October 11, 2023

Me and Mr. Jones

Would one expect stocks to rise and oil to fall amidst a declared war in the Mideast?

Our hearts, thoughts and prayers go out to Israel and our friends, colleagues and clients there (Ps 20:1, Ps 131:3).

Photo 143123931 | Israel © Inna Reznik | Dreamstime.com

Mathematically? The market was primed to rise, driven by Big Tech.  I wrote in the Market Desk note for subscribers at our EDGE platform Oct 2:

Big Tech has Demand at 1.9 for the second day, bottomed, and Supply is falling. Could be a turning point for Big Tech. If so, the whole market could rise.”

And the Demand/Supply balance in stocks pointed higher this Monday too, despite Hamas atrocities in southern Israel. And yesterday too, although the data could reverse. 

Lesson? Machines have not been programmed by humans to incorporate the implications of a war between Israel and Hamas. The machines go on doing what they do.

Are they correct?

No. Machines cannot interpolate common sense by sifting humanity’s thoughts through large language models.

The world is tenuous.

Paul Tudor Jones, hedge fund manager and founder of the Robin Hood organization that brings Wall Street together to fight poverty, said on CNBC’s Squawk Box yesterday that the United States is in the weakest financial position since WWII.

Then, we marshaled to stop global subjugation by Nazi Germany and Imperial Japan. The government ran up massive debts to its own citizens.  Then cut its spending dramatically after the war. By my count, over 80%.

We righted the ship.

Now, we’ve run up massive debts owed to everyone. Worst, we’ve just. Printed. Money.

That’s spending without borrowing. It’s stealing.  And we did it not to save humanity from despotism but to buy votes.

Call me callous if you like. Creating massive government programs that permit ever more people to rely on the few is not kindness and generosity.  It’s irresponsibility. It’s recklessness. It’s fecklessness. It’s foolish.

Paul Tudor Jones says we need to raise taxes on everyone – and it can’t be the 700 billionaires in the USA or the thousands of multi-millionaires, but the 160 million working everyday jobs (not to mention the 100 million not even in the workforce).

He says we need to cut $1 trillion of ANNUAL government expenses.

Who’s going to step forward and volunteer to take those cuts?

If we can’t do it, we’re in trouble.

Well, what do you think the odds are?

That threat exists every day for stocks and bonds.

I take you back to how we’ve let machines think for us, at the expense of common sense. We say the climate is an existential threat. Where’s the data showing humanity controls the weather?

By contrast, I can show you an entire discipline called “accounting” illustrating how we can direct our existential fortunes as a republic by spending less than we make.

Which brings us back to the stock market.  Let’s do some math.

According to economist Ed Yardeni, there are about 305 billion total shares outstanding in the S&P 500, down from a generational peak of about 328 billion in 2011. We’ve come down a billion shares a year for over a decade.

Companies are buying each other, buying back stock, faster than IPOs and follow-ons.

Look at ownership and trading. The average holding period, according to a Reuters study three years ago, is about six months among all institutions. Over 80% of S&P 500 stock is owned by institutions. The stock market averages about 10 billion shares traded daily.  There are about 255 trading days.

Do the math.

(Sound of clicking keys.)


Quast, are you suggesting the market trades 2.6 trillion shares annually?

No, I’m not suggesting it. It’s math.

If every institution held shares for roughly six months and there are 300 billion shares outstanding, and 80% are held by institutions, we could expect about 187 billion shares of turnover annually.

About 730 million shares daily.  Not ten billion.

What explains why the market trades more than nine times what supply signals?

I can give you the math.

I’ll share the concept here, for time.  The market’s trading activity doesn’t reflect its ownership.  There’s a great flurry of borrowing, trading, arbitraging.  About 2.4 trillion shares of it, give or take.

And so the stock market doesn’t reflect geopolitical or economic realities.


How much should you expect the market to reflect your financial realities? What then should you say in your earnings release?  Ask us. We’ll offer ideas.

And traders, do you read headlines or look at Demand and Supply?  I’d suggest the latter.

This is what I think, extrapolating the mathematics of the market to geopolitics and economics. There should be no Gaza Strip. The math doesn’t work.  And the USA should split into two, three, nine countries.

Why? All the states are free, sovereign. The federal government will never stop spending our money until we all crash and burn. Why not cut it loose before then?

Stew on those thoughts.  If you’ll excuse me, I need to go short the market. Or go long. Using math, not headlines.

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