May 31, 2023


Odysseus needed ten years to get home and only his dog recognized him. 

We were three weeks in Greece (May 3-24) and visited Odysseus’s home (neither he nor his dog were in), and our dog thankfully still knew us on return last week. Here are 24 photos from the 5,000 spanning our Greek odyssey over most of May.

Speaking of history, do fundamentals matter?

Illustration 187244026 © Mariobread |

One fund manager on CNBC yesterday observed that there’s zero correlation between forward PE (price-to-earnings) and one-year stock-performance.

I’ve long said PE ratios are consequences, not metrics. Machines and models buy and sell baskets, not PEs. They’re 70-90% of volume, varying only on how one counts derivatives.

There’s a weekend WSJ article contending that quantitative money is behind market calm amid deteriorating economic data, rising interest rates and the debt-ceiling showdown in Congress.

Is the market calm?

I’d call it a spread trade. 

For 200 days, the stock market has been just over 50% short, more than half of all trading volume borrowed or created.  Short Volume is the Supply metric for stocks. The more it’s short, the harder it is for stocks to sustainably rise.

And since February options-expirations when bear bets on banks spiked, Sentiment, our measure of Demand, has averaged 4.9/10.0. You need 5.1 at minimum (5.0 won’t lift stocks).

Too much Supply, not enough Demand.  Not good for stocks.

Yeah, but Tim.  Stocks are up.

Well, the average stock in the S&P 500 has not risen this year.  Back out seven stocks, the S&P 500 is down.

Meanwhile, Tech stocks are up 32% year-to-date, Communications Services stocks have risen 30%, Consumer Discretionary, 18%.

The SPX is up about 10%, but only on seven stocks.

There’s your spread trade.  Short the market, lever long – or overweight – into whatever rises. And that’s what the money is doing. Not reading ESG reports, studying fundamentals.

NVDA is up 258%.  And NVDA hasn’t been below 5.0 on ModernIR’s Demand scale since Jan 10.

What if it’s that simple? Supply, Demand.

We expend colossal effort trying to understand, differentiate, explain, why this stock does better than that one, why my stock is down and my peers are up. 

It’s not the way the market works. Stocks are products.  Machines buy them.  Imbalances in Demand and Supply drive sharp, periodic dislocations.

Remember, NVDA lost the majority of its value – over 60% – between Dec 2021 and Oct 2022.

Maybe everyone should be measuring Supply and Demand?

DISH is the worst S&P 500 performer this year.  Over the 101 trading days thus far, DISH has spent five days at 5.0, 23 days over 5.0, and the rest below it.

Not enough Demand.  DISH Supply has averaged about 60% of trading volume and the trend is still rising.

No amount of storytelling will change that Supply/Demand balance.  DISH needs a catalyst that feeds Demand from machines. If there’s none, fine. But be realistic.

Machines see products. Not stories.

I was talking with the investor-relations officer for an Industrials midcap that’s up 27% this year. 

“We can’t get a meeting with a long-only at sellside conferences,” the IRO said.

Up 27%?  You’d think that would get some attention. And it does. From hedge funds.

“Our meetings are packed with hedge funds,” said the IRO.

I said, “Active stock-pickers aren’t raising capital to invest. They’re losing money to Passives. Do you take meetings if you don’t have money to deploy?”

Got that, issuers?

Hedge funds are winning with leveraged strategies. The average stock-picker is a seller, not a buyer, on fund flows.

Which brings us back to my description of the market as a spread trade – short the whole market, lever long into only the pockets that rise. It’s what quants are doing.  Passives merely overweight the basket toward index components that are rising.  Like NVDA.

Stock-pickers can too – but ONLY if they’ve got money to deploy. And they don’t.

Discouraged?  Don’t be! Just change your ways, as a trader, as an investor, as a public company.

Follow these simple rules:

  1. Measure what matters. We measure Supply, Demand, Volatility, liquidity (market cap, sector, key behavior too). When those are in your favor, your stock or stocks will rise.  When they’re not, they won’t.
  2. Know the cadence and calendar of the stock market. Borrowed money, derivatives, have reset dates at options-expirations, month-ends, quarter-ends. Tech lost its mojo at Nov 2021 options-expirations and got it back a year later at Oct 2022 expirations.  When’s the next change?
  3. Take action. If you’re investing, shift when the data shift and stop fixating on PE.  If you’re a company, know when you’re a 10 and when you’re a one, and COMMUNICATE it internally.

We can help with all three! 

Ancient Greece – with more leisure time than we’ve got so we’re doing something wrong – became arrogant, thought it knew everything, didn’t change.

Let’s learn, and travel on.  Our odyssey is staying relevant, adapting. Doing what we’ve always done means we’ll be leaving relics and ruins.  Let’s not.

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