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"Fake news" is a particularly provocative concept applied to market forecasts now that central banks have destroyed free markets and free thought after the financial crisis. Guesses about where the market is going – and believe me, they are only guesses, some more educated than others – may appear to be grounded in facts and figures but ultimately tell us more about the psychology of the forecaster than anything meaningful about the markets.
Right now, there is overwhelming consensus among forecasters that 2017 is going to be a good year for stocks and a bad year for bonds. The fact that virtually no strategist, and certainly no strategist working for a large financial institution, is calling for stocks to decline should be taken with a grain of salt. They never call for stocks to decline (and if they do they are dismissed as "permabears" and treated with disdain). They are paid to publish bullish forecasts, which renders their advice worthless. Broken clocks can't tell time. Like large metropolitan newspapers (you know which ones I'm talking about) whose readership is plunging because news is freely available elsewhere and their tired editorial views are discredited by the experiences of their readers, Wall Street is digging its own grave through its own obvious inauthenticity.
That inauthenticity is especially toxic when it leads to passive investment strategies like this one.
This investment vehicle is the perfect product for a world of fake news, as it relies entirely on the suppression of individual thought. It is a disturbing rabbit hole of consensus thinking and if you fall down it, you may never find your way back out.
The ETF Phenomenon Distorts The Markets In A Dangerous Way
Inside ETFs is a massive annual ETF conference held every January in Hollywood, Florida. I attended it a couple of years ago when, in a momentary lapse of judgement that will not be repeated, I briefly considered managing a high yield bond ETF. Fortunately I came to my senses and abandoned the project. I have attended and spoken at many large investment conferences going back to the famous Drexel Burnham Junk Bond Conferences of the 1980s, but Inside ETFs ranks among the largest and most overheated conferences I ever witnessed. It reminds me – and this is not a good thing – of the securitization conferences of the 2000s held in Las Vegas (they were featured in the film The Big Short) that grew larger and larger until they (along with the mortgage industry) imploded during the financial crisis of 2008.
ETFs have come to play an outsized role in the markets; like virtually anything that Wall Street touches, they are prone to excess and unintended consequences. Passively investing in ETFs seems to be the order of the day though I strongly believe that active strategies in the right hands will always outperform passive investments o…
About the Author
Prominent money manager. Has built top-ranked credit and hedge funds, managed billions for institutional and high-net-worth clients. 29-year career.