mkov_blank

My tentative playbook/recommendations for this scenario:

 Long homebuilders (ETFs: ITB, XHB; pair against short SPY if you want to be beta-neutral)
Long gold/gold miners (ETFs: GLD, GDX, GDXJ....)

This is a super difficult question. I'd be hesitant to immediately jump to long vol or flight-to-safety trades as offering the best reward-to-risk here.

 Another March-style liquidity crisis seems much less likely, given we have a better understanding of COVID as a medical condition, of the nature of its economic impacts, and--perhaps most importantly--how policymakers are prone to respond.

Basically the recommended trades could do very well in an environment in which there is pressure for real interest rates to decline coupled with a Fed that is game to... (read more)

Good point and indeed indexing played a prominent role in the late 90s tech boom; it was a broad market phenomenon, in contrast to the idea that it was a micro-speculative frenzy contained to things like zero-revenue IPOs.

However, here I’ll expand on the meta-contrarian “bubble” point and offer that the dot com boom was not a case of markets gone haywire. I think we had a case for real technological prospects coupled with a market buying into the expectation that the Greenspan Fed was capable of providing nominal stability over the long-term.

It perhaps serves as a positive case study as to why some economists bang the drum so strongly for nominal GDP-level... (read more)

tl;dr: YES. But it also depends what you mean by 'good investment'

First, we can look at the claim that passive investing is a 'bubble.' Among those calling "Bubble!", I see two separate groups making two slightly separate claims.

One group claims that incessant inflows of passive money are inflating prices of the largest stocks (AAPL, MSFT, GOOG etc.) which make up the largest part of cap-weighted indices such that they trade substantially away from an equilibrium fair value. 

I think these claims are quite dubious. Prices are set by the marginal trade, and although I know little of micro-structure/market-making, markets are likely quite robust even to large amounts of so-called 'uniformed flow'.  To claim... (read 589 more words →)