Now nearly 10 months have passed since this interview, and we are in mid-October of 2020. Lots to consider in this, but one that sticks out is the likely effect of lots of RMDs being withdrawn between now and the end of the year. I suspect that if we start to see a sell-off any time now, a lot of folks who will have to take their RMDs may decide not to wait for the end of the year. They have good profits now, and why take the chance of further drops? This could accelerate the selling, causing others to hit the sell button as well. And if it turns into an avalanche of selling, it won't be just those who have to take RMDs, but the whole crowd of Robin Hoodies who will be astonished to find that stocks really can go down, and lots of other investors as well.

If everything is flowing into the cap weighted S&P that means that relatively speaking more money is flowing into the largest 5 companies. So when the economy is expanding just buy the top 5 names and you should beat the index. Seems like a simple idea, what am i missing?

Watched for the third time and still getting new nuggets of info and thought lines. Love to see Raoul and Mike revisit this halfway through 2020.

Great interview - very insightful - came back to find and watch it after it was referenced in The Grant Williams/Bill Fleckenstein Interview with the 'Lord of the Dark Matter' in End Game pt 2 https://ttmygh.podbean.com/e/teg_0002/

Please bring Mike back for a 6 month update. This was an exceptional conversation.

Fantastic interview....well done.

Can someone link me to an analysis that shows which stocks are owned, to what extent, by all listed mutual and index funds/ETFs of the sort he is referring to, over a time series, which then compares that 'ownership rate' delta for a stock to its market price delta over the same time series?

I believe Raoul's reference to public pensions getting tax dollars and investing into commercial credit bonds : Unfunded Pensions & Retirement Crisis (w/ Brian Reynolds) | Real Vision

One of the best interviews I have ever heard in my chosen field ... Bravo

Legendary. I could listen to this again and again. I am super interested in understanding market dynamics via simulation. Do you have any good references for building such agent based models (assuming proficiency in python, excel and statistics)? Since I can't help myself I'll ask a specific question: do you use a stochastic process to simulate prices, or are prices generated via trading by model agents? I'm assuming you can get a lot of understanding using quite simple agent / rule sets.

Not that I'm arguing negative yielding bonds or fixed income in general is a good investment currently, but you have to take into account, that BNDX and most other passive US based funds hedge their currency exposure when investing in foreign (non EM) bonds. Hedging your Euro exposure as an US investor gives a pick-up of approx. 250 bp. - and effectively gives many European bonds (including bunds) a higher "yield" than treasuries - at least for now. Believe me - it's a lot more challenging being an Euro (DKK) denominated investor, than being US-based. We can choose between negative yields (now also in our private bank accounts) or running an open FX-exposure.....

Passive: acceptance of what happens, without active response or resistance. Synonyms: apathy, laziness, lethargy, negligence, inertia. What zero bps induces.

What wrong is the Fed has created a nuclear bomb end to there experiment in Central planning.

This is the interview of 2019. Must listen (and re-listen) that covers so much ground. Congrats, Raoul, this was fantastic. Also, thanks Milton for finally delivering the fix that enables comments from my mobile device.

This was outstanding - watched it twice. Interesting the SECURE Act came up at the end. This conversation really puts the effects of that Act (now law) into perspective as it defers additional baby boomers withdrawing (70.5 to 72) and further increases passive investing with employers now able to join together to offer plans and get a tax credit for auto-enrolling new employees.

I haven't seen anyone besides Mike and Raoul even mention the required minimum distribution from pre-tax qualified accounts as a potential problem. I guess it hasn't really been a problem yet because of strong stock market performance but if we see some flat and down years in a row this will blow many older Americans out of the water. What a difficult time to be retiring.

Dancing in the bubble is very high risk. If the market has a chance to melt up as more and more passive investments flow into the market, is day trading viable - in and out each day? DLS

JP Morgan may be anticipating central bankers steepening the yield by lowering the short end rates - not a recession in the US; or both. This would help the US banks and is probably what Euro CB will do in 2020 to help its banks. DLS

Great stuff as expected. @Mike G - regarding the models you build, what do you program with? Are you using excel on steroids, a full-fledged dev stack (e.g. java, c#), or other?

Fantastic interview. I would add that another effect of passive investing and "don't care about valuation" models is deterioration of individual corporate governance because passively held shares voting power tends to default to management.

Love Mike Green! He is always so thoughtful and thorough in his explanations. Yikes! Never knew Target date funds held negative yielding bonds, that no one in their right mind would buy. How Mike Green determines if the market is over 50% index funds? Is it based on daily volume of the 505 stocks that make up the index based on its weighted average in the S&P. For example since News Corp Class B is .006377 and Microsoft is 4.431026 of the S&P 500 index then we should expect for every share of NWS sold there should be a corresponding ~695 shares of MSFT sold if 100% correlation 4.431026/.006377. so if 347 shares sold it would be at 50% correlation. .

All distributions from tax deferred retirement plans are taxed at ordinary margins federally. It also will increase the amount of social security income to be included as taxable income. DLS

PS. Which bond indices hold negative yielding bonds that lead unwitting US investors to hold them? Bloomberg Barclays US Agg TR?

You don't really get the same kind of rolldown w/VIX because there's no deliverable. You can't buy spot VIX the way you can buy spot physicals or even equities. Otherwise, Green might just be my favorite RV interview subject. Brilliant.

MIKE GREEN: "Everybody knows because of the work of Eugene Fama and Ken French, that value outperforms, although some recent research calls that into question." Can you provide a link or reference the research calling value outperformance into question? Also, both mentioned that value is not coming back--can you elaborate? Thanks!

i thought that this was a fascinating discussion that I may have to watch again. Clearly a long term duration issue...until liquidity runs dry. For the time being the Fed seems ready and able to confound such expectations. It would be interesting to know the proportion of the US market that US retirees account for. Obviously Mike and Raoul's expectations have greater credence if the weighting is quite substantial. What proportion of the US market is foreign owned? here in the UK i know that the latter number is quite low as we've scared them off!

Pardon my ignorance, can we gather from Mike's perspective that Jack Boogle was wrong and Index Stock and Bond funds are not a valid path to pursue? Or, its this position from an active fund management perspective that have lost income by folks using indexing? Just curious on others thoughts.

Awesome. Thanks guys!!

This might be the best discussion I have heard on any medium this year. Thank you.

Raoul: I would love to see you assemble a round table discussion for 1st quarter 2020 of yourself, Mike, Julian, etc of what are the signals we should all be looking for to indicate the flows will reverse, creating the discontinuous events that Mike described. The value of this to subs would be enormous. Also, given the governments "do whatever it takes" attitude, would think that once such an event is underway, the government would be the buyer offering liquidity, just as Japan did, only quicker. Seems like we are on the path to the end of capitalism as we once knew it. (Will be interesting, but would like to avoid the pain!) Mike: Fantastic, thanks.

When elephants fight... ...it’s the grass that gets trampled on. This proverb keep reverberating through my mind every time I watch this excellent interview. This is why Real Vision matter so much imo. To be able to share these valuable insights is tremendous. Whilst it may not equal the playing field, it certainly improves the probability that we do not get trampled on. The magnitude of what is posed here is quite mindboggling. If the chances of getting a black marble out of the financial bag increases it will not only have a negative effect on people’s ability to get to their capital when they need to, it will also destroy the heart of the financial system, trust. One would think that governments won’t be able to let this happen. Central Banks owning most of the market - Japan is an example - might be a safety parachute, but it distorts the market and eventually people will get hurt. Earlier in this comment section R.M. suggested to hold a round table as we enter 2020. I wholeheartedly support this suggestion. This is a major topic, comparable to ‘recession watch’ perhaps. We could think of a series ‘Passive Watch’ :-) - in any event a follow-up (or two) would be excellent and now you introduced this topic it is almost required, in my view. Thank you Mike Green for sharing your insights and RV for sharing the knowledge.

Fantastic, well done lads.

Great interview as always with Michael Green. Dare I ask, can you make this a quarterly event? Always good to hear how his perspective (or any guests) adjusts with market conditions and how their "sentiment" indicators adjust. The best part is that Michael has a solid handle on some analogies to help contextualise the discussion. Look forward to hearing more.

Not sure what Raoul was getting at with JP Morgan and the steepener. If they're selling bills and investing in the long end that'd be a flattener. Unless you mean taking advantage now because it's steeper?

Interesting comments on regulatory capture. I wonder if clearing houses did the same kind of lobbying and what might eventual cost of that be?

If anyone wants to follow Mike on Twitter, his handle is @profplum99

Very good interview. The nice thing about Japan is that it teaches us what can happen. A backstop to an event of massive ETF redemptions is, of course, the government. The Japanese government owns today 78% of all ETFs in Japan.

Mike hit all the right buttons. His concern for the S&P in the midst of another VIX blow-up left me hanging though. You mean it could actually go down through the buyback bid, through the FED put ZIRP/NIRP, through the FOMO BTD, through the phase 2,3,4,5,6 "trade talks are going well" tweet etc..? Also agree that the days markets and traditional investment will never have a seat at the table ever again. Lobby comments albeit known was amazing and proof that everyone's all in! My goodness. Raoul, always fantastic sir. Regards, Vinnie

The analysis is compelling. Given that the transformation of the market is inexorable how should an investor adapt?

Superb! Thank you Mike and Raoul. I learnt a hell of a lot during this interview.

Mike Green is worth the RV subscription by himself.

Mike is a great listen, but why aren't we seeing another Thiel Cap honcho Eric Weinstein.

Interesting theories ...sounds like no place to hide. The risk discussed seems greater than investing in the next Microsoft, FB, or AMZN etc. Small business startups are a hedge to a over valued and primed by the Fed mkt. The companies invested in at the cycle/ mkt bottom will far exceed the returns of a mkt bottom over 5-10 yrs.

Awesome interview...Very insightful and an example as to why RV is so crucial! Also makes me wonder if the RMD issue and Repo issue have a least some year-end connection...Who's going to sop up all the equity supply every December from RMDs? In some convoluted way maybe they end up off B/S at the Fed or Treasury?

one of the best. ty both.

Congrats Mike on your massive payoff on Short VIX EFT put option. Now that XIV has blown up, how can retail investors get on the other side of short VIX bandwagon?

Excellent and most concerning insight , thank you Mike & Raoul . Yes to an imperative & essential early 2020 Round Table , invite Lagarde & Powell too ?

Own Gold ? ( #Grant , Tony Deden , Midas et al )

Total newbie here 👋. Maybe some of you pros here can enlighten me. So in the 90s it was said that when active managers = the market, then active managers on average don't outperform themselves? So after fees you get a below market return on average. Therefore just do passive! This is "dumb money" that doesn't care about valuations. Now the market = active managers + passive managers. Shouldn't it now be easier for active managers to outperform? Is this observed already? And if it is, do people, including Millenials, realize it and shift assets back to active managers until some kind of equilibrium is reached, rather than the market approaching 100% passive?

Great questions from Raoul P and strategic responses from Mike Green. I watch almost every video on RV and this is one of the best from this year. Little to no interruptions and breaking down what things mean for everyone to understand. Thanks!

Superb interview. Thanks Raoul & Mike. I would like to see a lot more of Mike on RV. One topic that is nearly always omitted from the active/passive discussion is the absentee owner. A lot of CEOs and BODs would be fired if shareholders (aka owners) were paying attention and voting their proxies. From the perspective of societal well being (which at the end of the day is all that really matters), I see this as the biggest issue with ETFs and index funds. I don't care how many glossy "socially responsible" propaganda brochures companies churn out, the truth is that most public company behavior is reprehensible in nearly every respect. I'll cite the all time record pay differential between CEOs and employees and the now negative tangible book value of the S&P 500 as just two of many, many indicators to support my claim.

Michael Green is fantastic, the depth and breadth of his knowledge is really impressive. More of him please. Really impressive content this week all round. On Raoul, I would say it is a shame that he seems, to me at least, to want to drive toward a bearish narrative repeatedly. I know he talks about probabilities and nothing is definitive but his narrative always tends to be toward the bearish. Mr Green did well to counter that and continue focusing on the dynamics rather than the narrative.

Superb...love the calm thought process of Mr Green. I still come back round to thinking that the ETF market is going to explode to the upside (for a period of time anyway) down to the boomer selling wave. The boomers sell and the ETFs buy. After all, ETFs have to buy to stay in business. Am i missing something???

It will actually turn into a big positive for workers once yields go to zero the only way to generate capital will be to work, there will be a lot of pain on the way but once capital can no longer generate value labour will be very valuable.

Enjoying the interview and realize that audience is particularly astute but definitions should be made plain in all cases. Example DCF - presume this means distributed cash flow. Should sort of be a policy for RV maybe?

Mike Green is a very intelligent, thoughtful guy. He's a good interviewer, but a much better interviewee. This is so much better than the people you put on that are either from the Fed or talk about the Fed. Get more Mike Greens!

Thank you for calling out Larry Fink/BlackRock and Vanguard at the end. Not many people have the guts to name names.

One of the better interviews. Seems like there are more subtopics to delve into here, so at margin, additional conversations on market structure and plumbing would be extremely welcome. As an aside, I like to listen to these, but if jammed, sometimes reading the transcript is a lot easier. Why can’t I print those out?

Like #600

Fantastic interview. I was glad to hear some discussion on the recent JP Morgan balance sheet move as to my mind it was a REALLY big positional change for them and in some respect appears to be gaming or front running the Fed—Jamie Dimon must be convinced they are on the right side of that “trade” as it is petty close to an “all in” bet on the outcome. It would have been good to hear some of how Chris Cole is currently playing the Volatility trade right now in his Artemis Vega fund (I have been a shareholder for years and still can never quite tell how he is playing things). Haven’t heard from Chris in awhile and would be good to get him on again!

Wow. Brilliant. It has me critically thinking about my thesis and exit strategy. How are viewers thinking about gold/silver stocks in this scenario during a massive exit? Would you sell or hold and wait for a recovery?

Mike Green is the GOAT. So so grateful for this interview. I've pretty much posted in every video that he has been interviewer in that we needed him to be interviewed. Thank you RV for listening. Please make sure the next interview with Mike Green is not another 2 years away.

What a brilliant interview! Mike Green is always excellent, but this one is next level in how comphehensive it is, tying everything together. Bravo!

Pretty amazing segment. Alot to think on about here. Thank you RV

Excellent, thought provoking interview. Thank you. Can't imagine why anyone gave this a thumbs down. Even if you don't agree with all of the ideas presented, what's not to like about such a rich conversation?

One of the best interviews I have seen on RV. Great job! My opinion is that what is being described is the same phenomenon described by people like Neil Howe and Ben Hunt as the markets becoming public utilities. It sure seems like there will be an "event" and the government will have to underwrite the whole thing or risk generational disaster. If they do, the markets will no longer be free markets and in my opinion will not function any longer. Not a great scenario, but the alternative may be worse. It will be interesting none the less.

Watched it once, I need to take a hour or two to sock all of this in. Then it will be time to watch it a second and perhaps a third time to really grasp all of the content. Easily one of the better finance interviews ever done, not just on RV, but on all platforms ever. This interview alone was worth the subscription money for an entire year. Over 90 % passive investment exposure among millennials sounds like a crashproof course towards true disaster. Would love to in the future hear Mikes view on gold and perhaps even if I may dare to say Bitcoin. Thanks for this RV and Raoul, you guys are just something extra!

Holy shit that was a phenomenal interview! I have to watch this again to understand it better, but it all lines up with mr Reynolds interview that the pension funds don’t have any idea what they’re doing. Big props wow

Scary stuff! Want to see more of Mike Green to pick his brain. I am sure he knows a thing or 2 on the Euro dollar market!

Pure content from start to end. The most though provoking interview I have seen on RV period.

Fabulous. Absolutely fabulous discussion. One question not asked was "why are many people using passive investing now?" The obvious answer is because most active managers do not beat the market especially after fees. So why would people pay 2 and 20 for below market returns. The idea that millennial are saving for retirement in 20 or 30 or 40 years means that they will not sell in the next 3, 4 or 5 years. How does the valuation theme turn around? Probably when profitable companies start paying bigger and bigger dividends and thus become attractive and eventually big enough for inclusion into an index. Some shipping stocks are projected to have dividend yields approaching 25% next year (thanks Kuppy, a recent interviewee!)

Please elevate this question to Mike or Raoul as Im sure most RV subscribers are curious: given the illiquidity in passive markets, if one has a large short position in SPY or QQQ and the market tanks, could there be a scenario where even the short sellers not make any money because the longs are frantically selling and borrowing becomes harder and your shorts are called in? How realistic is this possibility?

Great Interview. Mike green is so clear and articulated. How would you account for the potential of elder generations to transfer some of their wealth to young ones through inheritance etc? Surely this would limit the potential retirement driven sell-off or might even create some contrarian impacts as assets change hands (Gold is less attractive than crypto for younger generation)

Excellent dialogue, until they got to the piece on Long Volatility e.g. MG it's very hard to do well, RP negative Gamma risk, also RP waiting for VOL expansion is [only] for the very skilled? The implication being danger, danger only for the experts. Really? hmmm. Here's an example of a small (buying power reduction = $1597) short premium Option trade that's directionally long, and has Positive decay (+'ve Theta) of $1.86 per day using VXX as the underlying that anyone can do, which IF structured correctly has ZERO upside risk. Note this is a short term trade NOT a permanent, ongoing equity portfolio hedging strategy against a Volatility spike which is difficult in the extreme to implement on a consistent basis, consistent being the operative word. Remember with Volatility the overwhelming statistically probabilities suggests 'Velocity of Risk' is to the upside i.e. when the VIX does move up, it moves up very quickly so the idea of protection to the upside is attractive, at least to me. The basic idea is Sell a naked OTM PUT together plus also sell an OTM Call Spread. To ensure no upside risk, the next piece is IMPERITIVE TO GET RIGHT. The Credit Received for the overall trade must be greater than the WIDTH of the Call Spread. At the time of writing position would be structured as shown below. The exampled Credit received is based on using 1 lot only. Position size can be increased depending on personal preference. Using Jan 17, 2020 Cycle 37 DTE Sell 21 Call, Buy 22 ($1 dollar wide) Sell 16 PUT Potential Premium received at time of writing (US pre market) showing as $1.03 mid price i.e. $0.03 more than the width of the spread. Profitability Sweet Spot, VXX stays between 16-21, Breakeven points 15-21.5 If the underlying stays within the short strikes (16/21) the Profit target is 50% i.e. close out when a 1 lot position can be bought back for $0.51. Short premium positions are most exposed to Gamma Risk as expiry date gets ever closer, we can drastically reduce Gamma risk by either Closing or Rolling out to next Feb monthly cycle at 21 DTE point in time. Note only consider Rolling out in time at 21 DTE if it can be done for an additional credit. Other position 'management' choices as follows 1./ If VXX rallies Roll up the PUT side for additional Credits, or if VXX moves lower Roll down the Call Spread for additional credit

whoever wrote the deacription must be new to RV, "first time as a guest"

Fantastic from Mike Green as usual. Please get the description right, though- longtime RV subscribers know well that this is NOT the first long form interview from Mike Green. He did a superb one 2-3 years ago called The Great Rotation, also with Raoul. This is something you really should know.

Christmas has come early.

Would love some comments directed a NOOBS. So Targetfunds are high risk. Over long term. The CAPE ratio of the S&P is market high. Bonds are overpriced. So what does one do regarding 401k/403b/457? How should one allocated the $$$. How much cash should be be holding in case of significant correction. Perilous times and looking for calm waters. Sorry if this question is too elementary for this crowd.

Excellent conversation. To be able to be a fly on the wall here is just amazing. Thank you. A couple questions: 1: how is JPM moving 190B from cash to the long end playing a steepener? It seems to me it's playing the opposite of a steepener. The curve steepens one of two ways, either the short end rates move lower faster than the long end or the long end rates move up faster than the short end. In either case, being long the long end isn't playing either of these dynamics. TIA 2: In regards to passive, can we assume new generations buying will offset older generations selling? The idea of infinite pricing on the absence of sellers makes perfect sense, but can we really assume no sellers? When millenials retire, there will be a new generation buying, perhaps not dollar for dollar and maybe therein lies the problem, but the challenge then becomes balance fund flows (among others, sure; just commenting on the idea of pricing to infinity in the absence of sellers). Thanks again.

I hope we won't have to wait another two years for next interview.

Mike is such a fanastic interviewer, who contributes so much as he's inerviewing, it's only when he's interviewed, that you realize you've only been getting the readers digest version and thinking you we're reading the novel. (Apologies for that horrible grammar). It speaks volumes toward Raoul and Grant, as well as others behind the scene, that they are able to get Mike, Ed Harris, and others to conduct interviews for them.

Sometimes watching RV feels exactly like watching Black Mirror.

Excellent interview and thought provoking content. One of the best of 2019.

Super interesting! Thanks

When I listen to Mark Green, I always get a very humbling, almost buddhist like revelation: that I personally know absolutely nothing about the financial markets and have a very long way to go....:)

Jeez Louise! Target Date Funds and negative yielding bond ownership! Great chat boys

What a great Christmas present and what a great interview. Incredible.

I live in the UK and am a UK citizen, therefore a lot of Mike’s coverage of the markets is not “directly” relevant. However, IMO he is simply the best analyst in his field, period, where an interview “of” him every two years is way not often enough on RVTV. If I could save all of my “thumbs-up” for the year 2019 for one interview, it would be this one.

Absolutely fascinating! Thanks a lot!

Excellent discussion of points - holding up the gold standard. V. good mental models here - the marbles (prob. of hitting passive/active counterpart), the inter-generational selling active/buying passive - limit-up/down behavior because only batches be bought or sold, etc. etc. Really good - looking forward to the transcript to come out - to print and read again.

Raoul, wheres the doom loop?

Holy crap, mind blown. That analogy about the black and white marbles was such a good way to visualise and understand the consequences of so much money going into index funds. Mike Green does such an amazing job of explaining complex ideas in such an easy to understand concept. Mike Green every 2 and a half years is definite not enough! Please Interview him more often as this interview alone is worth the price of subscription.

Oh my god. Finally! Mike Green as a guest. I haven't watched it yet but I know it will be awesome.