Yesterday I had Mike Green on the podcast for the first time. We talked about how passive investing has changed financial markets, specifically how these changes have started to play a bigger role in bond markets. He also laid out how 3x levered ETFs and other forms of leverage (Situational Awareness) have exaggerated moves in financial markets. From there we detoured into wealth concentration, the need for political change, and why he thinks we are probably headed for a more authoritarian future. This was a great conversation, and if you somehow haven’t come across Mike’s work, you can find him on Twitter, Substack, and the Tier 1 Alpha website.
Podcast Summary
How we switched the financial system to favor passive investing two decades ago.
How a market cap weighted bond index favors bonds trading at a premium vs. bonds trading at a discount, and how it makes them pro-cyclical to interest rates.
3x levered ETFs, and why it’s important to understand the endogenous flow and the volatility drag associated with levered ETFs.
The changes from a defined benefit system to a defined contribution system in the 1970s, along with the Pension Protection Act in 2006, and how it contributed to the wealth concentration and lower cost of capital for the largest companies.
Why the path out for younger generations is political change.
The affordability of real estate and what it means for younger generations and the ability to have kids.
The importance of investing in technology, and why he thinks we will see lab-grown food become more ubiquitous.
Why the political system is probably headed for authoritarianism, and why generational turnover is going to lead to political change.
Book Recommendations: The Foundation Series by Isaac Asimov.
