April 5, 2023



Sometimes you don’t even know what to say. 

And I’m not talking about politics, geopolitics, the legal system, bills of attainder, the economy, the public fisc, wars, rumors of wars, storms.

Pick your thing.

Photo 82175923 / Artificial Intelligence © Maxuser2 | Dreamstime.com

I mean that during the month of March, according to Vanda Research and reported in the Wall Street Journal, trading by retail investors fell by half versus February.  At the same time (in the same article), flows to Money Market funds neared $200 billion, a record, says the Investment Company Institute.

According to data compiled by Yardeni Research from ICI data, there have been negative flows in US equities every week of 2023.  Negative flows are the same as outflows.

Two major banks have failed and CNN reported Mar 12 that banks are sitting on $620 billion of unrealized balance-sheet losses, the product of not having to mark them to market – unless they have to sell holdings.

Short Volume in S&P 500 stocks has been over 50% of trading volume since Feb 15 and has been below that level at all just 24 trading days in 2023.  Yet somehow the S&P 500 is up 7.4% YTD. The Communications Services and Technology sectors are up 21% each, Consumer Discretionary up 14.5%.


It follows a recurring theme.  It doesn’t matter if fund-flows are up or down in the stock market.  It matters WHERE the money goes.

And it follows a handful of equities.  Just eight big stocks scattered across those three sectors, AAPL, MSFT, AMZN, NVDA, TSLA, GOOG, GOOGL, META, are about 25% of the SPX.

Look how much they’re up.  TSLA and NVDA rose 90%. MSFT is up 20%, AAPL up 32%. AMZN up 20%. You can check the rest.

What’s more, Fast Trading machines comprising over 50% of trading volume in the S&P 500 amplify any move. 

A great example is AI, the company behind ChatGPT.  C3.ai was up 206% YTD before a short attack yesterday dropped it 26%.  But the trading patterns are effectively 100% machines since Mar 16.  Over 56% of daily trading is short – borrowed or created by market-makers.

And it traded 110,000 times per day the past 20 days on average, a number that rose to 170,000 the past five days.  Volatility was 8.6% daily the past month. It trades over $800 million of stock daily, including about $2 billion daily the two days before the short report.

And the whole world has been talking about artificial intelligence and large language models. Some countries have moved to ban it.  There’s a raging debate about the need for rules to address built-in human bias.

AI (the stock, not the acronym) has been the touchstone for how we think about the prospects and probabilities.

And ironically – proving a thing by its opposite – humans haven’t even been trading the stock.  It’s machines using AI. 

It’s amusing, but not for shareholders.

By our behavioral measures, rational people last outcompeted the machines to set price Dec 8. At $12.51. Not once have they done so (they were there but didn’t lead) in 2023.

Which means it was trading 170% higher yesterday than what humans had last indicated they were willing to pay.

That seems pretty important to know, especially if you’re a fiduciary to shareholders like executives and board directors are. 

What thing in your stock’s valuation, good or bad, is a product of AI that doesn’t reflect reality?

Is the market a good barometer for bank risk, economic risk, if money has been leaving it but stocks have been rising, driven by machines, and concentration?

These are the existential questions public companies and investors should, seems to me, be pondering. Rather than whether TSLA is a good deal at these levels or where to hold an Analyst Day in New York. 

As to the economy and the view on it from Jamie Dimon or Barry Sternlicht (people whose views I respect and follow), one thing is certain.  We don’t spend less than we make as a society.  If we did, we wouldn’t need a central bank.

And the party blowing the budget everywhere is Government, in the universal sense.

I heard Joe Manchin say on TV the other day that the law requires the House of Representatives to offer a budget by mid-February and the Senate and House to reconcile differences on it by the end of April.

Then the White House is to submit a budget to Congress by September 30, the end of the government’s fiscal year (why it’s not aligned with Congressional terms, since the House has the power of the purse, is illogical. But I digress).

“I can’t recall the last time any of that happened,” said Sen Manchin.

No wonder things are a mess.  At least the stock market is understandable, measurable. It’ll tell you the truth. But you have to know what it’s saying. 

If you’re confused, holler. We’ll help. We read what machines do.

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