April 4, 2024: Michael Green from Simplify Asset Management

[@idontwantyouraccount]

Question for Mike Green. He mentions at minute 46 that one of the main reasons the stock market went down in 2022 was because of the dropping in price of bonds and the rebalancing between stocks and bonds. With the Fed imminently cutting, would this not perversely accelerate the purchasing of stocks in the passive Target dated funds through the end of 2024 and possibly 2025?

[@emma.muhleman]

Theoretically, it could, but simply because Target date fund reallocations were the biggest marginal flows in one year doesn’t mean target date fund reallocation will be the driving force behind equity market behavior in every year. To put it mathematically, suppose “Target Date Fund Reallocation” is a member of Set B. Now, suppose Set C includes all sources of capital flowing into and out of US equity markets due to the behavior Japanese Banks & major Life Insurance Companies, among other large Japanese institutional investors. Finally, Set A is inclusive of ALL drivers of flows, irrespective of source, into and out of U.S. equity markets. Now, while Set B (target date fund reallocation) is a member of Set A, it is not equal to Set A. Both Set B (target date reallocation) and Set C (Japanese institutional flows into and out of U.S. equities) are subsets of Set A. Therefore, one year, a dramatic or atypical shift in Fed behavior, such as a rapid hawkish pivot, might cause the marginal capital flows from Set B to overwhelm the net contribution of the factors in Set C, this fact alone is neither necessary nor sufficient to guarantee Set B’s influence will be of equal or greater relative influence (versus Set C, or versus the combined net influence of ALL subsets of Set A) on the larger Set A in the years that follow. In other words, correlation is not causation and even if it were in a given period, in financial markets correlations are infamously non-stationary (they change over time, ie It may be that institutional cash inflows or outflows into U.S. index funds overwhelms the marginal performance of U.S. Equities in another year, so much so that the net effect on equities as a whole even after Target Date Funds lose their heads and fall into their (traditional) recursive reallocation processes, is driven primarily by Set C (made up year, made up example, but Japanese institutional cash inflows and outflows do have a major impact on both U.S. equity markets and US 10yr Treasury yields: make a chart of $QQQ overlayed with a chart showing prices of $JGBs, $USTs, and maybe even the Nikkei (for shits and giggles). If done correctly accounting for the cash open and close times in Japan versus the U.S. and their lunch breaks over there, you will see what is clearly a not insignificant cross-asset correlation between these assets, and often they move at exactly the same times, almost tick for tick (look intraday on days of major trend reversals). Then study what happened in Japan preceding that reversal and the price action there relative to the price action of the Nasdaq.

[@emma.muhleman]

46:14 shoot me a DM Mike if you get this message, re the 2022 discussion

[@effa2985]

Time to short S&P....but timing will be key

[@jdarst100]

Always is

[@19battlehill]

So many moving parts- wouldn’t be so quick to short S&P