The Ponzi: Why Stocks Only Go Up
Hint: Passive Investing
This week the curtains started to fall. The sedation is starting to wear off. And I believe the establishment are scrambling to get some new dosage of dopamine out to the masses.
In a span of 1 week
Assassination attempt on running candidate
1B computers bricked / Crowdstrike CRWD 0.00%↑ news
Incumbent party wants current pres to step aside
Escalation on Yemen / Israel
Bangladesh protests with over 100 dead
Volatility wakes up
big pull back on semi and mega cap
Just added Sunday July 21: Biden pushed out of re-election. He needs to take care if his health. Best outcome for him.
It all felt like an episode of Mr Robot. If you have not seen this series I highly recommend it versus the plethora of garbage available today.
Back to the matter at hand. Ponzi schemes. Before we get geeky and you sit through some math equations I will give you the summary in street slang.
We are fucked yo! It only depends where in the pyramid your station in life sits in. You see, if you won the life lottery and have been working at one of the top Mag 7 or semi conductor companies for a decade, or even the last 4 years, and you have been collecting RSU/Stock options in compensation, you are now fucking rich!
I know this first hand as the startup I was a part of was acquired by Adobe ADBE 0.00%↑ and after my shares converted over, Adobe shares rocketed for years! In addition the look back window at Adobe is 2 years! For those who aren’t privy to this lingo, you set what percentage of your income you want to set aside to allocate to the stock program and you get the lowest price looking back 2 yrs! It is a no brainer. If you don’t max out your contributions, you don’t have the IQ to work for a Valley company.
Now imagine a large company like Apple, Amazon, Alphabet or Nvidia. They have the benefit of a cash pile to add fuel to the fire of all these employees purchasing shares. They can buy their own fucking stock back!
The issuing of the stock plans is also a bucket of capital for the company itself as well.
Then add all the passive investment on wall st that stuffs the Mag 7 into all their 401k, retirement offerings and multiple ETFs.
A virtuous cycle of ever increasing prices and smaller companies are simply locked out of this Ponzi as well as the talent pool. Who the F is going to work for a 100 employee tech employer when they can go to MSFT and make their money on Stocks?
Ever wonder how these employees in California, NYC can afford to buy homes? They aren’t buying that $6m 4 bed in Palo Alto on a freaking $300k salary yo! Do the math.
But what happens now? What happens next? That is for a little later. But let’s go down the rabbit hole with
andBefore proceeding I would highly recommend my previous post, which is a good prerequisite to all of the important content pertaining to a different way to look at the ponzi scheme we all play a role in.
"Who Clears the Market when Passive Investors trade?
Presented by Marco Sammon and John J. Shim (Harvard Business School and ND)
Full paper available in PDF format.
Teaser charts
And here is Michael Green also explaining on Adam Taggart’s Thoughtful Money.
If it doesn’t ffwd automatically skip to 41:04 marker, but I recommend you watch the entire episode.
So what is next?
Paying subscribers read on…
