdings (original 46). She may come out smelling of roses, but with such a concentrated holding, she can't afford any mistakes! One positive new, at least she doesn't have a concentrated position on Netflix laugh

https://seekingalpha.com/article/4508942-arkk-risk...

By reducing the number of holdings in the ETF quite a bit, it puts more pressure on the team to get its selections right. Getting a few names wrong now can be much more painful, especially if their weights are much higher. With less holdings now than in the recent past, ARKK has also increased its weightings for its top holdings, as the chart below shows. Since the end of 2021, the top five holdings have gone from a 30.86% weight to a 36.48% weight as of last Thursday, with the top ten going from 51.25% to 58.87%.

Nice summary I thought:

Another interesting risk here is simple overconfidence. With the Ark complex doing quite well in 2020, it seems the team might have believed that its strategies would always work. During her media appearances over the past year, Cathie Wood has refused to amid she is wrong and says that Ark Invest has the best analysts. Perhaps like a number of others, she was just a benefactor of a low interest rate environment with very easy monetary policy. Now that the Fed is hiking its rates and starting to reduce its balance sheet, these growth names that don't have profits or positive cash flows are not being favored in the market. As interest rates continue to rise, like the 10-Year Treasury yield below, it's hard to see ARKK returning 50% a year moving forward especially if global economies struggle to grow in the short term. Sometimes, one just has to admit that they are wrong and move on to a different strategy, but that's not the plan here.

In the meantime, she is still deducting her fees daily from the ever diminishing AUM! eek


Edited by chip* on Saturday 14th May 12:37

Phooey

11,751 posts

146 months

Saturday 14th May
quotequote all
bhstewie said:
Something to consider.

"The ARK Innovation exchange traded fund, through which retail investors could piggyback on Wood’s picks, peaked at $132.50 on June 30. Wednesday’s closing price was $36.93."
Ouch. Timely Pensioncraft vid

ARK Invest - Time To Buy?

https://www.youtube.com/watch?v=Qp-BX1lpmXc

bitchstewie

40,354 posts

187 months

Saturday 14th May
quotequote all
I'm just watching something that says it's pulled in $1.3B in flows YTD whilst being down 52% YTD yikes

LeoSayer

6,873 posts

221 months

Saturday 14th May
quotequote all
Derek Chevalier said:
Slighly on topic - found this interesting re how index funds may be creating more volatility - buying the winners, therefore pushing up prices (iteratively).
I haven't watched the video but it seems logical that index funds would have that effect. However I've never seen any evidence of it.

In fact, I remember reading somewhere that in spite of the vast amount of assets owned by index funds, they only account for a relatively small fraction of trading activity and therefore have little influence on prices.

egomeister

6,059 posts

240 months

Saturday 14th May
quotequote all
LeoSayer said:
Derek Chevalier said:
Slighly on topic - found this interesting re how index funds may be creating more volatility - buying the winners, therefore pushing up prices (iteratively).
I haven't watched the video but it seems logical that index funds would have that effect. However I've never seen any evidence of it.

In fact, I remember reading somewhere that in spite of the vast amount of assets owned by index funds, they only account for a relatively small fraction of trading activity and therefore have little influence on prices.
The argument would be that it's not the volume that is driving prices but the inflow, which in the case of an indexed stock is very sticky. Broadly speaking, the index fund will buy irrespective of price and without making a value judgement and will only sell if there are withdrawals.

speedy_thrills

7,571 posts

220 months

Saturday 14th May
quotequote all
The thing I'd be concerned with in Index funds is to keep an eye on index weighting because a very small number of companies make up such a high proportion of the index weight in indexes like the S&P500 currently. It's a less diverse investment than it might initially look on first inspection.

Mr Whippy

25,461 posts

218 months

Saturday 14th May
quotequote all
speedy_thrills said:
The thing I'd be concerned with in Index funds is to keep an eye on index weighting because a very small number of companies make up such a high proportion of the index weight in indexes like the S&P500 currently. It's a less diverse investment than it might initially look on first inspection.
Well exactly.

Look at it like this:
https://finviz.com/map.ashx

That’s a lot of area for…
Amazon
Apple
Tesla
Microsoft
Nvidia

The few big ones *were* probably getting on for 15-20% but now nearer 10% of the index value.

And we’re still unwinding all that leverage and speculative craziness from the last 24 months.

Even if it’s a soft landing, the impact on stocks is going to be painful for many who’ve decided to start buying heavily into the hype so have lots of these expensive units.


I’m not sure on exhaustive list of what ARKK was invested in, but a great deal of the last 24 months if the IPO/SPV frenzy have fallen spectacularly too.

I think Cathie is now aiming for the broken clock right twice a day logic… hoping the Fed blink and re-inflate everything.

Also I’m not sure what amazing analysis gets you with future projections for tech companies.
I mean, if it was such a sure thing, the market would price them higher wouldn’t they.
They’re speculative… and the speculation was wrong. The analysis didn’t think to consider that a raft of these companies might fail to make good on their projections due to economic headwinds?

Hmmm. Speculate by all means. But yeah… to not just say “this was speculative, still is, might be worth more, the same, or less in 5 years” and have done is worrying hubris.

Derek Chevalier

3,433 posts

150 months

Sunday 15th May
quotequote all
bhstewie said:
I'm just watching something that says it's pulled in $1.3B in flows YTD whilst being down 52% YTD yikes
I wonder how much of this is down to people thinking this will be is a short sharp drop followed by an equally sharp recovery - similar to COVID

Derek Chevalier

3,433 posts

150 months

Sunday 15th May
quotequote all
speedy_thrills said:
The thing I'd be concerned with in Index funds is to keep an eye on index weighting because a very small number of companies make up such a high proportion of the index weight in indexes like the S&P500 currently. It's a less diverse investment than it might initially look on first inspection.
But as we've discussed before, that's a conscious decision by the investor to choose a more concentrated index vs something more diversified.

bitchstewie

40,354 posts

187 months

Sunday 15th May
quotequote all
Derek Chevalier said:
I wonder how much of this is down to people thinking this will be is a short sharp drop followed by an equally sharp recovery - similar to COVID
"buy the dip!!!!!" hehe

Mr Whippy

25,461 posts

218 months

Sunday 15th May
quotequote all
bhstewie said:
Derek Chevalier said:
I wonder how much of this is down to people thinking this will be is a short sharp drop followed by an equally sharp recovery - similar to COVID
"buy the dip!!!!!" hehe
Isn't there a saying, investors slide down the slope of hope?

Not really a new thing, QE just intensified the moral hazard.


If you look at Nasdaq 100 VIX Index, given the correction in prices so far, things are relatively calm at the moment.

However you look at it, it suggests things could get worse because fear among participants isn't all there yet.

Also the margin debt levels are still way up vs late 2019:
https://wolfstreet.com/2022/05/13/massive-stock-ma...


I'm of the mind that this has only just started. The QT and further interest rate rises will test the strength of the economy, and also the strength of the stomachs of the CBs when faced stock prices testing Q1 2020 lows...


My 2p is they'll tip it all over.
They'll have ammo for QE.
They'll have got their pound of flesh (inflation hot for a few years)
They'll have caused a recession to get labour into check and calm down salary inflation pressures.

And so far it looks like the governments will gleefully blame the CBs, and the CBs will blame covid and putin etc.


Yep, just like 2008, no one's fault really. But we've learnt lessons for the future, while we privatised a shed load of profit, and socialised a whole load of debt.

Then a new cycle can begin and the status quo can continue, as always.

Digga

35,774 posts

260 months

Sunday 15th May
quotequote all
There will be a lot of people who, on the back of QE inflated pensions, ISAs and other investments, will have thought they had enough to retire early…

You wonder if this - market crash, combined with high inflation- has been done to reverse the great resignation and re-set the all important productivity and GDP growth? Work, consume, conform.

pquinn

3,409 posts

23 months

Sunday 15th May
quotequote all
Re. ARK, I'm not sure why anyone would be surprised how that all turned out. Their reputation for years hasn't exactly been good; the only thing they've been talented at is getting on CNBC and getting attention for their silly Tesla analysis. Then they set up buying a load of junk (and a few OK things), rode up a bubble and rode it back down.

Gerber Kawasaki is a similar flavor of st.

bitchstewie

40,354 posts

187 months

Sunday 15th May
quotequote all
Digga said:
There will be a lot of people who, on the back of QE inflated pensions, ISAs and other investments, will have thought they had enough to retire early…

You wonder if this - market crash, combined with high inflation- has been done to reverse the great resignation and re-set the all important productivity and GDP growth? Work, consume, conform.
I think most people who are invested sensible won't be in that bad a situation will they?

If you've stretched your finances and are mortgaged to the hilt to fund BTLs and things like that perhaps that changes things but not something I've experience of.

Jon39

9,776 posts

120 months

Sunday 15th May
quotequote all

Quite an amount of conversation here about a crash and also activity in the USA.
Slightly puzzled, because my holdings are almost all UK businesses, although many do trade worldwide.

I took a look at the Year To Date charts for both sides of the Atlantic and can now see what you are talking about.

NASDAQ and the S&P 500 have fallen, whereas as I already knew, the London Stock market (average) is little changed from 1st January.








Mr Whippy

25,461 posts

218 months

Sunday 15th May
quotequote all
Digga said:
There will be a lot of people who, on the back of QE inflated pensions, ISAs and other investments, will have thought they had enough to retire early…

You wonder if this - market crash, combined with high inflation- has been done to reverse the great resignation and re-set the all important productivity and GDP growth? Work, consume, conform.
We know the BofE don’t want persistent wage inflation. That’ll eat into long term economic performance.

The only way to fix that is to destroy jobs and wealth so people are seeking jobs, rather than jobs seeking people.

That’s exactly why we always see interest rate rises into a heating up economy.


Also the business world is probably happy with higher prices, but not higher salaries too.

Otherwise we could just add a zero on the end of every price but the net effect would just be deflated debt burdens.

The boom/bust cycle normally works in favour of business by providing cheaper labour at the start of a cycle, not higher priced labour which would kill growth from the off.