Carson Block

The problem that that creates for markets.

is that especially with the S&P 500, so much of that is driven by flows.

So especially 401k retirement plan contributions from these knowledge workers.

And look, when you look at the S&P 500 index, I mean, it's kind of ridiculous that we use that as a proxy for the stock market because

And generally, two-thirds of the stocks are underperforming the mean of the index, and the mean of the index is really driven by a small number of companies that are outperforming.

But what has happened – and so here I reference work that –

a friend of mine named michael green or mike green of simplify asset management has done on passive investing and he's been banging this drum since probably 2019 or 2020 about how passive has warped markets so it's created this virtuous cycle whereby money goes in from paychecks every month

And what happens is these index funds, they buy stock at any price.

They're completely priced in elastic.

They remove supply of stock.

And so for the largest names in the index or the indices, and if you look at NASDAQ 100, same thing,

Those get the greatest share of every dollar that's allocated to the index.

And so by removing supply, they create this situation in which the stocks that receive the largest allocations, the impact on their prices becomes parabolic versus linear.

And that gets turbocharged with stock buybacks.

So this has been great for the most part.

I mean, 2022, there was a little bump in the road, but we're well past that.

So this has been fantastic for investors.

But the thing is, if you have, say, 15% of knowledge workers lose their jobs, they're not going to be able to replace that income.

They have credit card debt.

They have mortgages.