Molto, molto, molto peggio del 1999 (parte 2)
Oggi Recce’d pubblica sette nuovi Post. Il lancio della nuova impostazione di questo Blog (a temi, e con un nuovo layout) è stato rinviato al secondo trimestre 2021 in ragione della rapidissima evoluzione della situazione dei mercati finanziari nel mese di gennaio. Per noi di Recce’d, sono sempre i mercati a dettare i tempi. In aggiunta, oggi le occasioni per gli investitori sono le più grandi di una generazione. e noi di certo non vogliamo perderle di vista.
In un precedente post, di inizio anno, abbiamo già scritto che oggi i mercati finanziari risultano molto più fragili e precari di quanto non fossero nelle settimane finali della bolla cosiddetta “dot.com”
In una situazione che non ha alcun precedente, la gestione del portafoglio titoli deve essere condotta con modalità che non hanno precedenti, del tutto nuove.
Vediamo come. Occorre essere ben consapevoli del fatto che
il contesto dei mercati, ed intorno ai mercati, è cambiato
si sono viste (già in gennaio) e si vedranno (a breve) cose che noi e voi non abbiamo mai visto prima
la gestione di portafoglio, oggi più che mai deve mettere davanti a tutto gli obbiettivi di gestione del rischio, davanti anche agli obbiettivi di rendimento
Esattamente per queste tre ragioni, il 2021 risulterà essere un “anno che risolve” come abbiamo scritto in due Post precedenti..
Come si scrive nell’articolo che vi proponiamo di leggere di seguito, ciò che vedremo potrebbe “somigliare in ampiezza agli anni 1929-1932, ma procedere alla velocità del 2021”.
Le probabilità che questo accada non sono il 100%, ma non sono zero. Decidete voi se per voi conta di più che non sono il 100%, oppure che non sono zero, quando riflettete su come oggi è composto il vostro portafoglio titoli, e su quali saranno le vostre prossime operazioni.
Vi proponiamo quindi di leggere ciò che ha scritto sul Financial Times, su questi temi, durante l’ultima settimana Carson Block, il fondatore del sito Muddy Waters che ha un seguito ampio e qualificato tra gli operatori finanziari.
The recent boom and bust of GameStop shares are a wake-up call to policymakers that world markets and economies are precariously positioned, and pose serious risks to political stability.
The US is patient zero for this sickness and as the US goes, so too will much of the world. GameStop illustrates clearly that capital markets are driven by flows and investor positioning, rather than by the underlying fundamentals of businesses. The primary causes of this market dysfunction are the prevalence of passive investing and leverage enabled by low interest rates. The combination has resulted in grotesque distortions of capital allocation while further bifurcating society into haves and have nots. The increasingly obvious fact is we do not know whether the government will be able to perpetually bail out markets. With interest rates already hovering around 0 per cent, the traditional levers of monetary policy may not be able to rescue markets and prevent another depression.
The effort to squeeze short-sellers took GameStop’s share price well beyond any rational fundamental valuation. It soared by 23 times within 11 trading days as those who had bet the price would fall were forced to buy shares to cover their obligations. One factor that made the GameStop squeeze so profound was passive ownership. About one quarter of the available shares were owned by passive investors. These funds run on autopilot. As new money comes in, it is allocated to keep a constant balance among a specific combination of individual stocks or other assets. As GameStop’s price rose to ridiculous heights, those passive funds were almost certainly buying to maintain their balance. These same phenomena are a big part of the Tesla stock story. Ever-rising share prices that have no basis in fundamentals have birthed yet another meme, “Stonks!”, which is feeding frenzied retail speculation. Recommended Markets InsightRobin Wigglesworth A theory of (almost) everything for financial markets
The distortion of prices caused by the growth of passive has only recently been fully understood, thanks to the work by Michael Green of Logica Funds and a growing number of academics. Green estimates that when an incremental dollar is put to work with an active manager, it has an average effect on aggregate market capitalisation of $2.50. The multiplier occurs because the number of shares available is smaller than the total number of shares outstanding, and a buyer must often pay a premium to induce a shareholder to sell. However, Green estimates that when a passive fund receives an additional dollar, the automatic decision to maintain balance by buying in proportion to market capitalisation results in an increase in market cap of more than $17! Passive funds have a much greater impact on prices because active investors can be patient in deploying their capital and are sensitive to the prices they pay.
Passive funds have little discretion whether and at what price to buy — they must buy if they have inflows. Perversely, passive funds’ demand for a stock generally grows as the price increases because the weighting of the stock in the indices they track increases. So long as such funds have inflows, they do not sell. Leverage linked to low interest rates turbocharges these unhealthy dynamics. Balanced funds are forced to buy stocks because their bonds have risen in value. Pensions and endowments are forced into equities to replace lost yield. Stonks’ increased values are used for collateral for loans to buy more stonks. Cheap money leading to excessive speculation contributed to the 1990s dotcom bubble, the 2000s housing bubble, and now the stonk bubble. The real risk to markets is that passive flows go negative (if widespread lay-offs lead workers and employers to cut their 401K contributions).
If that were to happen, passive fund selling would quickly overwhelm the market. Such a crash could resemble 1929-1932 in magnitude but at 2021 speed. We should not ignore the societal impacts of bubbles. Their most insidious result is the transfer of wealth from the many to the few. Societies face dark years while they try to navigate the disenfranchisement generated by inequality. The way to fix the markets’ contributions to instability is to address the distortions arising from passive investing’s growth, including looking at funds through the lens of antitrust issues and as systemically important financial institutions. We must find a way to deleverage our economies and markets. We live in a time when governments seem to lack the will and competence to do hard things; but the results of delay are not pretty. Let’s choose wisely.
Abbiamo scritto sopra, per una ennesima volta, che oggi non è possibile fare scelte vincenti, per il proprio portafoglio titoli, senza tenere conto dei cambiamenti che hanno interessato il modo di funzionare, ed anche le strutture ed i flussi, dei mercati finanziari.
La consapevolezza di questo tema, di cui Recce’d ha scritto con regolarità, negli ultimi 12 mesi, si sta diffondendo: un segnale forte è che di questi temi se ne stia occupando persino il Ministro USA del Tesoro Janet Yellen (ex Chairman della Federal Reserve) e la stessa Presidenza degli Stati Uniti.
Su questo tema Recce’d effettua, per i propri Clienti, un monitoraggio quotidiano attraverso il nostro The Morning Brief, spedito ogni mattina alle ore 7.
Per voi lettori del Blog, abbiamo selezionato invece un secondo articolo del Financial Times, che noi vi mettiamo a disposizione qui di seguito.
L’articolo descrive la pressione esercitata da Robinhood ed altre piattaforme sul settore dell’intermediazione in titoli, pressione che determina profondi cambiamenti anche nell’operatività degli operatori tradizionali del settore.
La frase che chiude questo articolo potrebbe risultare della massima, massima utilità, per la gran parte dei piccoli e medi investitori al dettaglio, oggi.
The era of commission-free trading has driven a relentless race among US brokers to defend their market share, fuelling a trading frenzy that has set off alarm bells among veteran investors and analysts.
The sector has transformed more rapidly over the past 18 months than at any point since the dotcom boom two decades ago, analysts say. That has empowered day traders but could also be “distorting” their sense of risk, they argue. US retail investors have piled into equities, with rolling net inflows over the past 22 days reaching $32bn this week from less than $3bn two years ago, VandaTrack data show. Covid-19 lockdowns and government policy also encouraged the rush. “Low commission rates, enormous liquidity provided by the Federal Reserve, an army of quarantined people sitting at home, many on a pile of savings augmented by fiscal-stimulus checks — it all adds up to an extraordinary situation,” said Joseph Amato, chief investment officer of equities at Neuberger Berman.
Trading in derivatives like options, which tends to be riskier than buying equities outright with cash, has also jumped in the past 12 months as it became easier for retail traders to participate. “These platforms now give retail investors the possibility to do leveraged trades, and access to options markets which before were limited to funds or institutional investors,” said Patrick Krizan, senior economist at Allianz. “When you perceive that everyone is doing it, there is a fear of missing out, but also a distorted sense of the risks involved,” he added.
The already hyper-competitive brokerage industry was shaken up by the arrival of Robinhood, co-founded by Vlad Tenev in 2013. The start-up boasted free trading and a slick user experience, and while a sprint to the bottom on fees was already under way, platforms rushed to slash rates to zero. “Robinhood was a catalyst for a lot of the competitive pressure that the industry saw to make their offerings more user friendly and less expensive,” said Steve Sosnick, chief strategist at Interactive Brokers. “They set out to be a disrupter and they succeeded.”
Major retail brokerages such as Charles Schwab, TD Ameritrade, ETrade and Interactive Brokers in the US moved to free trading from October 2019, spurring a dramatic rise in activity among investors. “If you want people to do more of something, make it free. And the industry made trading free — at least for the end customer,” said Sosnick. Losing commissions forced brokers to make up the difference on revenue streams such as earning fees from Wall Street firms in return for sending trades to them. This incentivises platforms to encourage more trading activity, market participants say. Commission-free trading was “propulsive jet fuel” for investors joining the market, said Dennis Kelleher, chief executive of advocacy group Better Markets. “We’ve seen a radical increase in retail trading in the past 12 months as a result,” he said. That has come at a cost, Kelleher added. “Some of these apps make it so easy and completely disarming as to the risks and consequences of investing money, it’s as if we’ve eliminated license requirements for people to drive cars.”
Brokers such as Charles Schwab and Robinhood also began offering fractional share trading in late 2019, allowing investors to buy parts of shares, lowering the barrier to entry in a market where single shares in popular companies like Tesla and Alphabet can cost hundreds or thousands of dollars. Line chart of Net open equity call positions, million contracts showing Retail traders' bullish bets in US options market have risen sharply
The development of ever-slicker trading apps, which allow users to rapidly buy and sell stocks and options with just a tap, have made it easier than ever to invest, further removing friction in stock trading. “The ease of opening an account with digital-only online brokers on your phone means you can count it in button hits,” said Robert Smith, head of behavioural finance at Barclays Wealth and Investments. “Ten years ago you still had to fill in a form to open an account, the platforms were quite arcane in their trading infrastructure.”
As the brokerage industry evolved, the Fed encouraged retail trading by slashing interest rates and announcing an unlimited asset-purchase programme last year, said Eric Stein, chief investment officer of fixed income at Eaton Vance.
US stock trading volumes hit record in Reddit battle “Having zero rates [and] quantitative easing pushes people to do things with money that they wouldn’t ordinarily do,” he said. “The traditional response would be the Fed tightening policy to stop frothiness in asset markets and people doing crazy things with their money . . . [but] the probability of that happening right now is zero.” Direct aid from Congress since the onset of the pandemic added accelerant. Eligible individuals received $1,200 in the spring, and another $600 payment in December — a portion of which many industry analysts speculate has made its way into stocks. “Investors have more time, and increased disposable income, which creates the “free money” effect,” said Smith. “People think, what have I got to lose? It’s very easy now to invest your money — but it’s also very easy to lose it.”
Come avete letto in questo articolo, è in corso una cambiamento profondo, nel “modo di funzionare dei mercati”. Un cambiamento che investe diverse categorie di operatori finanziari, dalle piattaforme per acquistare e vendere titoli, agli operatori che gestiscono i Fondi Comuni, ai quali si riferiva più in alto Carson Block.
E proprio sui medesimi temi toccati dall’intervento di Carson Black che avete letto più in alto (ol primo di questo Post), scriveva anche, due mesi fa, e sempre sul Financial Times, un giornalista autorevole di nome Robin Wigglesworth, e quel suo pezzo noi allora lo mettemmo da parte in attesa di trovare la collocazione migliore. Che è risultata essere proprio questo Post.
Robin Wigglesworth DECEMBER 29 2020
Two young fish swim through the ocean, passing an older fish, who says: “Hey boys, how’s the water?” The two younger fish swim on, until one turns to the other and asks: “What the hell is water?” The late writer David Foster Wallace used this parable to illustrate how “the most obvious, ubiquitous, important realities are often the ones that are the hardest to see and talk about”.
For some analysts, it is also the perfect way to describe the pervasive, under-appreciated effect that passive investing is having on markets. Quantitative-orientated investors seeing their models fizzle? Equity valuations at illogical highs? Imperious stockpickers reduced to impotent dunces? Odd movements in the bowels of markets? Supposedly idiosyncratic securities moving together like they are doing a tango? The weird phenomenon of most stock market gains happening overnight rather than during the trading day?
All this and more can be laid at the feet of the swelling tide of passive investing, according to a band of sceptics informally spearheaded by Michael Green, chief strategist at Logica Capital Advisers. In some respects, what he is arguing amounts to something akin to a “theory of (almost) everything” for financial markets and Mr Green has turned it into a personal crusade this year. The arguments are compelling enough to warrant examination. It is true that the indices that passive funds track have over time morphed from being supposedly neutral snapshots of markets into something that actually exerts power over them, thanks to the growth of passive investing. Mr Green argues that this helps explain why active managers are actually seeing their performance worsen as passive investing grows. The more money index funds garner, the better their holdings do in exact proportion to their weighting, and the harder it is for traditional discretionary investors to keep up.
The broader growth trend also partly underpins rising valuations. The average fund manager typically holds about 4-5 per cent of assets in cash, as a buffer against investor outflows or to take advantage of opportunities that may arise. But index funds are fully invested. In other words, three decades ago every $1 that went into equity funds meant 95 cents would actually go into stocks. Today it is closer to the full buck. Given the trillions of dollars that have gushed into cash-lean index funds, it leads to a secular increase in valuations, Mr Green argues. Moreover, as indices are weighted by size, the rise in passive investing mostly benefits stocks that are already on the rise. This makes the equity market increasingly top-heavy as the big become bigger.
This short-circuits the popular strategies of many quantitative hedge funds of seeking to exploit “factors” such as the historical tendency for cheap or smaller stocks to outperform in the long run. This also increases correlations, with the S&P 500’s members marching up or falling down more in unison than in the past. And it could help explain why so much of the stock market’s gains actually happen outside the normal trading day. Many index funds do their buying in the closing auction. Nonetheless, the argument that passive investing has become a nefarious force wrecking the natural order of markets is still far-fetched. It is plausibly a factor in many phenomena, but disentangling it from the multitude of far greater forces at work is impossible.
Yes, stock market leadership is narrower than in the past. But it is not like the current giants are mirages conjured up by index funds. They are often wildly profitable, semi-oligopolistic companies growing at a hefty clip and operating on a global scale in a world of zero interest rates. In such an environment, it is natural that markets become more concentrated. Passive investing has likely helped hot stocks with momentum behind them.
But the constantly-evolving market ecosystem has always led to certain corners of the equity market outperforming or underperforming. Recommended FT Magazine Passive attack: the story of a Wall Street revolution Most of all, the theory that passive investing would inevitably blow up and rip a hole in financial markets when the tide recedes seems a little fatuous today. In the past dozen years, passive investing has been through two big stress tests — the financial crisis of 2008 and the pandemic of 2020 — and largely emerged strengthened. Even some sceptics now quietly admit the structure may be more resilient than they had previously thought. Finance has a tendency to take all trends too far, and passive investing will undoubtedly prove no different. But we are not there quite yet, and it is doubtful we will be for years to come.
Questo Post ci serve per documentare al lettore che le performances degli indici di mercato (e per conseguenza le performances dei portafogli investiti) sono influenzate anche dall’evoluzione delle strutture e dei modi di operare sui mercati finanziari. Negli ultimi 12-24 mesi questi effetti sono risultati predominanti.
Ovviamente, oltre all’evoluzione dei modi e delle strutture, e probabilmente proprio grazie a questa evoluzione, si sono diffusi anche comportamenti ed atteggiamenti tra gli investitore che in precedenza erano o del tutto assenti, oppure limitati a piccole nicchie. di scarsa rilevanza.
Vi proponiamo, a questo proposito, e in chiusura del Post, un articolo scritto da un giornalista che non è un giornalista specializzato in Finanza, ed è invece un giornalista che descrive e racconta i cambiamenti sociali.
Giudichiamo utile la lettura di questo articolo, perché descrive con efficacia il clima, l’aria che tira intorno e dentro ai mercati finanziari. Riprendiamo così il tema del titolo di questo Post: somiglianze, e rilevanti differenze, tra il 2021 ed il 1999.
Nell’articolo, troverete alcuni spunti per un confronto tra i due anni: in particolare P/E, tassi di interesse, deficit pubblico. Si tratta di dati che potranno esservi utili, quando sarete messi di fronte a scelte difficili, imposte da un violento cambiamento nello scenario dei mercati finanziri.
La frase conclusiva dell’articolo che leggerete più in basso è quella che, forse meglio di ogni altra, riassume il clima che oggi domina fra gli investitori: non tutti, ma una fetta importante del pubblico dei piccoli e medi investitori. la frase dice: “E per il momento, continuiamo a fare festa”.
Un atteggiamento che a noi non appartiene.
Samanth Subramanian is a senior reporter looking into the future of capitalism. He has previously written for the Guardian Long Read, the New Yorker, the New York Times Magazine, and WIRED.
Looking into the Future of Capitalism
February 10, 2021
Going by the spate of recent commentary on the stock market, we’re in the midst of silly season. People bought shares in a video game retail chain on the advice of anonymous Redditors. People are buying crypto because Elon Musk, the world’s richest man, tweets cryptic endorsements of it, or because his company has purchased $1.5 billion worth of it. This is all wild, irrational behavior, many pundits believe—amateur investors showing their amateurishness. “This is just the sort of silliness we need to get used to at this stage of the longest market bull run in history,” the Financial Times columnist Katie Martin wrote.
Investment gurus typically think of the rational retail investor as the kind of creature dreamed up by the economist Benjamin Graham. In his book “The Intelligent Investor,” Graham advised his readers to look closely at annual reports, earnings announcements, and other financials. And certainly the history of markets tells us that there’s plenty to be said for an approach based on such fundamental, careful scrutiny, even if it tends to be scorned during galloping bull runs like the present one.
It’s also safe to say, though, that Graham’s model is not the norm. Investors run short of time, or they know too little, or they listen to bad advice, or they’re over-confident, or they fall prey to biases. They exhibit, in other words, what the economist John Maynard Keynes called “animal spirits” and what another economist, Herbert Simon, called “bounded rationality.”
The type of rational investing in which day traders buy stocks purely because they’ve understood a company’s fundamentals was rare even before GameStop and Musk. In fact, it’s possible to argue that it’s rare even among institutional investors today, given how much trading happens second-to-second, driven by algorithms that crunch vast streams of often unrelated data.
But what if there are other ways to be rational?
To many people, the stock markets must have been pretty confusing last year. Economies were suffering through the pandemic, and yet indices kept climbing. Alarmed calls of “Bubble!” kept circulating, but nothing has, as yet, burst. The signals were difficult to interpret. In this mess of conflicting information, investors looked for clear signs of imminent movements in the prices of specific assets.
They found those signs on Reddit and Twitter. To be precise, they found signs of how other investors would behave in the short term. By now it’s clear that when Musk hollers about an asset on Twitter, its value will rise. It has happened with Signal and GameStop; it has happened with dogecoin and bitcoin. The relationship between the tweet and the crowd’s collective response may be irrational. But the individual investor’s decision to anticipate that response—and to anticipate at least a short-term rise in value—is rational.
Once again, Keynes rides to the rescue. His “beauty contest” thought experiment—which supplied a way to think about when investors would sell their GameStop shares—argues, in essence, that a smart investor will buy assets that others will also want to buy.
“The fact that a thesis is flawed does not mean that we should not invest in it as long as other people believe in it,” George Soros, a seasoned speculator who referred often to the Keynesian beauty contest, wrote in “The Alchemy of Finance.” In other words, seeking out any clear cue to the crowd’s behavior is also a rational thing to do, particularly in a perplexing market and amidst dizzying quantities of often-conflicting information.
The market is set up to reward that kind of approach as well, at least in the short term. That it does so even with Dogecoin, a joke cryptocurrency named after a meme dog, is a reflection not of the irrationality of the investor but of the caprice of the market itself.
Party like it’s 1999? Not exactly an original observation, with record stock market readings bringing to mind the dot-com bubble at the end of the last century. But one was reminded of the late, great Prince after watching the half-time show of the Super Bowl just past, which paled in comparison to his bravura 2007 performance at the height of his purple reign.
Perhaps what’s most like the 1990s is the public’s enthusiasm for the stock market, and not just the frenetic trading of volatile, illiquid meme shares touted on Reddit, which recalls the internet message boards of that era. Once more, mutual fund flows have turned into gushers. Global equity funds saw a record inflow of $58 billion in the latest week, according to Bank of America Global Research’s parsing of data from EPFR Global. And in a further echo of that era, the inflows were led by record buying of technology funds, totaling some $5.4 billion.
The biggest winners have been the exchange-traded funds from ARK Investment, notably red-hot ARK Innovation (ticker: ARKK), which has attracted the most assets this year of any ETF, except the Vanguard S&P 500 (VOO), our colleague Evie Liu reported this past week on Barrons.com.
That reminds Doug Kass of Seabreeze Partners of the once-hot funds, such as the former Janus Twenty. “In every stock market cycle there is a dominant investor who captures the market’s zeitgeist by incorporating and reflecting the ideas and beliefs of the times,” he writes in his blog. And that there is no price too high to pay for those concepts, in this case disruptive technologies, most notably Tesla (TSLA), ARKK’s largest holding.
To date, the doubters have been left behind, just as they were in 1999. In fact, the Nasdaq Composite went from 4000 in June 1999 to a peak of 5000 in March 2000. A month later, however, it plunged by over one-third, and it wouldn’t top its 2000 high until 2014.
The differences between that era and now also are important, and indeed are mostly favorable to the current market. Valuations are lower than the nosebleed ones of two decades ago. According to Strategas Securities, in March 2000, the 50 largest stocks traded at a median price/earnings multiple of 31 times the next 12 months’ expected earnings. On the same basis, the 50 largest stocks last month traded at a 23.6 times multiple.
Current P/Es also line up against much lower interest rates. Benchmark Treasury yields are historically low, although they have moved up from last year’s pandemic troughs. The 10-year note ended the week at 1.20%, while the 30-year bond topped 2%, new highs for the current move and roughly double their lows. But yields on riskier securities have continued to fall; “high yield” bonds slipped to less than 4% last week, a record low.
In comparison, Treasury yields were around 6% in the tech bubble era, as were short-term interest rates, compared to just above zero currently. As a result, the yield curve in 2000 was roughly flat, a sign of tight monetary policy, while the currently steeply upward-sloping yield curve signals an accommodative policy.
After adjusting for inflation, real interest rates now are negative, with 10-year Treasury inflation-protected securities yielding less than minus 1%.
On the fiscal side, the contrast is even starker. Fiscal 2000 produced a record $236 billion federal budget surplus. Alan Greenspan, the Federal Reserve chairman at the time, fretted that there wouldn’t be enough Treasury securities for the central bank to buy. As the former scribbler in this space, Alan Abelson, wrote at the time: He needn’t have worried as the politicians could be counted on to find ways to spend that dough.
Now, of course, budget deficits are routinely in the trillions. The Congressional Budget Office this past week raised its fiscal 2021 red-ink forecast to $2.3 trillion, or 10.3% of gross domestic product, to take into account the fiscal stimulus enacted at the end of December. But, as John Ryding and Conrad DeQuadros, economists at Brean Capital, point out in a client note, that doesn’t include the $1.9 trillion stimulus package sought by the Biden administration.
And contrary to Greenspan’s concerns, the Fed has increased its holdings of Treasuries, relative to GDP, in tandem with the increase in federal debt as a percentage of GDP. “Though we believe this is an important factor holding down bond yields, for those of us not inclined to believe in free lunches, the funding of large deficits with printed money is another source of inflation and financial stability concerns,” they conclude.
In the meantime, party on.