Speaker 1: Welcome to trillions.
Speaker 2: I'm Joel Weber and I'm Eric Alchernas.
Speaker 1: Eric, there's some strange forces in the world of flows
Speaker 1: right now.
Speaker 2: What's going on there definitely is it is an unusual
Speaker 2: year because if you look at the equity markets, they're
Speaker 2: doing great.
Speaker 1: Yeah. I thought we were supposed to be in like
Speaker 1: a recession and everything was going to fall apart totally.
Speaker 2: The returns of the cues is upwards of twenty twenty
Speaker 2: five percent s and ps of a lot. You know,
Speaker 2: these are numbers that are double tripled or annual average, right,
Speaker 2: So think about it, You're not even happened in the year.
Speaker 2: You're getting multiple of your the annual return you're supposed
Speaker 2: to get normally. That attracts all the people. People like
Speaker 2: to performance chase. Oh it's going up, I'll buy it, right,
Speaker 2: Get none of that. It's like, as we call it,
Speaker 2: a fomo drought. Nobody is buying into this rally and
Speaker 2: it's very interesting and we have a bunch of interesting
Speaker 2: charts and aftonasio. So my team put most of this
Speaker 2: together that sort of show this short bias in the
Speaker 2: market that existed last year, which is understandable because everything
Speaker 2: was down but it exists this year too, with stuff
Speaker 2: going up, and you know, we'll do our best to
Speaker 2: explain it. But it is a different phenomenon. There's it's
Speaker 2: almost like strange weather.
Speaker 1: To walk us through this phenomenon, We're going to be
Speaker 1: joined by Athanasio Sera Fagus of Bloomberg Intelligence, this time
Speaker 1: on Trillions, the Fomo Drought. Athanasius, welcome back to trillions.
Speaker 3: Yeah, glad to be back.
Speaker 1: Okay, so this is a little bit of a weird year.
Speaker 1: What's the number one thing when you look at the
Speaker 1: flows that jumps out to you.
Speaker 3: Yeah, I mean there's they're not that strong. That's like
Speaker 3: the foamodraw. We actually were saying we were gonna make
Speaker 3: t shirts that we survived the foam.
Speaker 1: Modraw of when have we survived it?
Speaker 2: Though?
Speaker 1: Yeah, we're going through it. Yeah we No, that's the
Speaker 1: only thing. Might you know, might change the appetite in
Speaker 1: the moods for sure.
Speaker 3: I'd say probably the biggest difference is money market rates
Speaker 3: being so high. Right, so now you can earn four
Speaker 3: four and a half percent on the money market fund.
Speaker 1: Yeah, just give me that cash. Yeah, and it's safe.
Speaker 3: You don't need to go into the market and so
Speaker 3: that's definitely a big driver as to why people aren't
Speaker 3: piling into the market. But the performance in the market's
Speaker 3: actually been pretty good. Like when you look at it,
Speaker 3: considering what we've gone through Credit Swiss, how many banks
Speaker 3: have failed, you know, higher rates, the market's been performing okay,
Speaker 3: So I think all that considering, I would expect the
Speaker 3: flows to be a little bit higher, but they're not
Speaker 3: really biting.
Speaker 2: The money market effect should not be understated here. This
Speaker 2: is a big deal. Five percent yield just about on
Speaker 2: a toll pretty much a risk free asset class. That's
Speaker 2: pretty good, right, So that those money market mutual funds
Speaker 2: have grown by about half a trillion this year five
Speaker 2: hundred billion dollars is almost what ETS took in at
Speaker 2: like last year in total. That is a ton of money.
Speaker 2: Some of that money probably would have gone to the
Speaker 2: US equity market or elsewhere. So the money market funds
Speaker 2: in a way have acted like a vampire. They've sucked
Speaker 2: flows that would have gone to equities, and they've also
Speaker 2: sucked volume. US equity volume and equity ETF volume is
Speaker 2: down low, and so there's this sort of sucking effect
Speaker 2: from the money market funds that is also a very
Speaker 2: big component of the pomo drop. Athan, you did a
Speaker 2: great You've dissected this in multiple ways. It's not just that, oh,
Speaker 2: there's limited money going into US equities. I mean, by
Speaker 2: the way, when I say limited, I mean barely anything.
Speaker 2: If you look at US equity ETFs, they took in
Speaker 2: just about a trillion dollars roll over the last two years.
Speaker 2: This year it's like ten or fifteen billion. I mean,
Speaker 2: it's really it's child's play for US equity ETFs and
Speaker 2: fixed income is taken in like sixty or seventy. That
Speaker 2: is a massive, unheard of kind of gap between the two.
Speaker 2: But what makes that interesting is typically that gap you'll
Speaker 2: only see when people are scared. Right, But this is
Speaker 2: more of a competition for your money now because the
Speaker 2: fixed income is yielding a ton.
Speaker 1: But people could be scared still, right, That could be
Speaker 1: r That's totally part of it.
Speaker 2: It could be part of it. Very great. There's some
Speaker 2: factor that there's a recession or even the debt ceiling,
Speaker 2: I get it, or just layover from last year. But Athan,
Speaker 2: take us through. There's a couple interesting little areas of
Speaker 2: the ETF world that show this. Give us one.
Speaker 3: Example, Yeah, We'll start with international. And what's really interesting
Speaker 3: is I looked at all all the countries ranked as
Speaker 3: he's like thirtieth on the list, which is pretty low
Speaker 3: considering it's always been one of the better performing markets.
Speaker 3: But when you look at how we invest here, we're
Speaker 3: very US centric. So most of your portfolio is going
Speaker 3: to be in the US the SMP fund. You might
Speaker 3: have a little bit in international, So even if international
Speaker 3: does really well, you're not all of a sudden going
Speaker 3: to move your whole portfolio into International. So even though
Speaker 3: it's doing really well, it's not enough to entice a
Speaker 3: bunch of money to keep flowing into it, because you're
Speaker 3: still gonna want to stay in the US. So that's
Speaker 3: part of the reason why the US flows are really low.
Speaker 3: And we tend to be very US centric here though,
Speaker 3: so it's not really moving the needle all that much
Speaker 3: on the equity side.
Speaker 2: Like what Eric said, Yeah, look international, eh, I get it,
Speaker 2: I get it, But I just something about international that
Speaker 2: I don't buy. I don't know if I hung around
Speaker 2: with Bogel too much when I did the research in
Speaker 2: the book, because he wasn't a fan of international. He said,
Speaker 2: you don't need it but I don't know. I think
Speaker 2: it's just maybe I'm just too US centric. But so
Speaker 2: many of the juggernaut innovators are in the US, Amazon, Apple, Microsoft,
Speaker 2: these companies are awesome, right, and I don't know how
Speaker 2: many of those you get overseas, And so what you
Speaker 2: tend to have happen is people go to international for
Speaker 2: a minute, but they end up reverting back. So there's
Speaker 2: been like a couple head fakes. So I would need
Speaker 2: international and these other countries to go over two years
Speaker 2: without performing the US before I sort of surrendered or
Speaker 2: bought into the fact that it's real.
Speaker 1: Thirty seems pretty low.
Speaker 3: It it is?
Speaker 1: Where is it?
Speaker 3: Usually it's much much higher A top five, top ten, Yeah,
Speaker 3: top ten at least, But when you look at the
Speaker 3: countries that are on the top of the list, you're like,
Speaker 3: you know, there's some unique standouts, but not enough that
Speaker 3: you're going to move your whole portfolio into it.
Speaker 1: Well that takes a lot of work too. Yeah, so
Speaker 1: that's okay. So after international, where do you go?
Speaker 3: I think one phenomenon that really encompasses it is on
Speaker 3: the closure side. There's this Vanek crypto minors ETF that's
Speaker 3: about the close or might have actually closed. Dam was
Speaker 3: the ticker. It's up like over one hundred percent this year, right,
Speaker 3: So there, it's like, can you imagine if this was
Speaker 3: in twenty nineteen or twenty twenty, you have an ETF
Speaker 3: that's up one hundred percent and it's going to close. No,
Speaker 3: it'd been the opposite flows have been going into it.
Speaker 3: So I think that really sums up nicely this fomo
Speaker 3: d route that you you know, you have this product
Speaker 3: that's up, and it's not just this one. There's a
Speaker 3: lot of crypto ones that are doing really well, but
Speaker 3: people are just not following into it. Either they've been burned,
Speaker 3: you know, in twenty one or so. So I think
Speaker 3: that really comes is very nice over it, just over it.
Speaker 1: Yeah, what other crypto related funds are similar or maybe
Speaker 1: not imminent in the same way, but just up and
Speaker 1: people don't care. Yeah.
Speaker 3: I think a lot the stuff that was really bad
Speaker 3: last year has done really well this year. It's almost
Speaker 3: completely flipped, Like energy tech, those positions are completely flipped.
Speaker 3: So I sort of caught like a junk rally, like,
Speaker 3: you know, you see this stuff doing really well, is
Speaker 3: it enough that do I want to get start chasing
Speaker 3: crypto again. I got burned already. Am I like ready
Speaker 3: to love again and start doing this again? People just
Speaker 3: are not.
Speaker 1: It's the breakup. It's like we're in the breakup phase.
Speaker 2: Yeah, am I ready to love again? So it's like
Speaker 2: an air supply lyric.
Speaker 1: Oh man, this is some deep stuff. If you need
Speaker 1: to lay down on the couch to continue to just
Speaker 1: let us know.
Speaker 2: No. But you know, I think it's true. Crypto in
Speaker 2: particular has this other angle of the whole SBF. I
Speaker 2: couldn't get my money out. There's like a big stain
Speaker 2: on the whole industry. But I agree there's other stuff
Speaker 2: that his rally that hasn't gotten bites either. So junk
Speaker 2: might be a harsh word for it. I would just
Speaker 2: call it really high beta like supergrowth. ARC even is
Speaker 2: up big now. It hasn't really seen outflows, but it
Speaker 2: hasn't really seen like everybody come back in in some
Speaker 2: big rush. So across the board, there's just many examples
Speaker 2: of like again a Fomo drought. It's it's like it's gone.
Speaker 2: The FED I think probably is what killed it. You know,
Speaker 2: between always threatening a recession and making the rates so high,
Speaker 2: you can get great yields elsewhere. The FED. In my opinion,
Speaker 2: the FED has done so much to derail things like
Speaker 2: themes ESG crypto. All of these things were sort of
Speaker 2: high beta things like bull market playthings that people got into.
Speaker 2: The FED raises rates. It sort of like sobers everybody
Speaker 2: up instantly, and so it will take a lot more
Speaker 2: enthusiasm and big returns and time, I think to get
Speaker 2: people back to this because of the FED has completely
Speaker 2: change the way they are approaching the market right now.
Speaker 2: Instead of helping the market and giving the market tailwind,
Speaker 2: they're just constantly giving it headwind.
Speaker 1: Well, and if you're a little bit scared or timid
Speaker 1: and to the competition point you raised earlier, there's cash
Speaker 1: over there and you can get the good, healthy return
Speaker 1: in that money market fund that you wouldn't have been
Speaker 1: able to in years past, like take the easy money.
Speaker 1: I guess right, Okay, So what else.
Speaker 3: Leverage ETF trading, This one is pretty interesting. So market's
Speaker 3: been up for a long time. If you look at
Speaker 3: through the trend of flows and trading on the leverage side,
Speaker 3: it's always been very favorite towards the bulls the longside.
Speaker 3: So even if the market went down, people started buying
Speaker 3: leverage long ETFs. That's completely flipped on its side now.
Speaker 3: So now when the market goes up, you start seeing
Speaker 3: a pick up in the short side, meaning that seems
Speaker 3: like people are selling in to the strength versus buying
Speaker 3: the dip, which is what we were doing the last
Speaker 3: couple of years. So that dynamic has completely shifted, and
Speaker 3: you could if you sort of track it over time,
Speaker 3: you could see that there's definitely a short bias still
Speaker 3: in the market even though it's going up. It's maybe
Speaker 3: just tiptoeing into maybe some lever long stuff, but it's
Speaker 3: still very favorite on the short side.
Speaker 1: So that makes me think of though, is that this
Speaker 1: is a market that the professionals might have a little
Speaker 1: bit of a heavier hand than the retail that we've
Speaker 1: witnessed over the past year or two.
Speaker 3: Yeah, I think that's true. I think Probabe macro has
Speaker 3: become more of a bigger focus now, so I think
Speaker 3: that might just skew the more to the advantage of
Speaker 3: more the institutional side.
Speaker 2: Yeah, but if you're thinking about remember it was all
Speaker 2: by the dip BTFB and people would especially retail, would
Speaker 2: use TQQQ. So anytime TQQQ which is the triple leverage.
Speaker 2: NASTAC went down a little, they would buy that that
Speaker 2: was the best way to get the most juice out
Speaker 2: of a dip rally. Right now, they're buying sqqq on
Speaker 2: the dip, which effectively is selling the rip. So anytime
Speaker 2: the market goes up a little, they're going right down
Speaker 2: to the short side, so they're buying the dip. Still,
Speaker 2: it's just inverted. So I do think I don't know
Speaker 2: if that's fomo, but that's sort of the fomo crowd.
Speaker 2: And if the fomo crowd keeps buying sqqq on the dips,
Speaker 2: that I guess speaks to are again the larger issue,
Speaker 2: which is that the mass I guess group mind share
Speaker 2: of the market is just generally not really feeling the
Speaker 2: equity rallies. So sqqq used to be like fiftieth most traded.
Speaker 2: Now it's upwards of fourth or fifth. Whoa right, And
Speaker 2: it's above tqq somedays, and so that thing. What you know,
Speaker 2: if you look at the if you did a chart
Speaker 2: of like the most increased volume of ETFs of the
Speaker 2: big ones, right not the small ones, you know sqqq
Speaker 2: is going to be right at the top of the list.
Speaker 2: Because it really had multiple increases of volume over the
Speaker 2: past year because of this phenomenon, and TQQQ kind of
Speaker 2: held the same and came down a little bit. So
Speaker 2: it's the relative of those two that is noteworthy that
Speaker 2: Tom found.
Speaker 1: And you think that's a retail phenomenon or a more
Speaker 1: of a professional institutional one.
Speaker 2: So I'm going to lean retail here, because on the
Speaker 2: Bloomberg Terminal HDS shows, you like all the holders from
Speaker 2: like like which big institutions own an ETF And the
Speaker 2: percentage of holders that report owning sqqq is only three percent,
Speaker 2: So that tells me it's ninety eight ninety seven percent
Speaker 2: small investors. That number would be like fifty percent with spy, right,
Speaker 2: So institutions and big advisors are not reporting owning this,
Speaker 2: and so my guess is it's a lot like millions
Speaker 2: of small investors. And remember with that guy we had
Speaker 2: on the show when the Robin Hood thing was going crazy.
Speaker 2: We had that nineteen year old hit on the show,
Speaker 2: and he just loved TQQQ. He was like an sqqq
Speaker 2: He was like, I just want to trade these all
Speaker 2: day every day. They like he became addicted to the
Speaker 2: adrenaline hit of these that these two kickout and Joel
Speaker 2: beyond the volume of inverse ets The flows into inverse
Speaker 2: ETFs are six billion this year. What are they into
Speaker 2: the leverage alongside? Almost nothing? And that six billion represents
Speaker 2: a twenty five percent increase in assets. And again that's
Speaker 2: weird considering how much the market is up right.
Speaker 1: Yeah, people just don't trust the rally.
Speaker 2: They don't trust it. Like I said, they what was
Speaker 2: your line? The air supply? They've fallen in love and again,
Speaker 2: been in love once bit and twice shy, that's a
Speaker 2: that's a great white song.
Speaker 1: Eric quitelse jumps out at you about the flows.
Speaker 2: Yeah, so let's look at individual ETFs, right, So we
Speaker 2: look the top ten most inflows and the top ten outflows.
Speaker 2: To me, this speaks also FOMO drop. What's number one?
Speaker 2: TLT boring treasuries right, Number two is qual So if
Speaker 2: they are going to equities, this is the black rock
Speaker 2: trade mostly but qualities thocks right. Voo is third, but
Speaker 2: Vanguard that's like a different laws of physics over there.
Speaker 2: They're going to buy no matter what. And then you
Speaker 2: got aag in there. That's the fixed on the agri
Speaker 2: bonding TFBND right behind it BBU is Europe total market.
Speaker 2: Vanguard doesn't count Schwab five to ten year corporate bond
Speaker 2: and if so, it's all bonds and quality. So that's
Speaker 2: again that's weird considering the double digit returns in both
Speaker 2: the market and the CUES. And then we look at
Speaker 2: the outflows side JEL the cues has seen two point
Speaker 2: five billion of outflows. It's up twenty five percent. Wow,
Speaker 2: that's weird. Now some people are gonna argue there's a
Speaker 2: couple there could be a couple nerds listening who are
Speaker 2: gonna actually me on this and say, well, QQQM, which
Speaker 2: is the new Invesco knockoff, has taken in some money,
Speaker 2: but it hasn't taken it enough to offset that. But
Speaker 2: even if it took in a little, again we're normally
Speaker 2: it's up twenty five percent. We're seeing six to ten
Speaker 2: billion dollars in cloths. Now that's where it should be
Speaker 2: and it's negative. Again weird. And the CUES is largely
Speaker 2: used by the trading crowd.
Speaker 1: Is that AI enthusiasm? You think.
Speaker 2: No, I think? You know? AI is a topic that
Speaker 2: it gets a lot of press. It reminds me of ESG.
Speaker 2: The press and the media and the debate is so
Speaker 2: far out running the actual assets or investor interest. Maybe
Speaker 2: the assets will catch up, but I think AI right
Speaker 2: now is just a you know, very interesting thing to
Speaker 2: talk about the media. We're seeing more names with AI
Speaker 2: in it, but they have no assets yet. It's not
Speaker 2: really a viable category, so I would say no. Also
Speaker 2: in the outflow list, Joel is XLK the tech ETF
Speaker 2: and then number one on the outflows, as I've probably
Speaker 2: mentioned a couple of times this year, is ESGU. Remember
Speaker 2: ESG is sort of a bull market play like crypto
Speaker 2: because it tends to favor growth in tech. So you
Speaker 2: have outflows from ESG. So again, the FED has just
Speaker 2: reaped havoc on so much of the market. And you
Speaker 2: know our Remember we were on talking the beginning of
Speaker 2: the year and Athan was talking about fundamentals, and I
Speaker 2: think at the end of the day, if stocks are
Speaker 2: going to get bids, are going to be a very
Speaker 2: fundamental sober bid for a while.
Speaker 1: Okay, So if John Author's great Bloomberg opinion columnist, we're here,
Speaker 1: and it was the end of the year. He does
Speaker 1: a column called hindsight Capital, which is what you should
Speaker 1: have invested in at the beginning of the year. We
Speaker 1: are now halfway through the year. If we were doing
Speaker 1: a hindsight capital episode, what should you have done in
Speaker 1: the ETF world to have crushed it so far this year?
Speaker 2: You should have bought FNGU, that's the micro sectors, Fang
Speaker 2: plus triple leveraged, it's up. You should have bought ultra
Speaker 2: short natural gas. And you should have bought crypto bitcoin minors.
Speaker 3: I just wanted to say Crypto should have bought what
Speaker 3: didn't work, anything that didn't work last year, you.
Speaker 1: Should have bought this year. Yeah, yeah, no, wonder, no
Speaker 1: wonder if the fomo drought is a thing? Okay, so
Speaker 1: so can this drought d because I mean I think
Speaker 1: about this. You just have this risk free place that
Speaker 1: you can put your money called cash and these money macrophones,
Speaker 1: and I'll just sit on the sidelines until it feels
Speaker 1: like there's a buying opportunity that is more of a
Speaker 1: sure thing than whatever this outlook is.
Speaker 3: Yeah, that might eventually cause the end of the drought.
Speaker 3: And again this is just anecdotal. You know, talking to
Speaker 3: my friends who are you know, not in the market
Speaker 3: or anything, and they're always waiting to like keep asking
Speaker 3: me when can I come back into the market, Like
Speaker 3: when can I start buying? So there might be something happening,
Speaker 3: even a further dip, and then you have this massive
Speaker 3: buying opportunity, right and you start seeing a bunch of
Speaker 3: money move in, So that might cause the end of
Speaker 3: the drought. But uh, for now, it seems like everyone's
Speaker 3: pretty content with just earning you know, four four and
Speaker 3: a half percent.
Speaker 2: Yeah, so I pulled. I did a Twitter poll and
Speaker 2: I got three hundred and ten votes so far, and
Speaker 2: I said, you know, when it comes to your personal portfolio,
Speaker 2: have you increased, decreased, or done nothing to your US
Speaker 2: secretary exposure twenty six percent increase, thirty percent, decrease forty
Speaker 2: two percent, no change, So that if you net that out,
Speaker 2: that's more sellers than buyers. So this is again and
Speaker 2: just pulling the people so they match up with you know,
Speaker 2: Athen's friends over there. But in my opinion, you know,
Speaker 2: just as there was a mystery to why people kept
Speaker 2: pouring into the market when evaluations were really high in
Speaker 2: twenty twenty twenty twenty one, people were like, these people
Speaker 2: are crazy that because the FED had our back, and
Speaker 2: so now the FED has to deal with inflation, and
Speaker 2: there's this always this dark cloud hanging above everything that
Speaker 2: they're going to hike again if an inflation print is
Speaker 2: hot and it's going to ruin everything. So it's gone
Speaker 2: from like a sunny sky to a dark cloud, kind
Speaker 2: of like following investors. So to me, the FOMO draft
Speaker 2: ends when the FED just sort of drops his hands
Speaker 2: and says we're done. And I don't know when that happens.
Speaker 1: Athanasios, thanks so much for joining us.
Speaker 3: Yeah, thanks for having me.
Speaker 4: Thanks for listening to Trillions until next time. You can
Speaker 4: find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify,
Speaker 4: or wherever else.
Speaker 1: You'd like to listen. We'd love to hear from you.
Speaker 4: We're on Twitter, I'm at Joel Webber Show. He's at
Speaker 4: Eric Balchuna's. This episode of Trillions was produced by Magnus Hendrickson.
Speaker 4: Bye