3 ms·

There's no single reason that can explain the march up, but it's worth noting the meteoric rise of index funds, which now account for over $4T under management

There's no single reason that can explain the march up, but it's worth noting the meteoric rise of index funds, which now account for over $4T under management [1]. There's just a massive amount of money looking for returns that exceed the almost 0% interest rates that exist today. [1] http://www.businessinsider.com/index-fund-assets-under-management-2016-1 http://www.businessinsider.com/index-fund-assets-under-manag...

kaputsmack 9y ago
It is inexistent money. The world financial system is printing money, they are moving trillions around several nations to hide the fact that this money does not exist. How would you know how much value in U$ is hidden in Brazil by international banks? How would you know how much U$ is hidden in Singapore, South Africa, Mexico? You don't know. The US reserves are audited, the European economies are regulated, but the capital movement around the world is impossible to track. This money does not exist in reality, there is no record of it anywhere. But does anyone care? Has anyone read the Panama papers? Billionaires and world leaders are hiding trillions in bank accounts that you can open remotely, without hassle. This money is unaccounted for. Banks are free to move as much money as they please around the world, they just print money and move it. The trillions in funds around the world do not exist. The markets are rigged.
- JumpCrisscross 9y ago
  > How would you know how much value in U$ is hidden in Brazil by international banks? What on earth are you talking about? Are you saying the U.S. Treasury doesn't know how many dollars it has printed? Or the Federal Reserve doesn't know many dollars banks hold with it in reserve? Or how many dollars the banks it has under its jurisdiction have created? Note that apart from cash, the latter two categories are digital and intensely tracked. > You don't know Are you presuming or asking? $1.58 trillion of which $1.53 trillion are Federal Reserve notes and the rest coinage [1]. While estimating the exact amounts in any given country is not easy [2], just as estimating the exact number of dollars any person knows is far from definitive, the aggregates are tightly controlled. [1] https://www.federalreserve.gov/faqs/currency_12773.htm https://www.federalreserve.gov/faqs/currency_12773.htm [2] https://www.federalreserve.gov/pubs/bulletin/1996/1096lead.pdf https://www.federalreserve.gov/pubs/bulletin/1996/1096lead.p...
  - kaputsmack 9y ago
    Printed what? When was the last time you moved a trillion printed dollars? "Printing money" today means moving virtual money around. Banks can make money appear in Cayman Islands. "Here is a billion dollar SWIFT money order", that is it. There is no billion printed dollars. They "print" money at will.
    - JumpCrisscross 9y ago
      > Printed what? There are three types of money: central bank reserves, physical currency and commercial bank money. The U.S. government (Fed and Treasury, respectively) directly controls the first two down to the cent. Commercial banks "make" the final one, but to get the right to do that they have to agree to Federal Reserve jurisdiction (internationally, this happens with central banks entering into swap agreements with the Fed, i.e. opening "accounts" with the Fed into which the Fed deposits U.S. dollars whose--since this needs to be said--quantities it gets to track). If rando Brazilian bank says "I have a billion U.S. dollars" and doesn't tell the Fed, they counterfeited. They can spend it in Brazil if nobody checks (hint: everyone checks, this is what the SWIFT and Fedwire protocols were designed to facilitate). But if they try to wire those funds to anyone else (or any other Fedwire or SWIFT member), the books won't balance and the message will be rejected. Someone will then have to (a) get real dollars to cover their crime or (b) risk having themselves, and/or their central bank, booted from the Fed's international system.
    - qaq 9y ago
      You are confused there are settlement accounts that are used to settle the transfers. So if you are doing a transfer from Chase account to CIBC FirstCaribbean International Bank account (for simplicity's sake we will assume that CIBC FirstCaribbean has a direct relationship with Chase) the appropriate debit and credit will be reflected in appropriate nostro and vostro settlement accounts. The SWIFT message is just a mechanism to exchange information but the actual money movement happens between settlement accounts.
legitster 9y ago
Maybe we'll finally find the argument against index funds: when the majority of market power is essentially in auto-pilot, it can't steer out of a crash. It's crazy to think that we can look at the market and opine over the lack of animal spirits.
- rhexs 9y ago
  Inevitably the markets will crash, new articles will come out detailing the "death of index funds" after five plus years of low or negative returns, capital will flow out due to the new index fund "retirement crisis", and we'll be back to where we started. Stay the course.
  - legitster 9y ago
    I was thinking in aggregate - their potential on the economy as a whole. As an individual, they are obviously the best bet. But I'm just trying to read in some possible externalities.
- shimon 9y ago
  There's an interesting argument that index investing helps take the dumber investors away from active investing, making the animal spirits smarter on average.
- crabasa 9y ago
  I think it's less about animal spirits and more about granularity. If I only own index funds, I am forced to panic sell the whole market. If I instead own 10-20 stocks, I'm only affecting a fraction of the market. In the dot com bubble, not everything popped. Many stocks went up as people fled tech and went into "safer" sectors. So it does seem that broad index hegemony has the potential to exacerbate a nasty crash.
- ThrustVectoring 9y ago
  Index funds are going to expand until they're a big enough segment of the market that they're worth trying to exploit through predatory strategies. Eg: getting a long position in a stock and taking action to get it included in an index and forcing index funds to buy into your position. Or the opposite - short position and de-listing a stock. Or more complicatedly, manipulating your public float in order to squeeze market-cap indexers. The last one needs explanation. Suppose indexers think they should own 10% of your company. Issue stock, and "sell" that stock in a self-dealing manner at current market prices. Indexers now should buy stock, since your company is bigger on paper (more shares outstanding at the same price). In the degenerate case, >90% of the stock isn't actually available for sale on the public markets, and the indexers have to buy literally more shares than they can buy. Note that this pattern of strategies happens organically. Whenever there's a population filled with agents that pay costs to enforce rules, there's a superior local strategy of free-riding on their rule enforcement, since defectors cannot operate in a enforcer-heavy environment. This also is what'll cause a drop in index funds - wide-scale losses due to fraud and prices temporarily disconnected from fundamentals.

kaputsmack 9y ago

It is inexistent money. The world financial system is printing money, they are moving trillions around several nations to hide the fact that this money does not exist. How would you know how much value in U$ is hidden in Brazil by international banks? How would you know how much U$ is hidden in Singapore, South Africa, Mexico? You don't know. The US reserves are audited, the European economies are regulated, but the capital movement around the world is impossible to track. This money does not exist in reality, there is no record of it anywhere. But does anyone care? Has anyone read the Panama papers? Billionaires and world leaders are hiding trillions in bank accounts that you can open remotely, without hassle. This money is unaccounted for. Banks are free to move as much money as they please around the world, they just print money and move it. The trillions in funds around the world do not exist. The markets are rigged.

JumpCrisscross 9y ago
> How would you know how much value in U$ is hidden in Brazil by international banks? What on earth are you talking about? Are you saying the U.S. Treasury doesn't know how many dollars it has printed? Or the Federal Reserve doesn't know many dollars banks hold with it in reserve? Or how many dollars the banks it has under its jurisdiction have created? Note that apart from cash, the latter two categories are digital and intensely tracked. > You don't know Are you presuming or asking? $1.58 trillion of which $1.53 trillion are Federal Reserve notes and the rest coinage [1]. While estimating the exact amounts in any given country is not easy [2], just as estimating the exact number of dollars any person knows is far from definitive, the aggregates are tightly controlled. [1] https://www.federalreserve.gov/faqs/currency_12773.htm https://www.federalreserve.gov/faqs/currency_12773.htm [2] https://www.federalreserve.gov/pubs/bulletin/1996/1096lead.pdf https://www.federalreserve.gov/pubs/bulletin/1996/1096lead.p...
- kaputsmack 9y ago
  Printed what? When was the last time you moved a trillion printed dollars? "Printing money" today means moving virtual money around. Banks can make money appear in Cayman Islands. "Here is a billion dollar SWIFT money order", that is it. There is no billion printed dollars. They "print" money at will.
  - JumpCrisscross 9y ago
    > Printed what? There are three types of money: central bank reserves, physical currency and commercial bank money. The U.S. government (Fed and Treasury, respectively) directly controls the first two down to the cent. Commercial banks "make" the final one, but to get the right to do that they have to agree to Federal Reserve jurisdiction (internationally, this happens with central banks entering into swap agreements with the Fed, i.e. opening "accounts" with the Fed into which the Fed deposits U.S. dollars whose--since this needs to be said--quantities it gets to track). If rando Brazilian bank says "I have a billion U.S. dollars" and doesn't tell the Fed, they counterfeited. They can spend it in Brazil if nobody checks (hint: everyone checks, this is what the SWIFT and Fedwire protocols were designed to facilitate). But if they try to wire those funds to anyone else (or any other Fedwire or SWIFT member), the books won't balance and the message will be rejected. Someone will then have to (a) get real dollars to cover their crime or (b) risk having themselves, and/or their central bank, booted from the Fed's international system.
  - qaq 9y ago
    You are confused there are settlement accounts that are used to settle the transfers. So if you are doing a transfer from Chase account to CIBC FirstCaribbean International Bank account (for simplicity's sake we will assume that CIBC FirstCaribbean has a direct relationship with Chase) the appropriate debit and credit will be reflected in appropriate nostro and vostro settlement accounts. The SWIFT message is just a mechanism to exchange information but the actual money movement happens between settlement accounts.

legitster 9y ago

Maybe we'll finally find the argument against index funds: when the majority of market power is essentially in auto-pilot, it can't steer out of a crash. It's crazy to think that we can look at the market and opine over the lack of animal spirits.

rhexs 9y ago
Inevitably the markets will crash, new articles will come out detailing the "death of index funds" after five plus years of low or negative returns, capital will flow out due to the new index fund "retirement crisis", and we'll be back to where we started. Stay the course.
- legitster 9y ago
  I was thinking in aggregate - their potential on the economy as a whole. As an individual, they are obviously the best bet. But I'm just trying to read in some possible externalities.
shimon 9y ago
There's an interesting argument that index investing helps take the dumber investors away from active investing, making the animal spirits smarter on average.
crabasa 9y ago
I think it's less about animal spirits and more about granularity. If I only own index funds, I am forced to panic sell the whole market. If I instead own 10-20 stocks, I'm only affecting a fraction of the market. In the dot com bubble, not everything popped. Many stocks went up as people fled tech and went into "safer" sectors. So it does seem that broad index hegemony has the potential to exacerbate a nasty crash.
ThrustVectoring 9y ago
Index funds are going to expand until they're a big enough segment of the market that they're worth trying to exploit through predatory strategies. Eg: getting a long position in a stock and taking action to get it included in an index and forcing index funds to buy into your position. Or the opposite - short position and de-listing a stock. Or more complicatedly, manipulating your public float in order to squeeze market-cap indexers. The last one needs explanation. Suppose indexers think they should own 10% of your company. Issue stock, and "sell" that stock in a self-dealing manner at current market prices. Indexers now should buy stock, since your company is bigger on paper (more shares outstanding at the same price). In the degenerate case, >90% of the stock isn't actually available for sale on the public markets, and the indexers have to buy literally more shares than they can buy. Note that this pattern of strategies happens organically. Whenever there's a population filled with agents that pay costs to enforce rules, there's a superior local strategy of free-riding on their rule enforcement, since defectors cannot operate in a enforcer-heavy environment. This also is what'll cause a drop in index funds - wide-scale losses due to fraud and prices temporarily disconnected from fundamentals.