The passive investing thesis looks unbreakable. Buy the S&P 500. Fall asleep. Wake up a millionaire.
@DiMartinoBooth says it breaks when the confluence hits.
AI leverage cracking. Private credit cracking. Baby boomers are retiring every day and stopping their 401k contributions. New entrants to the job market are decreasing and not opening new 401k plans.
"It's a real combination of the credit market conditions, demographics, and the magnitude of the bubble in the public markets."
And credit spreads? They look calm. They look tight.
But that calm is not what it appears to be.
There was no $2 trillion fixed-income passive universe during the last financial crisis. Today there is.
When redemptions hit the biggest high-yield or investment-grade bond ETFs, only the most liquid bonds get sold. The illiquid ones cannot be touched.
"What you see in credit spreads is a reflection of liquidity in the biggest traded names, which is not reflective of prior cycles."
Stanley Druckenmiller is worth $8.7 billion and says he use to puke “once or twice a week from the anxiety of the drawdowns” in his portfolio.
“Just get over it and move on.”